UK ordinary residence

17 July 2012 | Matthew Fox

HM Treasury has published draft legislation in relation to the abolition of ordinary residence for all tax purposes except for overseas workday relief.


In June 2011, as part of its proposal for a statutory definition of tax residence the Government set out its view for the future in relation to the concept of ordinary residence for tax purposes.

In its original consultation document, the Government set out two options:

  • The abolition of ordinary residence for all tax purposes apart from overseas workday relief (OWR).
  • The retention of ordinary residence for all tax purposes and the introduction of a statutory definition.

These are discussed more fully in our article ‘Ordinary residence – a look at the proposed new test’

Of those who responded, a clear majority favoured the first option on the basis that the concept of “ordinary residence” was outdated and unnecessary. However, respondents were clear in their support for the retention of OWR since its abolition would discourage expatriates from coming to work in the UK and create additional costs for employers of those who do.

The Government supports the retention of OWR and intends for it to be available for non domiciled individuals with the exception of those who are “based” in the UK and who will continue to be based in the UK beyond the end of the second full tax year following the year in which UK residence was established (the “three-year point”).

It is proposed that being UK-based beyond the three-year point can reasonably be assumed where;

  • a home is purchased in the UK;
  • an understanding is reached that employment duties will be performed in the UK beyond the three-year point; or
  • the individual enters into other commitments in the UK that indicate being based in the UK beyond the three-year point.

Currently it is possible, although unusual, for UK domiciled individuals to be regarded as not ordinarily resident and therefore eligible for OWR. The Government’s view is that there is little justification for this to continue. It has not been convinced by arguments put forward for the retention of OWR for UK domiciled individuals and has confirmed that it will restrict OWR to individuals who are not domiciled in the UK.


The Government has reiterated that the current “intention to settle” test for determining ordinary residence (and therefore ineligibility for OWR) is too subjective and uncertain. While the proposed indicative factors go some way to removing the subjectivity and uncertainty, it seems that an international assignment can very easily be structured such that none of those factors are present.

For further information or to discuss the issues raised, please get in touch.

The author

Matthew Fox
Senior Consultant
Global Mobility - UK & US
Individual income and employment taxes
D: +44 (0) 207 036 8386
T: +44 (0) 203 051 5711
F: +44 (0) 203 051 5712

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