Proposed Changes to Non-Dom Status for Individuals: the Statutory Residence Test

As discussed in our recent articles Non-Doms and the Spring Budget and Taxation of Non-Doms under a Labour Government, big changes to the UK’s non-dom regime are proposed with effect from 6 April 2025. Broadly, the previous Conservative Government said that it intended that “the concept of domicile as a relevant connecting factor in the tax system will be replaced by a system based on tax residence.”

The new Labour Government has previously indicated its broad support for the overall framework, but is likely to implement more extensive measures, based on statements made whilst still in opposition. As the new Government settles in, we hope that we will gain more clarity on the detail of the proposals in the weeks to come.

In any case, it is expected that the existing Statutory Residence Test (SRT), currently used to assess tax residence in a given UK tax year (6 April – 5 April), will serve as the linking factor in place of domicile for certain UK tax purposes. Here, we look at the concepts of domicile and residence in more detail.

The current position: domicile as a linking factor

The law on domicile is complex, and often not well understood. Everyone has a “domicile of origin”, usually based on their father’s domicile at the time of their birth. It is possible to dislodge a domicile of origin by acquiring a “domicile of choice”. Parts of the tests are subjective, which has led to a considerable number of court cases and private disputes with HMRC. It can, therefore, be an unsatisfactory connecting factor for tax purposes, which arguably makes it well-overdue for reform.

Overlaying these common law domicile concepts is the UK tax concept of “deemed domicile”, where you have been tax resident in the UK for 15 out of the last 20 tax years. At this stage, you lose many (although not all) of the tax benefits attaching to non-dom status.

Domicile is currently relevant to UK tax when considering liability to Inheritance Tax, and also access to the “remittance basis” of taxation. Broadly, remittance basis users pay UK tax on income and gains arising in the UK, and on income and gains brought to the UK. The definition of a remittance is very complex and, although it is a generous system, it is not easy to navigate. The stated intention of the new Labour Government is to abandon this whole tax regime.

The proposed position: UK tax residence under the SRT as a linking factor

Instead of the domicile regime, the new rules will involve assessing liability to UK tax by reference to UK residence, as determined by application of the SRT. Although the SRT has long been relevant for assessing a person’s liability to pay UK Income and Capital Gains Tax from year to year, and also in determining deemed (but not common law) domicile status, it will now have a broader application in assessing liability of individuals and trusts to UK tax.

It is proposed that the worldwide estates of individuals will be within the scope of Inheritance Tax after 10 years of UK residence, and that new arrivers (who have not been UK resident for 10 years) will be liable to Income Tax and Capital Gains Tax on their foreign income and gains after four years of UK residence. Interestingly (and depending on how the new legislation is drafted), this may also be of benefit to ex-pats returning to the UK after a long absence abroad, where those UK-born returners currently have no such tax benefit. Note that the Inheritance Tax position for trusts remains somewhat unclear.

It is, therefore, more important than ever for internationally mobile clients to understand how the SRT applies to their particular circumstances. In certain cases, clients will want to be able to look back with certainty as to their residence position, for at least the past 10 years or possibly longer. Keeping advice on residence status up to date will be key here, particularly in marginal cases.

The SRT is comprised of three tests of residence which are worked through in turn. Day counting will likely be key (a “day” generally meaning presence in the UK at midnight), but other factors will also be relevant. The three tests are considered in order. In determining residence status we stop at the point that a test is satisfied.

The tests can be broadly summarised as follows:

1. Automatic non-UK residence

You will be automatically non-UK resident if:

• You were UK resident in one or more of the previous three tax years and you spend fewer than 16 days in the UK in the tax year; or
• You were UK resident in none of the previous three tax years and you spend fewer than 46 days in the UK in the tax year; or
• you work abroad full-time with no “significant break”, you spend fewer than 91 days in the UK in the tax year, and you work in the UK on fewer than 31 days.

If none of these apply, we need to go on to consider the second test.

2. Automatic UK residence

You will be automatically UK resident if:

• you spend at least 183 days in the UK in a tax year;
• you have your “only” or “main” home in the UK, even if for just a part of the tax year (this is an involved test, and often catches people out who otherwise assume that they are non-resident); or
• you work full-time in the UK.

If none of these apply, we move on to consider the final test.

3. Sufficient ties test

This test looks at the number of days an individual has spent in the UK, and the number of “ties” they have to the UK. 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 members (spouse, partner or minor children – although there are special provisions concerning children at school in the UK, which are detailed and must be carefully applied to specific circumstances);
• available accommodation in the UK;
• working 40 days or more in the UK (a day in this case means three hours+, and could comprise emails, calls or other remote working activities); and
• 90 days or more having been spent in the UK in either or both 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 in any other single country.

Applying the SRT

As highlighted above, the correct analysis is not always immediately clear, unless you spend very few days in the UK or, conversely, the majority of your time in the UK. Very often our clients will fall somewhere in the middle of those extremes, and no two individuals will have an identical set of circumstances.

There are circumstances where it can be very easy to be caught out by nuances in the rules if not properly advised. Some examples that we have come across in the team include:

• The possibility of a spouse spending time in the UK endangering your own planned residence status. If spouses are living separately and you do not have the detail of their UK days, this can lead to unanticipated results for your own status.
• Children at UK boarding schools creating an additional UK tie. This does not necessarily have to be the case, and where children do not spend holidays in the UK and/or you meet them outside of the UK, then they may not create a tie. The rules are detailed, and knowledge of these can prevent unintended consequences.
• Giving up an overseas home, such that your UK home becomes your only home (or you are not making use of your overseas home). Even if this is only the case for a very short period, this set of facts can cause clients to become automatically UK tax resident whilst spending very little time in the UK. Advice should ideally be taken prior to a disposal.
• In certain circumstances, working just one day in the UK during the tax year (in the context of full-time UK work which then ceases) can make you UK tax resident for the whole year. This is a fairly extreme example, but it does highlight the need to engage in careful planning at an early stage.

If you need advice or clarification of your UK residence status, Birketts’ International Private Client Team will be happy to help.