It has been apparent for some years that the existing UK residence test, based not on statutory rules but on outdated case law and HMRC guidance which cannot be relied on, is not fit for purpose in the 21st century. HMRC was finally persuaded of this last year and began the consultation process which it is now envisaged will lead to a new statutory test coming into force in April 2013. There are still some details on which HMRC is consulting further but the shape of the new test now seems fairly clear.
An individual’s residence status is to be determined by considering three sets of tests. The first two set out factors which, if satisfied, lead to an individual being conclusively UK resident or non-UK resident. If neither of these sets apply, consideration has to be given to how many ties the individual has to the UK, and this determines the number of days which the individual has to spend in the UK to be UK tax resident.
The rules will in general be clear and objective but, as can be seen from the above summary, not exactly simple!
They are intended to produce the same results as the existing test for the majority of taxpayers, so those who are in the UK for 183 days or more in a tax year, who have their only home in the UK or who work full time in the UK will be conclusively UK resident. What constitutes full time work is one of the points on which HMRC is inviting further responses – and what constitutes a home is also the subject of some concern. The tests for conclusive residence are more generous to those who have not been UK resident in any of the three previous years in that such individuals will not be UK resident in any year when they are in the UK for fewer than 46 days. However, those who were UK resident in any of the past three years will only be conclusively non resident if they spend fewer than 16 days in the UK in any tax year. A full time job abroad with no more than 90 days in the UK (of which fewer than 21 are working days) will also lead conclusively to non UK residence.
For those whose residence is not determined by these tests, it is necessary to consider how many of five possible ties to the UK they have. Relevant ties are a family tie (broadly the residence of a spouse or partner, but also the residence of a minor child in some cases), an accommodation tie (broadly accessible, but not necessarily owned, accommodation in the UK), a work tie (40 days or more working in the UK), a 90 day tie (having been in the UK for more than 90 days in at least one of the two previous year) and, for those leaving the UK only, a country tie (spending more time in the UK than in any other country).
Once the number of ties is established, it is necessary to apply a day count test – so for example someone who has not been UK resident in any of the three previous years and who has two ties will not be UK resident in a particular tax year unless he spends 121 days or more in the UK. By contrast, if he has four ties, he will be UK resident if he spends 46 days or more in the UK in the tax year. The periods for those who have been UK resident in any of the three previous years are much shorter – a taxpayer with two ties will only be non UK resident if he is in the UK for fewer than 91 days, and one with four ties will be resident if he spends 16 days or more in the UK.
The new rules will also give a statutory basis to the previous practice of allowing taxpayers to split years between periods when they are UK resident and periods when they are not.
Those who spend time in the UK but who hope to remain non UK resident in future years should now be considering their position.