Tax residence is not an issue that most of give much thought to. As a British taxpayer you are subject to tax on your worldwide income and any capital gains unless you are not UK resident. So when you spend all or part of the year abroad the issue comes in to sharp relief as it can be fundamental to whether we are liable to UK tax or not. The Statutory Residence Test (“SRT”) determines whether you will be liable for UK income tax
The SRT rules can be complex in some circumstances and it is important to take proper advice if there is any doubt about your status. The UK HMRC has published a Guidance Note on the Statutory Residence Test and you can refer to this for detailed rules.
You should also remember that where you are living or working in another country for all or part of the year you may become resident in that country and potentially liable to their tax system whatever your status in the UK. The existence of a double tax treaty becomes very important to ensure you do not pay tax in both countries.
SRT determines your residence status – a status that applies for income tax, capital gains tax and inheritance tax purposes.
UK residency usually is determined by the number of days you spend in the UK in a tax year (6th April to 5th April). A day in the UK is counted if you are there at midnight, but there are exceptions including transit days, days spent in the UK due to ‘exceptional circumstances’ and the deeming rules.
If you meet any of the following conditions, you are automatically 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 no more than 90 days in the UK in the relevant year.
You are 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. 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.
- 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.
If your residence position is not determined by the above two tests, the number of days you can spend in the UK in the tax year without being UK resident depends on if you are an arriver or leaver, and the sufficient ties test needs to be considered. This looks at 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 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. The sufficient ties tests can be very broad in application and are generally subjective. As AES International point out:
“Always consider that it is in HMRC’s interests to prove you’re a UK resident and therefore liable to pay income and capital gains tax on your worldwide income. Therefore, if you’re in any doubt about your UK ties after reading the following, err heavily on the side of caution.”
The SRT rules are complex enough, but there are also cases in the year you either leave or return to the UK where a split year treatment may apply to you and any accompanying partner. If you are in the UK for part of a tax year and are UK resident for that part and therefore liable to UK tax and, you are overseas for part of the year these rules may need to be considered. There are 8 cases where this applies:
- Starting full-time work overseas
- Partner of someone starting full time work overseas
- No longer having a home in the UK
- Start to have a home in the UK only
- Starting full time work in the UK
- Stopping your full time work abroad
- Partner of someone who stops full time work abroad
- Start to have a home in the UK
If any of these apply you should check whether you are able to apply the split year treatment and whether it is advantageous to do so.
The SRT rules can appear clear cut, but you need to be sure that you are clearly non resident, if there is any doubt you should check the rules very carefully and take advice as the onus is always on the taxpayer to declare and pay any tax due.