Proposals for a new statutory residence test were published by HMRC on 17th June. They are to apply for income tax and capital gains tax - but not for national insurance contributions.
The test is (naturally) a bit complicated but certainly the proposals have the advantage of much greater certainty. Some of the definitions are a little vague, but this is still an improvement. (Mind you, anything is an improvement over the existing position which even the Treasury now describe as unclear, complicated and “seen as subjective”. That’s funny – they have been arguing for years that IR20 was clear and straightforward.)
These rules will supersede the existing rules and represent a complete code – but they will not have any relevance to the position prior to 2012/13, so the existing uncertainties will continue for a while.
The new proposal is for there to be a 3 part test. Part A can make you conclusively non-resident. Part B can make you conclusively resident. If neither of these conclude your position, you have to look at Part C where the number of days you are allowed in the UK will depend on the number of your connecting factors. The general idea is that someone who has been UK resident for 3 years will find it more difficult to shed UK residence status than someone who has not.
Part A - says that you will be conclusively NON-RESIDENT if:
- You were not resident in the previous 3 years and you spend fewer than 45 days in the UK in the tax year; or
- You were resident in any of the last 3 years and you spend fewer than 10 days in the UK in the tax year
- You leave the UK to carry out full time work abroad and spend less than 90 days in the UK in the tax year and no more than 20 days working the UK for at least 3 hours a day.
If you satisfy any of these tests you will be conclusively non-resident whatever else may happen.
If however you breach any of these limits you cannot satisfy Part A so you would not be conclusively non-resident. But that would not make you resident. It would just mean you have to move to the next element of the test which is in Part B.
Part B - says that you will be conclusively RESIDENT if:
- you spend more than 182 days in the UK; or
- have only one home which is in the UK (or only UK homes);
- carry out full time work in the UK.
If you satisfy any of the tests in Part B then you are definitely resident. (You do not get to Part B if you satisfy any of the tests in Part A. If you fall within both parts, then Part A takes priority and you are non-resident.)
But if Part A does not make you conclusively non-resident and Part B does not make you conclusively resident - you have to move on to Part C.
Part C - this provides 5 connecting factors for the UK:
- spouse or minor children being resident in the UK;
- the existence and use of accessible accommodation in the UK;
- substantive work done in the UK
- more than 90 days in the UK in either of the previous two years;
- more time in the UK than any other single country; (this is applicable to “leavers” only).
The importance of these factors depends upon whether you are an "arriver" (someone who was not resident for the last three years) or a "leaver" (someone who was resident in UK for any of the last three years).
An arriver will be resident by reference to a combination of day count and the connecting factors according to the following table:
Click here to see table
A leaver will be resident by reference to a combination of day count and the connecting factors according to the following table:
Click here to see table
The following points need to be taken into account when drawing conclusions from the above:
- Full time work in the UK means 35 hours a week for more than 9 months with no more than 25% of the duties outside the UK.
- Substantive work in the UK means 40 working days in the tax year.
- A working day is more than 3 hours – and counts whether or not you are in the UK at midnight.
- The statutory day (or rather night) count rules in Section 24 FA 2008 will apply in the same way to determine the number of days in the UK.
The proposals are likely to be revised before they come into force on 6 April 2012 – but maybe not too much.
The proposals for Ordinary Residence are much less well defined and again will only apply for income tax and CGT and not for NIC.
The plan is that a person who is resident will also be ordinarily resident unless they have been non-resident for the last 5 years.
The status of Ordinary Residence would be available for the tax year of arrival and possibly the next two tax years.
It is intended that the concept of Ordinary Residence will apply only to non-doms. There is an alternative proposal to abolish Ordinary Residence completely except for the taxation of earnings, preserving the remittance basis for overseas earnings.