The new Statutory Residence Test (SRT) will finally be with us from 6 April 2013 and should provide much needed clarity in determining an individual's UK residence status. However, some parts of the new test remain uncertain, most notably in the crucial question of where you have your home.
Broadly, provided you are not treated as automatically overseas resident, you will be UK resident if you have a home in the UK for more than 90 days; are present on at least 30 separate days during the tax year and, whilst you have that home, there is at least one period of 91 consecutive days (some or all of which falls within the tax year in question) when you either have no home overseas or none in which you are present for more than 30 days.
Therefore, deciding what constitutes a home and, if you have more than one, monitoring how much time you spend at each, will be of vital importance. Unfortunately the Revenue have acknowledged that defining "a home" exhaustively is too difficult. They assert that the vast majority of taxpayers will know whether and where they have a home and so they have provided only limited statutory definitions and guidance!
For those who do instinctively know where their home is, the legislation may muddy the waters a little. A home can be any part of a building, vehicle, vessel or structure with the requisite degree of permanence (e.g. a mobile home, houseboat) and you do not necessarily have to own any interest in it (e.g. living at a parents house may count). Further a property can still be your home even if you do not continually live there (particularly if your spouse or children remain in the property) or if it is temporarily unavailable (e.g. due to a fire or building works).
Somewhere used periodically as a holiday home or a temporary retreat is not a home. However, HMRC give an example in their draft guidance of the way in which a property can change from a holiday home to a home, which demonstrates some of the conceptual difficulties:
A woman lives and works in the UK but owns an apartment in Spain which she rents out apart from two to three weeks a year when she takes her holiday there. The Spanish property is not her home. However, she then decides to live in the Spanish apartment throughout the British winter, from October to March. Her use of the property has changed from being somewhere she used for an occasional short break to somewhere she uses as a home for part of the year.
This example may be quite clear cut, but what if she had decided to spend a shorter period there each winter (say two months)? Does this indicate that the Spanish property is a home she is living in or is it just a holiday home she is using for a longer period? To reach a conclusion you would need to consider all relevant circumstances, which has more in common with current methods for determining residence, rather than the easy to apply tick box test that it was hoped the SRT would supply.
Once you have worked out where your homes are, you then need to consider how much time you spend in each and over what period, which again may result in some surprising conclusions. A further Revenue example demonstrates the potential difficulties:
A man has lived in Australia all his life. In June 2012 he takes a holiday in London and likes it so much he decides to emigrate to the UK. He spends the next few months preparing for the move. He sells his Australian house (his only home) on 10 January 2014 and arrives in the UK on 25 January 2014. He finds a flat in London and moves in on 1 February 2014. The London flat is now his only home and he lives there for a year. During tax year 2013-14 he is present in his Australian home on 250 days, and he is present in his London flat on 55 days. There is a period of 91 consecutive days falling partly within tax year 2013-14 (the period starting on 1 February 2014) when he has a home in the UK and no home overseas. During tax year 2013-14 he is present in that UK home on at least 30 days. He does not meet the overseas residence test and is therefore automatically UK resident.
This is surprising, as he has only had a home in the UK for a couple of months in 2013-14 and for the majority of the year, his only home was in Australia.
The legislation is not yet final and it is hoped that the final draft will provide greater clarification. It does, however, seem clear that if you have a home in the UK you will have to pay close attention to these new rules, particularly where you spend your time outside the UK in a number of different countries.
This first appeared in our International Newsletter in March 2013.