Statutory Residence Test - Tax Planning Guide

The new UK statutory residence test

On and after the 6th April 2013, a new statutory residence test came into effect. This determines whether an individual is resident in the UK for tax purposes or not.

The test was introduced to make it easier for those unsure of their residency status to clarify their UK tax position.

Background

The statutory residence test was announced by the UK Government during the 2011 Budget, however it was decided later that year to defer the introduction of the test until April 2013 so that many of the complex issues requiring careful consideration could be addressed.

Previous Rules

UK tax residence status was previously determined largely by court decision. Many factors were considered to determine if an individual was resident in the UK. Simply, if you were living in the UK for 183 days or more during a tax year, then you were seen as a UK resident. However there were exceptions to this where those spending less than 183 days in the UK were considered resident depending on the purpose of their stay and connections to the UK.

The Statutory Residence Test

The test follows the previous rules closely and outcomes achieved under the new rules are likely to be fairly similar. However, the test now includes a simplified three part structure:

• 1. An automatic overseas test determines whether or not you are automatically non-resident.
• 2. An automatic UK test determines whether or not you are automatically UK resident.
• 3. A 'sufficient ties' test determines the position of those not meeting either of the above. Residency is decided using a combination of days spent in the UK and the number and nature of any ties you have to the UK.

For more information see our guide: Tax Planning for Non-Residents & Non Doms