In a series of articles for the Cayman Financial Review I have explored the long awaited statutory residence test which is to be introduced in the UK from 6 April 2013. After a lengthy delay and an extended consultation period we finally have draft legislation. Quite a few changes have been made from the original proposals.
The bad news is that the rules are even more complicated than originally proposed but the good news is that most of the day count numbers have been increased to some extent to the benefit of the taxpayer.
Readers of previous articles on this topic will appreciate that the current residence rules in the UK are uncertain and have caused real difficulties for expats and for those coming to and leaving the UK.
The new rules do give some certainty but I must stress that the new rules are complex (overly so) and this article is intended as only a broad overview and simplified to highlight the key features and some of the potential traps. It is vital to consider the final legislation in detail (there could still be some minor changes before Parliamentary approval next year) to see how those rules apply to your specific circumstances.
The new rules are essentially split into three parts:
- Automatic overseas test
You will definitely not be resident in the UK if:
You were not resident in the UK in all of the previous three tax years and are present in the UK for fewer than 46 days in the current tax year; or
You were resident in the UK in one or more of the previous three tax years and you are present in the UK for fewer than 16 days in the current tax year; or
You leave the UK to work abroad full time in the tax year, with no significant breaks, and in the tax year you spend fewer than 91 days in the UK and fewer than 31 days working in the UK (a day of “work” is one where you spend more than three hours working and can include a day of departure from the UK).
- Automatic residence test
You will definitely be resident in the UK if:
You are present in the UK for 183 days or more in a tax year; or
You have a UK home where you spend more than 30 days in a tax year and you either have no home overseas or spend less than 30 days in each home that you do have overseas; or
You carry out full time work in the UK for a period of 365 days, with no significant breaks, and more than 75 per cent of the work is in the UK.
- Sufficient ties test
If you are neither automatically UK resident or automatically non-UK resident under the above tests then you need to consider this third test. The rules that apply depend on whether you have been resident in the UK in one or more of the three previous tax years. You then need to consider how many days you can be present in the UK by reference to the number of ties you have with the UK.
The ties are:
- A family tie – if you have a relevant relationship with another person who is resident in the UK. A relevant relationship exists between you and your spouse or civil partner (unless separated) and with minor children. A minor child does not count for these purposes if you see them on fewer than 61 days in the UK in the tax year or if they are in full time education in the UK and, broadly, they return home overseas during school holidays;
- An accommodation tie – if you have a place to live in the UK, irrespective of ownership, and that place is available to you for a continuous period of at least 91 days and you spend at least one night in that place;
- A work tie – if you work in the UK for at least 40 days (doing more than three hours of work on that day);
- A 90 day tie – if you have been present in the UK for more than 90 days in either of the previous two tax years;
- A country tie – if you spend more midnights in the UK than in any other single country. Note that this final tie is only relevant if you have been resident in the UK in one or more of the three previous tax years.
The tables then apply to determine residence.
If you were not resident in the UK in any of the three preceding tax years:
|Days spent |
in the UK
|Number of UK ties that are sufficient |
for UK residence
|46 – 90 days|| All 4 ties |
|91 – 120 days||At least 3 ties|
If you were resident in the UK in one or more of the three preceding tax years:
|Days spent |
in the UK
|Number of UK ties that are sufficient |
for UK residence
|16 – 45 days||At least 4 ties|
|46 – 90 days||At least 3 ties|
|91 – 120 days||At least 2 ties|
|121 days or more||At least 1 tie|
Some important points to note
- There are lots of definitions, for example, “days spent”, “home”, “work”, “full time” and these must be carefully considered if applicable to your circumstances. The definitions of “family tie”, “accommodation tie” and “work tie” for the sufficient ties test are complex and there are some mismatches between definitions. For instance, a holiday home is not regarded as a “home” but may be regarded as “accommodation”.
- An individual is doing “work” if they are performing the duties of their office or employment, or, in the case of the self employed, doing something in the course of their trade. A very broad definition. As noted above, if you do more than three hours of work then that day counts as a “working day” for the purpose of the rules. Unfortunately the proposal to extend this to five hours was not incorporated in the draft legislation.
- Special rules apply in the year of death.
- There are complex split year rules that apply if you come to or leave during the year to break the tax year up into resident and non-resident periods. These must be carefully considered.
- There is an ability to ignore up to 60 days spent in the UK because of “exceptional circumstances” – principally a sudden or life threatening illness or injury but also war, civil unrest or natural disasters.
- Usually the day count test is based on midnights in the UK but if you spend more than 30 separate days in the UK when you arrive and depart on the same day then those days can still count as days in the UK if you also have three UK ties in that tax year and have been UK resident for at least one of the three preceding years. This could be important for those expats who have previously used the Channel Islands as a base to go to and from the UK on the same day so that those days do not count.
Action to take if you wish to remain non-UK resident
- Consider the rules carefully and how they apply to your circumstances. There are lots of different day count tests. Take advice or read the terms of the final legislation itself and do not rely on summaries of the rules as there are quite a few pitfalls for the unwary and lots of conditions attached.
- Restrict work on any day in the UK to three hours and properly document this by reference to a detailed diary, email and telephone records. Evidence is vitally important.
- Err on the side of caution in deciding what is and what is not work.
- Take care if using the Channel Islands as a base to visit the UK.
- If you do not fit into the automatic overseas test keep a close eye on ties to the UK and the corresponding allowable day counts. It is easy to get this wrong and to miscount days or apply the wrong test. The number of ties may also change from year to year. Leavers in particular may have very restricted day counts for a couple of years after their departure from the UK.
There are likely to be some individuals who can stay longer in the UK and some who must reduce their current day count in the UK to maintain their non-UK resident status when compared to the existing “rules”, so great care will be needed following the introduction of the new rules.
There will also be some expats who must seriously consider what “work” they do in the UK and the records they need to keep to demonstrate that. In order to reduce UK connecting factors careful consideration will need to be given to the ownership and availability of homes and other accommodation both in the UK and overseas and the time spent in other countries. Caution is required – you have been warned!