The statutory residence test
Residence is a hugely important concept for the taxation of individuals, as it has a profound effect on whether, and to what extent, they are subject to tax. This note summarises the complex rules which apply to determine residence for UK tax purposes.
Background
Prior to 6 April 2013, the rules for determining whether an individual was resident in the UK for tax purposes were largely based on cases decided around a hundred years ago. These cases had become hard to apply in practice, particularly given increases in international mobility. It was therefore difficult in some situations for an advisor to give a conclusive view on whether a client was, or was likely to become or remain, UK resident.
In response to this problem, the UK government introduced a statutory residence test (the SRT), which has been in force since 6 April 2013. The SRT is in some respects an improvement on the old rules, since it can be used to determine with much greater certainty when an individual will be regarded as UK resident. In particular, it avoids ambiguities under the old rules about what a UK resident individual needs to do, in terms of spending less time in the UK and/or severing links to the UK, to become non-UK resident. However, aspects of the SRT are hugely complicated, and the tests can be very difficult to apply in practice.
Structure of the SRT
The SRT determines residence status on a tax year by tax year basis. UK tax years run from 6 April one calendar year to 5 April the next. Under the SRT, an individual may be:
- conclusively non-UK resident, if certain conditions are met; or
- conclusively UK resident, if certain other conditions are met.
If the individual does not meet the conditions to be treated as conclusively resident or non-resident, his/her status is determined by the so-called ‘sufficient ties’ test. This takes into account whether the individual has been UK resident in previous tax years, the number of days he/she has spent in the UK in the relevant tax year, and the number of ‘ties’ to the UK that he/she has in the relevant tax year.
The residence tests: a simplified summary
| 1. The test for 'conclusive' Non-UK Residential Status | |
|---|---|
| Resident in any of the three preceding tax years? | The individual is non-UK resident if… |
| No | Fewer than 46 days in the UK |
| Yes | Fewer than 16 days in the UK |
|
Full-time work outside the UK The individual is non-UK resident if in the tax year all of the following conditions are met:
his/her days in the UK (whether working or otherwise) do not exceed 90. |
|
If none of the above conditions are met, then go on to…
| 2. The tests for ‘conclusive’ UK Resident Status |
|---|
| The individual is UK resident if spends 183 days or more in the UK |
|
Sole/main home in the UK The individual is UK resident if:
(a) the individual has no home outside the UK; or (b) he/she does have a home outside the UK, but in the relevant tax year is present at the non-UK home on fewer than 30 days. |
|
Full-time work in the UK The individual is UK resident if, in a 365 day period which overlaps to some extent with the tax year:
|
If none of the above conditions are met, then go on to…
| 3. The ‘sufficient ties’ test for UK residence | ||
|---|---|---|
| Relevant ties: |
|
|
| Resident in any of the three previous tax years? | Yes | No |
| Number of days in the UK required for residence (or permitted if residence is to be avoided): | ||
| With 4 or more ties | 16 (15) | 46 (45) |
| With 3 ties | 46 (45) | 91 (90) |
| With 2 ties | 91 (90) | 121 (120) |
| With 1 tie | 121 (120) | 183 (182) |
| Key terms | |
|---|---|
| Day | Generally, this means any day on which the individual is physically present in the UK at midnight. In general, days on which the individual is present in the UK are not counted if the individual is not present in the UK at midnight. However, there is an anti-avoidance rule which applies in certain circumstances, in which case a day on which an individual is physically present in the UK at any point, even if not at midnight, will be counted. |
| Home | This means a dwelling used with a sufficient degree of permanence to be regarded as a home, which can include a property occupied under a short-term tenancy. A home can be a property owned by some other person, e.g. one owned by a company or trust. The concept of a home differs from the concept of accommodation, which is even broader, and can include a hotel, if the same hotel is used for an extended period. |
