New UK Tax Residence Test Now In Effect
The UK finally has a Statutory Residence Test, which came into effect at the beginning of the new UK tax year on 6th April. This is important for all British expatriates who spend time in and/or maintain ties with the UK. If the test establishes that you are UK resident, then you are liable to pay income and capital gains tax in the UK on your worldwide income and capital gains.
Until now, the concept and definitions surrounding the term ‘residence’ were not defined within UK legislation. This meant that taxpayers had to rely on previous case law and HM Revenue & Customs guidance (the latest version being HMRC6) to determine their residence position. The rules contained many grey areas. Some taxpayers inadvertently fell foul of these, and HMRC won some high profile court cases on this issue, leaving the taxpayers in question with high, unexpected tax bills.
The new Statutory Residence Test supersedes all previous law, cementing the concept that connecting ties with the UK are very important in deciding residence.
The new test provides much more certainty, but is not simple. HRMC’s guidance notes run to 55 pages, and it is more complex than originally appears. For certainty on your tax residence status you should ask a qualified adviser to confirm your situation. You also need to take the local Spanish residence rules into account, so speak to a firm like Blevins Franks which is based in both countries and fully understands how the two tax regimes interact.
From now on, to assess your residence status, you need to work through the following three tests in the order shown. The first test is absolute, and trumps all other tests, so if you are non-UK resident under this test, the other two will not apply. If the second applies, the third is ignored.
1.The automatic overseas test
2.The automatic residence test
3.The sufficient ties test
Whether you are an ‘arriver’ or ‘leaver’ plays an important part, and this is based on your residence status the previous three years. To determine residence for years prior to 2013/2014, the old rules as set out in HMRC6 continue to apply.
Note that all references to “years” are a UK tax year, and a day in the UK is counted if you are there at midnight.
Automatic overseas test
If you meet any of the following conditions, you will automatically be treated as not resident in the UK:
You were not resident in the UK in any of the previous three UK tax years, and are present in the UK for fewer than 46 days in the current year.
You were resident in one or more of the previous three years, and present for fewer than 16 days in the current year.
You work overseas full time and spend no more than 30 days working in the UK (work day = three or more hours), and spend no more than 90 days in the UK in the relevant year.
Automatic residence test
You will be automatically treated as resident in the UK if you meet any of the following conditions:
You spend at least 183 days in the UK in the current tax year.
Your only or main home is in the UK.
You work full time in the UK for at least 365 days without a significant break from work of 31 days or more, subject to certain conditions.
An “only or main home” is property available to be used by you for at least 91 days, if you have actually used it for 30 separate days or more.
Sufficient ties test
If your residence position is not determined by the above two tests, the number of days you can spend in the UK in the relevant tax year without being UK resident depends on if you are an arriver or leaver, and the number of connecting ties you have with the UK. These are:
Family – spouse and/or minor children live in the UK
Accessible accommodation – if available to you for at least 91 days and you spend just one night there
Work – if you spend 40 or more days working in the UK
90 days – if you spent 90 days or more in the UK in either of the two previous tax years
Country – if you spend more days in the UK than any other single country (only applies to ‘leavers’).
This test operates on a sliding scale, so that the more ties you have with the UK, the less time you can spend onshore without becoming UK resident. Conversely, the fewer ties you have, the more days you can spend there before becoming UK resident.
There will be a statutory basis for days spent in the UK due to “extraordinary circumstances”, up to a maximum of 60 days. However, this only applies where the individual has no choice and circumstances are unforeseen and beyond their control. Visiting a relative who is ill or dying is unlikely to be seen as a situation where there is no choice about being in the UK.
Split year treatment
The statutory residence test outlines five circumstances in which an individual may be able to claim split year treatment.
For peace of mind about your tax residency status, and which taxes you should be paying and where, speak to an experienced advisory firm to British expatriates like Blevins Franks. They will also be able to guide you on the solutions for improving your tax position.
The tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; an individual should take personalised advice.