Since 6 April 2013, a person’s UK resident status has been determined in accordance with the ‘Statutory Residence Test’ (SRT). The official rationale for introducing the SRT was to legislate for the residency test. The tests were well established for over three decades. A cynical person might believe the SRT was introduced to completely change how residency was determined.
The SRT first applies a series of tests to consider whether a person is automatically a non-resident. If the first set of tests are not met, it then considers whether the individual is conclusively a resident in the UK. Finally, if neither of the first two tests are met it considers whether there are enough connections with the UK for the individual to be deemed a UK resident.
Under the SRT an individual is either a UK resident or a non-UK resident for a full tax year and at all times during that year regardless of when they first arrived in the UK. However, if during a year you either start to live or work in the UK it is possible to split the year into two parts – a period during which you are a non-UK resident and a period during which you are a UK resident. This is known as the ‘split year treatment’.
It is possible to be a tax resident in more than one country.
It is understood that you have worked full time overseas and the last time you were a UK resident was approximately 25 years ago. You spent 90 days in the UK in the last fiscal year and plan on returning to the UK after ceasing full time overseas work.
Automatic UK Tests
First automatic UK test: Did you spent more than 183 days in the UK in the tax year?
Second automatic UK test: Have you had a home in the UK during all or part of the tax year?
To meet the second automatic UK there must be a period of 91 consecutive days, at least 30 of which fall in the tax year when the home is available to you and you spend at least 30 days there. Additionally, you must also have either:
- No overseas home, or
- Have an overseas home or homes where you spend no more than 30 days
Third automatic UK test: Did you work full time in the UK for any period of 365 days with no significant break from UK work?
Sufficient Ties Test
If you do not meet any of the automatic overseas tests or any of the automatic UK tests, then the sufficient ties test is considered.
For the purposes of the residence test, there are five possible ties to the UK:
- Family tie: UK resident family
- Accommodation tie: accessible UK accommodation stayed in
- Work tie: substantive UK employment (more than 40 days in the tax year)
- 90 day tie: present in the UK in either of previous two tax years
- Country tie: present in the UK greater than any other single country (outbound only)
|NR throughout the three prior tax years||R at any time in the three prior tax years|
|Days in the UK||1 or no UK ties||2 UK ties||3 UK ties||4 UK ties||No UK ties||1 UK tie||2 UK ties||3 UK ties||4 UK ties|
|16 to 45||NR||NR||NR||NR||NR||NR||NR||NR||R|
|46 to 90||NR||NR||NR||R||NR||NR||NR||R||R|
|91 to 120||NR||NR||R||R||NR||NR||R||R||R|
|121 to 182||NR||R||R||R||NR||R||R||R||R|
Note: NR – Non-Resident/R – Resident.
Split Year Treatment
If you are planning a big move, there is a possibility that you could elect for split year treatment. Split year is when you are UK resident for part of the year and non-resident for the remainder. Or vice versa. There are 8 cases in which you can elect for split year treatment; these vary from moving abroad for work or following a spouse (or partner). Electing for split year could be beneficial if you are making a move and have income from overseas, any overseas income that is received after the date you become a non-resident is no longer taxable. However, it is prudent to bear in mind that temporary non-resident rules are in place in respect of Capital Gains Tax (CGT). For example, if you left the UK and sold standard shares in a company while you were non-resident. If you were to come back to the UK within 60 months of departure, you would be liable for CGT on any gains that arose while you were a non-resident.
Double Tax Agreements
Most double tax agreements contain provisions relating to residency and which country has priority i.e. the tie breaker clause. Also, double taxation agreements may also contain provisions setting out where certain income or gains are taxed.
If you are considering a move or returning to the UK after a period of non-residency and would like to know what the implications of the move may be and identify any associated tax planning opportunities, please do not hesitate to contact the office where one of our team will be happy to help.