Tax residency in the UK has long been a highly contentious issue particularly for those with tax affairs in more than one jurisdiction. As there was no statutory definition of what makes a person a ‘resident’, often it was left to individual circumstances, general practice, judicial interpretations and at times even pure ‘common sense’! The system was so uncertain that the Gaines-Cooper case of 2008 demonstrated how unreliable HMRC’s published guidance in this regard could get. Well, that is all history now. Finance Act 2013 (Schedule 45) now clearly defines under what circumstances a person could be resident or non-resident, with the concept of ‘ordinary residence’ having gone the dinosaurs’ way!
Let us in this article consider the status of a person arriving in the UK.
First Test – Automatically resident in the UK
If you spend 183 or more days in the UK in a tax year you’re tax resident in the UK. You will be considered to have spent the day in the UK if you’re here at midnight. Even if you have not been in the UK at the end of the day (midnight) for 183 days, still you could be UK resident under the ‘deeming rule’ whereby a) you have been tax resident in the UK in one or more the last three years, b) you have at least 3 UK ties, and c) you have been present in the UK for at least 30 (qualifying) days without being present at the end of the day. However, transit days are not counted where you arrive in the UK whilst travelling from one country to another outside the UK and leave the next day. Transit passengers are not expected to engage in any activity substantially unrelated to your transit.
Second Test – Automatically resident overseas, so not resident in the UK
If you fail test 1 and is unsure of your residence then you need to check the following table and see if you’re automatically resident overseas. If you’re automatically resident overseas then obviously you’re not resident in the UK.
|Days spent in the UK during the tax year||Resident in any of the previous 3 years||Not resident in any of the previous 3 years|
|Less than 16||Automatically Non-resident||Automatically non-resident|
|Less than 46 days||Take Test 3||Automatically non-resident|
There is yet another way to be automatically resident overseas; i.e. if you work full time overseas. The conditions are:
a) If you work full time overseas over the tax year without any significant breaks from overseas work during the tax year, and
b) You spend fewer than 91 days in the UK during the tax year
c) You work in the UK for more than 3 hours a day but fewer than 31 days in the tax year.
Broadly, fully time overseas work effectively means working 35 hours during a working week. Obviously days worked in the UK will be disregarded.
Third Test – Other cases of being automatically resident in the UK
Having come this far and if you’re still unsure of whether you’re resident or not, follow these steps to see if you still automatically qualify to be a UK resident.
1. This is relevant if you have a home in the UK.
If you had a home in the UK and you spend at least 91 consecutive days in the UK and at least 30 of those days fall within the tax year, then you are conclusively tax resident in the UK
2. This is for those working work full time (broadly at least 35 hours a week) in the UK.
If you work in the UK for any period of 365 days without any significant break from UK work and:
a) all or part of the 365 days fall within the tax year,
b) 75% of the work days comprising more than 3 hours of work a day out of the 365 days are within the UK, and
d) at least ONE of those of days per b) above fall within the tax year then
you’re automatically UK resident.
Finally the fourth sufficient ties test
Having taken the three tests above and still unsure of whether you’re tax resident in the UK you could now take this test which is based on your connections with the UK.
|Days spent in the UK during the tax year||UK resident in one or more of the last 3 years||Non-resident in the last 3 years|
|< 16 days||Always non-resident||Always non-resident|
|16-45 days||4 ties||Non-resident|
|46-90 days||3 ties||4 ties|
|91-120 days||2 ties||3 ties|
|120-182||1 tie||2 ties|
|> 182 days||Always resident||Always resident|
And the four relevant ties are:
Tie 1 – Family tie: This tie is basically about the relationship of an individual with a family member who is tax resident in the UK. If your spouse, civil partner (not yet separated) or minor children (not those in full time education) are resident in the UK you satisfy the family tie test. Children under the age of 18 are considered for this tie and you should have spent at least 61 days with the child during the tax year to have had this tie.
Tie 2 – Accommodation tie: If you have a place available to you to live in the UK and a) that is available to you for 91 days or more during the tax year and, b) if you spend one or more nights there during the tax year, c) or if it the home of a close relative (parent, grandparent, brother, sister, children or grandchildren of 18 and above) you spend 16 or more nights there during the tax year you have had this tie.
Tie 3 – Work tie: If you work for 40 or more days in a tax year with each work day comprising 3 hours of work, you will have had this tie.
Tie 4 – 90 day tie: If you spend more than 90 days in either or both of the last two tax years in the UK you will have met this tie test.
Tie 5 – Country tie: You will have met this tie test if UK is the country where you spent more nights than any other country in the tax year.
Whilst this is a simplified version of a very elaborate rule-based statutory residence test, it nevertheless should give the reader a broad idea of how the whole test system works.