In the UK, with effect from 6 April 2013, the Statutory Residence Test (SRT) determines an individual’s residence status for the purposes of income tax and capital gains tax.
The legislation can be found at Schedule 45 of the Finance Act 2013.
Due to its mechanical approach, the SRT should objectively determine whether an individual is resident in the UK for tax purposes.
Therefore, in many cases, the results are not straightforward, and the SRT still requires a detailed assessment of the connections with the UK that an individual has.
Where to start from?
The starting point in determining whether an individual is a UK resident in a tax year is to follow the basic rule which states that a person is a resident in a given (financial) year for which either:
- The Automatic Residence Test is met;
- The Sufficient ties test is met.
If none of the above two tests is met, the individual is not resident in the UK for that year (paragraphs 3 and 4, Schedule 45, FA 2013).
Automatic Residence Test
The Automatic Residence Test is met for a tax year if both of the following conditions are satisfied:
- the individual meets none of the automatic overseas tests;
- the individual meets at least one of the automatic UK tests.
When one or more of the automatic overseas test is met the individual is not resident in the UK for that tax year and no further analysis is needed.
If none of the Automatic Overseas Tests is met it needs to be considered whether one or more of the automatic UK tests is met. In that case, the individual will be UK resident for that tax year.
When none of the Automatic Residence tests is met, the individual must check whether the Sufficient Ties Test is met.
Broadly, if the individual has spent 183 days or more in the UK in a tax year the first Automatic UK test is met and there is no need to check if any other test, the individual will be UK resident for that a tax year.
Automatic Overseas tests
If an individual meets one of the automatic overseas tests for a financial year, he or she is not resident in the UK for tax purposes for that year and no more tests need to be considered.
There are five Automatic Overseas Tests (the last two only apply if the individual dies in that year and are not considered here):
First automatic overseas test
Satisfied if all of the following conditions are met:
- the individual was UK resident for one or more of the previous three tax years;
- the individual spends fewer than 16 days in the UK in the tax year;
- the individual does not die in a tax year.
Second automatic overseas test
Satisfied if both of the following conditions are met:
- the individual was not UK resident for any of the previous three tax years;
- the individual spends fewer than 46 days in the UK in the tax year.
Third automatic overseas test
This test is often referred to as full-time work overseas test.
Satisfied if all the following conditions are met for a tax year:
- the individual works sufficient hours overseas without a significant break;
- the number of days the individual works in the UK is less than 31;
- the individual spends fewer than 91 days in the UK, excluding any days that the individual is treated as spending in the UK under the day count deeming rule;
- the individual does not, at any time in a tax year, have a relevant job on board a vehicle, aircraft or ship, the performance of which involves them making six or more cross-border trips in a tax year that either begin in the UK, end in the UK or begin and end in the UK.
This test includes few terms that need attention:
- Day spent in the UK
- Sufficient hours
- Significant break
There are also special rules for annual leave, sick leave and parenting leave.
Automatic UK tests
If none of the above tests is met, the focus shifts to whether the individual meet any of the Automatic UK Tests.
There are four automatic UK tests (one applies only to individuals who die in a tax year and is not considered here):
First Automatic UK Test
Satisfied if an individual spends 183 days or more in the UK in a tax year.
Second Automatic UK Test
Satisfied if all the following conditions are met:
- there is one period of at least 91 consecutive days when the individual has a home in the UK;
- at least 30 of these 91 days fall in the tax year when the individual has a home in the UK;
- the individual has been present in that home for at least 30 days at any time during the year;
- during the 91-day period, the individual has no home overseas or if he or she has one, he or she does not spend any more than a permitted amount of time in the year.
For this test attention must paid to the definition of “home” and “permitted amount of time” which is fewer than 30 days.
Third Automatic UK Test
This test is the UK equivalent to the Third Automatic Overseas Test and is concerned with “full-time” in the UK.
Satisfied if all of the following conditions are met:
- An individual works sufficient hours in the UK as assessed over a 365-day period, without a significant break;
- All or part of that 365-day period falls within a tax year;
- More than 75% of the total number of an individual’s working days in that 365-day period are UK working days;
- At least one UK working day falls in both that 365-day period and in that tax year;
- an individual does not, at any time in that tax year, have a relevant job on board a vehicle, aircraft or ship, the performance of which involves him making six or more cross-border trips in year X that either begin in the UK, end in the UK or begin and end in the UK.
Sufficient Ties Test
If none of the tests seen above is met, it is necessary to check if an individual meets the conditions of the Sufficient Ties Test.
This test considers the links or ties with the country and the number of days spent in it to determine if this combination is sufficient to make an individual resident for tax purposes.
The more links to the UK one individual has, the fewer days he or she can spend in the country before it becomes resident.
Whether the individual has sufficient UK ties for a tax year will depend on whether the individual was UK resident for one or more of the previous three tax years or not.
The ties set out in this test are:
- Family tie
- Accommodation tie;
- Work tie;
- 90-day tie;
- Country tie: this applies only if the individual was resident in the UK before the tax year being assessed.
The table below shows how many number of days an individual can spend in the UK during a tax year before becoming resident depending on the number of UK ties he or she has with the country.
The table distinguishes between an individual who was UK resident for one of the three tax year prior to the one being considered and one who was not.
|Number of days the individual spends in the UK in a tax year||Number of UK ties sufficient for the individual to be UK resident in a tax year|
|Individual was UK resident in earlier years||Individual was not UK resident in earlier years|
|16-45 days||4 or more||n/a|
|46-90 days||3 or more||All 4|
|91-120 days||2 or more||3 or more|
|121-182 days||1 or more||2 or more|
One of the conditions to be met in all the tests seen above is a minimum number of days an individual must spend in the UK to be tax resident in the country.
A day is spent in the UK if an individual is present in the country at the end of the day and neither the transit or exceptional circumstances exemptions apply.
Paragraph 22(4), Schedule 45, FA 2013 states that the exceptional circumstances exception applies where both of the following conditions are met:
- an individual would not be present in the UK at midnight on the day in question but for exceptional circumstances beyond the individual's control that prevent him from leaving the UK;
- the individual intends to leave the UK as soon as those circumstances permit.
Examples of circumstances that may be “exceptional” are national or local emergencies such as war, civil unrest or natural disasters, and a sudden or life-threatening illness or injury.
This exception can only apply to a maximum of 60 days in any tax year.
HMRC emphasises that whether circumstances are regarded as exceptional will always depend on the particular facts and choices available to an individual and establishing whether they are exceptional may be particularly difficult.
In the “A Taxpayer v Revenue and Customs Commissioners” TC 08464 the First-tier Tribunal discussed the interpretation of "exceptional circumstances".
In this case, the taxpayer had declared herself as a non-UK resident under the statutory residence test in her tax return for the year 2015/16.
HMRC argued that she had spent more than 45 days in the UK during the relevant period so that she should have declared herself to be a UK resident and she should have been taxed accordingly.
The taxpayer contested that some of those days in which she was in the UK at the end of the day should be disregarded under the exceptional circumstance exemption as on those dates, her visits to the UK were to look after her twin sister, who was suffering from alcoholism and was suicidal, and her two children.
HMRC challenged the appellant’s position on the application of the relief as the circumstances were not “exceptional”.
HMRC’s argument was that the taxpayer’s sister alcoholism and depression conditions were not in themselves uncommon or unusual illnesses. Furthermore these health issues were longstanding and the taxpayer had been aware of them for many years.
It was foreseeable that the sister’s condition might worsen, and the appellant could have taken measures that would have avoided the need for her to fly into the UK to take matters in hand.
HMRC submitted that the “exceptional circumstances” test did not encompass a person who came to the UK under a moral obligation or an obligation of conscience to care for a family member or other person. Instead, HMRC argued that the “exceptional circumstances” test only applied where a person came to and remained in the UK either under a legal obligation (e.g. to care for their minor child) or was physically prevented from leaving the UK.
HMRC also argued that the “exceptional circumstances” exemption applies only to persons who are already in the UK and, while they are in the UK, are overtaken by “exceptional circumstances” which prevent them from leaving.
The exemption did not, according to HMRC, apply to a taxpayer who came to the UK because of the “exceptional circumstances” and who was then prevented from leaving by those same circumstances.
The judge confirmed that:
- whether circumstances are exceptional, within the meaning of the relief, is always a question of fact and degree to be determined in the round;
- There is no requirement for circumstances to have been unforeseeable for them to count as exceptional. Foreseeability may be an element in the assessment of whether circumstances are exceptional, but it is not determinative;
- The rule is not limited in scope to cases in which the individual is in the UK when the exceptional circumstances arise. It can also be engaged where such circumstances arise when the individual is abroad, if the circumstances require the individual to come into the UK, and then prevent him/her from leaving.
- Where the exceptional circumstances arise due to another individual’s illness or injury, there is no requirement for such an individual to be a spouse/partner or dependent child (contrary to the indications given in HMRC’s guidance);
- An individual may be prevented from leaving the UK but also where the individual is kept in the UK by an obligation of conscience. The word ‘prevent’ can encompass ‘all manner of inhibitions – physical, moral, conscientious or legal which cause a taxpayer to remain in the UK.
The FTT did not believe that the appellant genuinely thought her sister’s life was at risk and concluded that alcoholism and depression of a sibling do not constitute exceptional circumstances but was the neglect of the sister’s minor children that was both exceptional and prevented the appellant from leaving and for that reason the appeal was allowed.
Split year treatment
A further aspect to consider when assessing an individual’s residence status for UK tax purposes is whether and individual is resident in the UK for a whole tax year.
Under UK law an individual is either UK resident or non-UK resident for the whole of a tax year.
A tax year in the UK runs from the 5 April to the 6 April of the following year.
If an individual either leaves the UK to live or work abroad or comes from abroad to live or work in the UK and certain conditions are met, a tax year can be split (split year treatment) into two parts:
- UK part: the individual is charged to tax as a UK resident;
- Overseas part: for most purposes, the individual is charged to tax as a non-UK resident;
- There are 8 cases for split year treatment. Cases 1 to 3 cover situations where the individual was UK resident in the previous tax year and leaves the UK part way through a tax year. Cases 4 to 8 cover situations where the individual was non-UK resident in the previous tax year and arrives in the UK part way through a tax year.
- Case 1: the individual starts full-time work overseas;
- Case 2: the individual is the accompanying partner of someone who starts full-time work overseas;
- Case 3: the individual leaves the UK to live overseas and ceases to have a UK home;
- Case 4: the individual starts to have their only home in the UK;
- Case 5: the individual starts full-time work in the UK;
- Case 6: the individual returns or relocates to the UK following a period of full-time work overseas;
- Case 7: the individual is the accompanying partner of someone who returns or relocates to the UK following a period of full-time work overseas;
- Case 8: the individual starts to have a home in the UK.
Where the individual’s circumstances for a tax year fall within more than one of the eight split year cases the legislation confirms that some have priority over others.
An individual’s UK tax liability in a year when he or she is eligible for Split-Year Treatment is determined by special charging rules that differ depending on the type(s) of income or capital gains concerned.
The rules regarding the Statutory Residence Test and Split-Year Treatment are lengthy and complex.
There are key concepts that have specific definitions in the legislation like “day spent in the UK”, “home”, work full-time”, “significant break” and many others that must be viewed and analysed in relation to each single case.
Before moving to or leaving the UK you should seek expert advice.
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