Non-Resident Tax: Statutory Residence Test Explained

Get ready for the new Statutory Residence Test

THE GOVERNMENT is hoping to introduce a statutory residence test from 6th April 2013 and recently released some new proposals.

The proposed statutory residence test should (hopefully) make it a lot easier to determine your residence status and hence where you stand when it comes to paying UK tax.

The statutory residence test distinguishes between UK ‘arrivers’ and ‘leavers’:

• An arriver is someone who was not UK resident in all of the previous three tax years.

• A leaver is someone who was UK resident in one or more of the previous three tax years.

Part A – Conclusive Non Residence
Part A of the test lists three situations that conclusively establish that an individual is non-resident for the tax year:

• The individual is an arriver and is present in the UK for fewer than 46 days during the tax year, or

• The individual is a leaver and is present in the UK for fewer than 16 days during the tax year, or

• The individual leaves the UK to carry out full-time work abroad, provided:

• They are present in the UK for fewer than 90 days during the tax year, and
• No more than 20 days are spent working in the UK in the tax year (may be increased to 25 days)

If you satisfy any of the above three conditions for a tax year you would definitely be not resident in that tax year.

A working day is any day in which three or more hours of work are carried out (may be increased to five hours).

Full-time work means 35 hours or more work per week on average. The work must be carried out for at least one full tax year.

Part B – Conclusive Residence
If Part A does not apply, the individual will definitely be resident for the tax year under Part B if they meet any of the following conditions:

• They are present in the UK for 183 days or more during the tax year, or

• They only have one home and that home is in the UK (or they have two or more homes and all of them are in the UK), or

• They carry out full-time work in the UK.

A home need not be a property that you own – it includes rented accommodation.

Individuals who have a home in the UK and a home overseas will not meet the only home condition and will not automatically be UK resident.

Where an individual is in the process of selling a home, it will not continue to count as a home after they have moved out of the property.

An individual may be classed as working full time in the UK if they are employed or self-employed in the UK over a continuous period of 9 months (may be increased to 12 months), and no more than 25 per cent of their duties are carried on outside the UK.

Part C – Other Connection Factors
If none of the conditions in Part A or Part B are satisfied, the individual should determine their residence status using Part C. Part C takes into account the individual’s UK connections and the number of days spent in the UK.

The basic idea is that, if you want to spend more time in the UK and be treated as non-resident, you must reduce your UK connections.

UK connection factors include:

• Family – the individual’s spouse or common-law partner (unless separated) or minor children are UK resident.

• Accommodation – the individual has accommodation that is available to be used by them for a continuous period of at least 91 days in a tax year and the individual spends at least one night in that place during the tax year. Includes rented accommodation.

• Substantive work in the UK – includes employment and self-employment; substantive means 40 days or more.

• UK presence in previous year – more than 90 days in either of the previous two tax years.

• More time in UK than other countries – the individual spends more days in the UK in the tax year than in any other single country.

These connection factors are then combined with days spent in the UK to determine residence status. There are different scales for arrivers and leavers, based on the principle that it should be harder to lose UK resident status than to acquire it.

Arrivers – Not Resident in All 3 Previous Tax Years
The connection factors will generally be combined with days spent in the UK as follows:

Days in UK                Residence status
Under 46 days              Always non-resident
46 – 90 days                Resident if 4 connections
91 – 120 days              Resident if 3 or more connections
121 – 182 days            Resident if 2 or more connections
183 days or more        Always resident

Leavers – Resident in One or More of Previous 3 Tax Years
The connection factors will generally be combined with days spent in the UK as follows:

Days in UK                Residence status
Less than 16 days       Always non-resident
16 – 45 days                Resident if 4 or more connections
46 – 90 days                Resident if 3 or more connections
91 – 120 days              Resident if 2 or more connections
121 – 182 days            Resident if 1 or more connections
183 days or more        Always resident

Finally, please note that many of the terms used in this article have complex definitions and there is more to the test than can be covered in a short article.

Furthermore, the proposed test is not in force yet and is still under consultation, so further changes could be made.

Ordinary Residence

The Government has confirmed that it plans abolish the concept of ordinary residence from 6th April 2013.

This may mean that some individuals are no longer able to claim the remittance basis from 2013/14 onwards: namely those who are UK resident and domiciled but currently classed as not ordinarily resident in the UK.