Determining UK tax residence status under the Statutory Residence Test: A brief introduction

Since April 2013, an individual’s UK tax residence status each tax year (i.e. 6 April to the following 5 April) has been determined with reference to the Statutory Residence Test (SRT). Understanding residence status – including changes in status and the implications of this – is a subject on which we are often asked to advise.

Background

Before April 2013, there was no statutory definition of residence. Instead, a series of cases aided the development of (fairly subjective) criteria over time. Generally, for an individual to cease to be UK resident, they needed to show a break from the UK as their home and to be able to demonstrate a settled purpose of their presence in another country. 

The SRT is not retrospective and therefore some individuals will need to have an understanding of the position both pre- and post-April 2013. 

Why does UK tax residence matter?

An individual’s liability to Income Tax and Capital Gains Tax in the UK is determined by their residence. Broadly, an individual who is not UK resident is liable to tax on their UK-source income and gains only. In contrast, an individual who is UK resident is typically liable to tax on their worldwide income and gains (although for some non-domiciled individuals, the impact of this may be mitigated by a claim for the ‘remittance basis’ of taxation).

Residence is also relevant when looking at an individual’s domicile.

The position can become more complex where an individual has business interests, directorships or is a beneficiary of any trusts.

What does the SRT say?

The SRT has made assessing UK residence more clear cut, although there is often a lot of detail to work through to reach a considered view. 

At the most basic level, the SRT is comprised of three tests of residence which are worked through in turn. These can be summarised as follows:

1. Are you automatically non-resident? This will be the case if you spend fewer than 16 or 46 days in the UK in a tax year (depending on previous connections with the UK); or you work abroad full-time (averaging at least 35 hours per week). If not, you will need to go on to consider…
2. Are you automatically UK resident? This will be the case if you spend at least 183 days or more in the UK in a tax year; or you have your only home in the UK; or you work sufficient hours in the UK. If not, you will move on to consider the final test…
3. If a person is neither automatically non-resident, nor automatically resident, then we move to look at the ‘sufficient ties test’. This test looks at the number of days an individual has spent in the UK (any day upon which an individual was present at midnight, subject to certain anti avoidance provisions), and the number of ‘ties’ they have to the UK. It works on the basis that the more ties an individual has with the UK, the less time they can be present in the UK in a given tax year without becoming UK resident.

There are four main ‘ties’ which determine how much of a connection an individual maintains with the UK. These are: 

• having UK resident family (spouse, partner or minor children)
• available accommodation in the UK
• working 40 days or more in the UK
• 90 days or more spent in the UK in either of the previous two tax years. 

There is also a fifth tie which only applies to those who have recently ceased to be UK resident: an individual will have this tie if they spend more days in the UK during the tax year than any other single country. 

In practice, the operation of the various ties is complex and there are many exemptions and caveats. Everyone’s circumstances are different, and particularly if your tax residence status is likely to fall to be determined under the ‘sufficient ties’ test, then we recommend that you take tailored advice at an early stage. 

‘Split-year’ treatment 

Under the SRT, an individual is generally tax resident, or not, in respect of a whole UK tax year. However, in certain limited circumstances it is possible to treat a tax year as being split into UK resident and non-UK resident parts. This is referred to as ‘split-year treatment’. 

There are 8 narrowly defined circumstances where an individual may meet the criteria for ‘split-year treatment’. They include starting full-time work overseas or starting to have your only home in the UK.

How can we help?

We recommend you take tailored advice at the first available opportunity if you are planning a move to or from the UK (ideally in the tax year prior to the tax year of your move) to determine your UK residence status for UK tax purposes. 

The information in this note is a broad guide to considering tax residence status and is no substitute for full advice.