Residence Rules For Individuals
From 6th April 2013 The UK government implemented new tax rules to regulate tax residency – Statutory Residence Test (SRT). We believe that these rules make the position clearer and easier to use in order to establish the tax residence position of a particular individual each tax year. It is worth mentioning that previously under tax legislation there was no statutory definition of "residence". Instead, it took its normal, everyday meaning. That interpretation was quite subjective and caused many complications. The new tax residency legislation took effect for individuals on 6th April 2013.
The SRT is split into three parts, namely:
- Automatic overseas tests
- Automatic UK residence test
- Sufficient ties tests
If the individual qualified as non-UK tax resident under one of the automatically overseas resident tests, he / she is not required to comply with the automatically UK resident test or the sufficient ties tests. If the tax position of individual is not clear under automatic overseas tests, he / she will need to refer to the next test and comply with automatically UK resident test after that if matters are still inconclusive the sufficient ties test.
In order to be definitely non-resident in the UK under the automatically overseas resident test, the individual should comply with one of the conditions below:
- If resident in the UK for one or more of the 3 tax years preceding the years
- spend less than 16 days in the year in the UK
- If resident in the UK for none of the 3 years preceding the years
- spend less than 46 days of the year in the UK
- If working full time overseas for the year
- spending less than 91 days of the year in the UK
- and having no more than 31 days in the year on which the individual does more than 3 hours work in the UK
- there is no significant break from the overseas work.
It should be noted that it can be full time in one employment or a combination of various jobs.
As we stated above if an individual is not able to identify his / her tax residency status in the UK under the automatically overseas resident test, they are then required to apply the automatically UK resident test.
Under this test, the following rules are applicable:
- spending 183 days or more in the tax year in the UK; or
- An individual has a home in the UK for more than 90 days in which the individual is present on at least 30 separate days in the relevant tax year. In addition, for 91 consecutive days, at least 30 of which are in the tax year, the individual must have no home overseas in which the individual is present on 30 separate days in the tax year. If the individual has more than one home in the UK, the test must be met in relation to at least one of those homes when considered separately from the other home(s)
- working full time in the UK (The individual must work sufficient hours in the UK over a 365-day period (average of 35 hours per week disregarding certain defined days where all or part of the 365-day period is in the current tax year) with no significant breaks from UK work. More than 75% of the days in the period when the individual does more than three hours work per day must be worked in the UK and the individual must work for more than three hours in the UK on at least one day in the current tax year).
When an individual does not meet any of the automatic overseas tests nor any of the automatic UK tests, the individual’s residence will depend upon the number of UK ties (or connections) the individual has, and the number of days spent in the UK.
The following ties must be considered:
- a family tie
- an accommodation tie
- a work tie
- a 90 day tie and
- a country tie
The Family tie applies if an individual has a relevant relationship with another person who is a resident in the UK for that tax year. As you can see it can be interpreted very broadly. So the tax authorities have confirmed their position on it, saying that a relevant relationship means husband or wife or civil partners if they are not separated; living together as husband and wife or, as civil partners, and children under 18. A special rule is applied for children under 18 years old, who are in full time education in the UK. Those children are treated as non-residents in the UK, if the time spent in the UK outside of the academic terms is less than 21 days. Also if a child in the UK can be a family tie for an individual, but if the parent sees his / her child for less than 60 days in the year, it will be discounted as a tie.
In respect of residential property, if this property is available to be used as a place of residence for 91 consecutive days, and it is used by individual for one night in the year, or in case of the homes of adult "relatives" at least 16 nights, it would qualify for the individual’s accommodation tie.
In respect of the work tie, if an individual works in the UK for at least 40 days (whether continuously or intermittently) in the year, it would be considered as a work tie. Working in the UK for a day, means doing more than 3 hours of work. Special rules are applied for workers in the transportation industry, who obviously can do more than 3 hours per day working in the UK, but they are non UK resident for tax purposes as they are being regulated differently.
The 90-day tie is regulated as following:
- More than 90 days in the UK in the tax year preceding the year in question, or the tax year before the tax preceding year, or in each of those tax years.
Calculation of days:
- If in the UK at the end of the day, it counts as a day in the UK
- Ignore transit days
- You can ignore "exceptional circumstances" up to 60 days maximum
- even if not in the UK at the end of the day it counts if there are
- you have 3 UK ties
- You spend more than 30 days in the UK but no at the end of the day
- You were resident in one of the 3 proceeding tax years
- Such days in excess of 30 counts as UK days
- This deeming rule does not count in deciding if 90 day test is satisfied for the purposes of the 3 ties in this test
- The deeming rule does not apply to other countries.
The last tie is the country tie, which basically means that there is no other country in which more days ended than in the UK.
Separate day counting applies for arrivers and leavers.
Arrivers (resident in none of preceding 3 tax years)
- non-resident - fewer than 46 days
- 46 - 90 days + 4 factors
- 91 - 120 days + 3 factors
- 121 - 182 days + 2 factors
- 183 days or more
Leavers (resident in the preceding 3 tax years)
- non-resident - fewer than 16 days
- 16 - 45 days + 4 factors
- 46 - 90 days + 3 factors
- 91 - 120 days + 2 factors
- 121 - 182 days + 1 factors
- 183 days or more
Although an individual can only be regarded as resident for a complete tax year, special rules (Split Year treatment) apply when an individual commences or ceases residence during the tax year. The tax year may be spilt into an overseas part and a UK part for certain purposes.
The concept of ordinary residence is abolished with effect from 6th April 2013. Special measures in the new rules eliminate for individuals the possibility of creating artificial short periods of non-residence, during which they receive a large amount of income (which accrued during periods of UK residence) free of UK tax and then bringing the income back into the UK tax free.
The above stated rules will help individuals to use the tests to self-assess their residence status. The aim is tests that deliver certainty, produce clarity and is as simple as possible.
We provide this information without liability and would always recommend a full consultation for individuals in order to establish their residence status in the UK.
Services we offer
We are pleased to able to offer the following taxation based services:
- A General tax consultation and/or specific tax advice;
- Tax planning for your general situation or for a specific transaction;
- Registration for National Insurance and Unique Tax Reference numbers;
- Preparation and submission of annual self-assessment returns;
- Preparation and submission of return for overseas landlords;
- Formation of UK and offshore companies in respect to an acquisition of the commercial property and administrative and accounting services for corporate entities.
All taxation services are arranged on a fixed fee basis with the fee to be charged agreed in advance of any work being undertaken.
For all questions regarding your business in the UK and tax planning, please contact our Business Consultancy team at Law Firm Limited on +44 (0)20 7907 1460 or via email