The Government has issued its proposals for a statutory residence test (“SRT”) for individual taxpayers.
It is widely accepted that the current rules do not provide certainty in all cases and suffer from too great a level of subjectivity. However, while the proposed SRT may well have some success in meeting its aim of providing a “clear outcome”, it is more doubtful that it will achieve the aim of providing “a simple process”.
The proposed SRT comes in three parts:
Part A
Part A will conclusively determine that an individual is not resident in the UK. In the application of Part A, the proposal makes a distinction between three classes of taxpayers;
1. “Arrivers” – individuals who were not UK resident in all of the previous three tax years
2. “Leavers” – individuals who were resident in one or more of the previous three tax years
3. “Full time workers abroad” – individuals who work abroad for at least a tax year, do a 35 hour working week and spend less than 20 days working in the UK.
- An arriver will be not resident in the UK if they are present in the UK for fewer than 45 days in the tax year in question.
- A leaver will be not resident in the UK if they are present in the UK for fewer than 10 days in the tax year in question.
- A full time worker abroad will be not resident in the UK if they are present in the UK for fewer than 90 days in the tax year in question.
Establishing non residence will be deliberately more difficult than establishing residence in the UK. That is understandable since the principle that residence should have an “adhesive nature” is a sound one. However, it would also be understandable if someone who leaves the UK to work abroad for 30 hours a week felt aggrieved by being restricted to 80 fewer days in the UK under this test than someone working abroad on average one more hour a day. It may be especially galling that an employment with a 6 hour day average is not deemed to constitute full time employment while a working day is defined as any day on which three hours or more work is carried out.
Part B
If the individual is not conclusively not resident in the UK under Part A, they must consider whether it can be determined under Part B that they are conclusively resident here. They will be conclusively resident in the UK for the tax year in question if they:
- are present in the UK for 183 days or more; or
- have only one home and that home is in the UK (or if they have more than one home, all are in the UK); or
- carry out full time work in the UK.
Part C
Where conclusive non residence or residence is not established under Part A or Part B, an individual must turn to Part C. This part combines day counting with the individual’s connections to the UK, with the principle that the greater the number of days of UK presence, the fewer connections they can have with the UK if they are to be not resident here. The connection factors are restricted to five in number.
- Family – the individual’s family is resident in the UK
- Accommodation – accessible accommodation which is used as such during the year
- Substantive work is performed in the UK
- UK presence in previous year
- More time in UK than any other country
Again, the distinction is made between arrivers and leavers as in Part A. For an arriver, the last of the connection factors above is not considered and their status is determined in accordance with the table below.
| Days spent in UK | Impact of connection factors on residence status |
| Fewer than 45 days | Always not resident |
| 45 – 89 | Resident if individual has 4 factors or more (otherwise not resident) |
| 90 – 119 | Resident if individual has 3 factors or more (otherwise not resident) |
| 120 – 182 | Resident if individual has 2 factors or more (otherwise not resident) |
| 183 days or more | Always resident |
For a leaver, their status is determined in accordance with the table below.
| Days spent in UK | Impact of connection factors on residence status |
| Fewer than 10 days | Always not resident |
| 10 – 44 | Resident if individual has 4 factors or more (otherwise not resident) |
| 45 – 89 | Resident if individual has 3 factors or more (otherwise not resident) |
| 90 – 119 | Resident if individual has 2 factors or more (otherwise not resident) |
| 120 – 182 | Resident if individual has 1 factors or more (otherwise not resident) |
| 183 days or more | Always resident |
Commentary
The Government claims that the framework above will allow individuals with a more complicated situation to assess their residence status with ease and without the need for specialist advice. However, this is somewhat undermined by the fairly detailed definitions that they feel are necessary for the connections above and for other key terms as well as the quite comprehensive online tool that has been developed to assist individuals in making that assessment.
The Government’s rejection of a “day count only” statutory residence test in favour of a day count/connecting factors test was because it felt that a “day count only” test would lead to manipulation by individuals of their days in the UK in order to become or remain not resident here. The proposed SRT will not bring an end to individuals ordering their affairs in such a way that they that achieve non residence (or residence) status in the UK though it may make it more difficult. What this proposed test may do is increase the number of people who are resident in more than one country at the same time thereby increasing the occasions that taxpayers must turn to the “tie break” clause of the relevant tax treaty which, in itself, can be problematic.
Finally, it should be noted that the test will not apply where residence is separately defined, such as in the calculation of national insurance contributions (NICs). Given the recent indication that the merging of income tax and national insurance is again up for consideration, this is likely to be something that is revisited.
(The proposals on changes to the concept of ordinary residence and will be covered in a separate article).
For further information or to discuss the issues raised, please contact John Mooney on +44 (0) 20 3051 5711.
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