Out-Law / Your Daily Need-To-Know

The statutory residence test (SRT), was introduced in 2013. It is designed to give taxpayers greater certainty and clarity as to whether or not they are UK-resident for tax purposes and therefore whether or not they are subject to UK income tax and capital gains tax. The aim of the SRT was to remove the uncertainty which existed in the law prior to its introduction.

This guide was updated in May 2016.

Although for some cases the new legislation will achieve the desired effect, making it easy to establish whether an individual is UK tax resident, there will still be a number of cases where the result is less certain. This is demonstrated by the fact that HMRC has issued 105 pages of guidance on how to apply the test.

The first year for which the SRT applies was the tax year 2013/14, ie 6 April 2013 to 5 April 2014.

The way the SRT works

The SRT is in three parts; the automatic overseas tests, the automatic UK tests and the sufficient ties test. The basic rule is that an individual is resident in the UK for a tax year and at all times in that tax year (although the effect of this rule is relaxed under split year treatment), if he does not meet any of the automatic overseas tests and he either:

  • meets one of the automatic UK tests; or
  • meets the sufficient ties test.

HMRC recommends that these tests are worked through in a particular order, looking initially at the first of the automatic UK tests, then at all of the automatic overseas tests, followed by the remaining automatic UK tests and only then, if the residence position is still not clear, considering the sufficient ties tests. However, it is simpler to consider each category in turn.

The Automatic Overseas Tests

There are four possible scenarios involved in this element of the SRT although one of them only applies if the taxpayer died in the tax year. If any of them are satisfied, the individual will automatically be not UK resident. 

  • the individual was not resident in the UK in all of the previous 3 tax years and is present in the UK for fewer than 46 days in the current tax year;
  • he was resident in 1 or more of the previous 3 tax years and is present in the UK for fewer than 16 days in the current tax year;
  • he works full-time overseas (with no significant breaks) and is present in the UK in the tax year for fewer than 91 days of which fewer than 31 are spent working for 3 hours or more;
  • he dies in a tax year in which he spent less than 46 days in the UK and he was not resident in the UK for either of the previous 2 tax years.

The conditions relating to full-time work overseas/full-time work in the UK do not apply to international transport workers. 

The Automatic UK Tests

If the above tests do not apply then if an individual meets any of the four conditions set out in the legislation, he will automatically be UK resident. The conditions are:

  • the individual is present in the UK for 183 days or more in a tax year;
  • he has a home in the UK for more than 90 days at which he is present on at least 30 days in the tax year and for at least one period of 91 consecutive days he has either no home overseas or if he does he is present at each of his overseas homes on fewer than 30 days in the relevant tax year;
  • he works full-time in the UK for at least 12 months (with no significant breaks);
  • he dies in the tax year and he had been resident in the UK for each of the previous 3 tax years (under the automatic UK residence tests) and when he died either his only home was in the UK or at least one was in the UK).

Any day on which an individual is in the UK at midnight is counted as a day in the UK, except in certain cases when they are merely in transit in the UK.

The conditions relating to full-time work overseas/full-time work in the UK do not apply to workers with "relevant jobs" who make six or more cross-border trips that begin or end in the UK in a tax year. 

In practice an individual will first consider the first condition for automatic UK residence since if he is in the UK for 183 days during the tax year all the other conditions are irrelevant. The next step is to consider the automatic overseas tests, since if any of those are met, the individual is automatically non-resident in the UK. The individual then needs to revert to the automatic UK tests since if any of those are met, he is automatically resident in the UK.

The Sufficient Ties Test

If it is not possible to determine whether an individual is resident by either of the sets of Automatic Tests, then it is necessary to consider the ties that an individual has to the UK. The fewer ties an individual has with the UK, the more days he can spend here without becoming UK tax resident. The number of days an individual can spend in the UK without becoming tax resident is different for "arrivers" (those who have not been resident in the UK for any of the preceding 3 tax years) and "leavers" (those who have been resident in the UK in that time frame).

There are 5 different scenarios which count as ties for this purpose.  These are:

  • Family - spouse/civil partner (unless you are separated) or minor children are UK resident;
  • Work - the individual undertakes work for more than three hours per day on 40 days or more in a  tax year;
  • Accommodation - a place to live is available for a continuous period of 91 days or more in a tax year and at least one night is spent there in that year, or at least 16 nights in the tax year are spent at the home of a close relative;
  • 90 day - the individual spent 90 days or more in the UK in either of the 2 previous tax years
  • Country - the individual spent more days in the UK than any other single country. This only applies to leavers.

The number of ties is compared with the number of days an individual spends in the UK to determine whether he is tax resident in the UK in any tax year as follows:

Days spent in the UK

Impact of ties on UK residence status

Arrivers

 

Fewer than 46 Days

Always non-resident

46 - 90 days

Resident if all 4 ties apply

91 - 120 days

Resident if 3 ties apply

121 - 182 days

Resident if 2 ties apply

183 days or more

Always resident

 

 

Leavers

 

Fewer than 16 days

Always non-resident

16 - 45 days

Resident if all 4 ties apply

46 - 90 days

Resident if 3 ties apply

91 -120 days

Resident if 2 ties apply

121 - 182 days

Resident if 1 tie applies

183 days or more

Always resident

Although there are broad definitions of the various ties set out above, the definitions used are complex and detailed and it is imperative that the legislation is consulted to determine whether any of the ties apply in the particular circumstances under consideration. HMRC has published guidance (RDR 3) to assist taxpayers in applying the rules and to help with interpreting the various terms. 

It should also be remembered that there are modifications to the tables if the individual dies during the tax year.

Exceptional Circumstances

As previously, if an individual is in the UK for 183 days or more in a tax year he will always be resident, irrespective of the reasons for his being here. However, when considering whether an individual is UK resident or not when his total days in the UK in a tax year are less than 183, it is possible to disregard up to 60 days spent in the UK due to "exceptional circumstances" beyond the individual's control. This is the first time that the number of days which can be treated as related to exceptional circumstances has been given a definitive limit other than the 183 day limit referred to above. Examples of exceptional circumstances include falling ill while in the UK and being unable to travel for a period, or the death of a spouse or civil partner whilst in the UK.

Anti-Avoidance

In addition, there is an anti-avoidance provision aimed at preventing those who were previously UK resident with a number of UK ties from spending a significant number of days in the UK without being present at midnight so that in the ordinary way of things those days would not be included in the residence day count. The result is that if an individual has been resident in the UK for 1 or more of the previous 3 tax years, has at least 3 ties with the UK and on more than 30 days in the tax year is present in the UK at some point but not at midnight, all such days in excess of 30 are counted as days resident in the UK. However these "deeming" rules do not count for the purpose of deciding whether an individual has a 90 day tie when checking whether he has 3 UK ties for the purpose of applying the deeming rule.

Transitional Rules

There are transitional rules which can be applied when an individual's residence position for the purposes of the SRT depends on his residence in years preceding the introduction of the test. The individual may apply the new rules to those years for the purpose of the SRT, but must use the rules that were in existence at the time when determining residence status for tax purposes to apply in those years.

Ordinary Residence

The concept of Ordinary Residence, which basically equated to an individual's normal place of residence as opposed to his residence in any particular year, was abolished from April 2013. Anti avoidance legislation which formerly applied only to those who were ordinarily resident now applies to all individuals who are UK tax resident.

Overseas Workdays Relief

This was a relief that could be claimed by expatriates on short-term secondment to the UK. It has been replaced by a new statutory relief.

Contact: Josie Hills