On 11 December 2012, the Government published draft legislation establishing a statutory residence test for individuals coming to and leaving the UK. The new test is expected to take effect from 6 April 2013 and will determine an individual’s liability to UK income tax, capital gains tax and (in some cases) inheritance tax. Many of the new provisions differ from the current residency rules and existing non-UK residents who expect to spend some time in the UK in tax year 2013/14 should check whether the new test will affect them.
At present, the UK does not have a statutory test to establish UK residency. We have a combination of case law, some statutory provisions and non-binding guidance from H M Revenue and Customs. The rules are complex with many “grey areas” meaning taxpayers cannot always be certain how their tax affairs will be assessed.
The new rules seek to produce a test that taxpayers can use to provide a conclusive answer on whether they are UK resident from one tax year to the next.
The new rules
The new statutory rules consist of three separate tests:-
- an automatic non-residence test;
- an automatic residence test; and
- a “sufficient ties” test.
If you satisfy the non-residence test, you will be classified as non-UK resident. Otherwise, you will need to look at the second two tests and if you satisfy either one, you will be regarded as resident in the UK for tax purposes.
Automatic non-residence test
You will be classified as non-UK resident in tax year 2013/14 if any of the following apply:-
- you were resident in the UK for one or more of tax years 2010/11, 2011/12 or 2012/13 and spend fewer than 16 days in the UK in 2013/14;
- you were resident in the UK for none of tax years 2010/11, 2011/12 and 2012/13 and spend fewer than 46 days in the UK in 2013/14; or
- you work full-time overseas in 2013/14 and spend fewer than 91 days in the UK of which fewer than 31 days are working days.
There is a further test that applies to determine a deceased individual’s tax liability and there are particular definitions for what constitutes a “day spent in the UK” and a “working day”. To determine residence in preceding tax years (for this and the tests below), the prevailing rules for that year apply; however, you can elect for the new rules to apply if this would be beneficial.
Automatic residence test
You will be classified as UK resident in tax year 2013/14 if any of the following apply:-
- you spend 183 days or more in the UK;
- you have a home in the UK for a period of more than 90 days, are present there on at least 30 separate days during the tax year and, while you have that UK home, there is a period of 91 consecutive days when you have no home overseas or you have one or more homes overseas in none of which you are present for more than 30 days during the tax year; or
- you work full-time in the UK for 365 days or more with no significant break, all or part of that work period falls within 2013/14 and more than 75% of the total number of days in 2013/14 that are working days, are working days spent in the UK.
There is a fourth test applicable to deceased individuals. “Home” has no statutory definition so care must be taken that any place you use when in the UK cannot be classified as such. The guidance available suggests that genuine holiday homes and temporary retreats will not be caught but this is subject to conditions.
Sufficient ties test
This test looks at your ties to the UK. These are listed below with reference to tax year 2013/14.
- Family tie: Your spouse, civil partner, cohabiting partner or minor child is UK resident in 2013/14. There are exceptions for minor children who are in the UK for full-time education or who you visit in the UK for fewer than 60 days.
- Accommodation tie: You have accommodation available to you for 91 days or more in 2013/14 and you spend one or more night there (or 16 or more nights if the accommodation is that of a close relative).
- Work tie: You do more than three hours work a day in the UK for at least 40 days in 2013/14.
- 90 day tie: You spend more than 90 days in the UK in either or both of 2011/12 and 2012/13.
- Country tie: The UK is the country in which you are present for the greatest number of days in 2013/14. This tie only applies if you are resident in the UK for one or more of 2010/11, 2011/12 or 2012/13.
The number of “ties” that are sufficient to make you UK resident depend upon whether you have been UK resident for any one of the last three tax years (a “recent UK resident”) and how many days you have spent in the UK. The table below shows how many ties will be sufficient to establish UK residency in any of the given periods:-
Click here to see table.
If you believe yourself to be non-UK resident but expect to spend some time in the UK in tax year 2013/14, you should consider how the new residency rules will impact upon you.
In addition, if you were non-UK resident in 2010/11 and 2011/12, you should take any steps possible to prevent yourself being UK resident in this tax year (2012/13) as residency in this year will make it more difficult for you to avoid being caught under the new rules in 2013/14. Time is running out but there may still be steps you can take.