UK Statutory Residence Test 2013
Why is a residency test important?
Before April 2013. there were basically three stages of residency that you need to be aware of for the three main types of UK taxation (now there are just two - resident and/or domicile)
- UK Statutory Resident means you are subject to UK Income Tax on your Worldwide Income and after April 2013 also on Capital Gains Tax (this used to be covered separately in the old Ordinarily Resident test).
- Ordinarily Resident (does not apply from April 2013) it used to mean that whilst you may not have been living in the UK as you had left within the last few years, you could still, before April 2013, be subject to Capital Gains Tax. This used to mean you could not simply leave the UK this year and sell your investment property or large share portfolio next year and not be liable to UK capital gains tax. This has now been replaced with the simpler UK resident test.
- Domicile. If you are UK Domiciled your estate is subject to Inheritance Tax on death on your Worldwide assets. Domicile is your where you consider your “motherland” or “fatherland”, your “homeland”. You acquire your Domicile at birth from your father. If you are non-UK Domicile, your estate would only be subject to UK Inheritance Tax on UK assets. If you leave the UK to live overseas and sever ties with the UK you may establish a Domicile of Choice, i.e. you fall outside UK Domicile and Inheritance laws. If you are a foreign national i.e. originally Non-UK Domicile and you come to the UK and live in the UK for a long time, you will eventually be deemed as having made a Domicile of Choice UK and be subject to UK Inheritance Tax on Worldwide assets.
The new Statutory Residence Test - Started 6 April 2013
Confirmed in the pre-budget report in December 2012 and now law as part of the Finance Act 2013,. The Government confirmed changes to the residency test in the UK. For clarity, a UK Tax Year is 6th April to following year 5th April.
There are now three distinct tests to establish whether you are resident for tax in the UK.
Stage 1 - Automatic Overseas Resident Test
If you pass any of the following tests, you are automatically deemed non-resident:
- Non Resident 16 Day Test - You have previously been resident in the UK for any one of the three previous tax years, but for the current tax year you have been in the UK for less than 16 days and you do not die in the tax year.
- Non Resident 46 Day Test - You have not previously been resident in the UK for any one of the three previous tax years, but for the current tax year you have been in the UK for less than 46 days – whether you are alive or dead.
- Non Resident 46 Day & Death Within 3 Years Test - You die in the current tax year and you were in the UK for less than 46 days provided you were non-resident for the previous two tax years and the tax year before that (i.e. three tax years ago) you may have had a split tax year (i.e. you left UK part way through).
- Non Resident 91 Day Test - You are not resident in the UK if you work full time overseas for the tax year and spend less than 91 days in the UK.
Stage 2 - Automatic UK Resident Test
If you do not qualify as automatically non-resident for the above, you are UK resident if any one of the following applies to you:
183 Day Rule - You spend more than 183 days in the UK during a tax year.
90 Day and UK Home/Property Rule -
- You are UK resident if have a home in the UK and
- (i) You own the home for more than 90 days in the tax year and you spend 30 days or more in it
- (ii) Or you own the home for at least 91 consecutive days of which only 1 day has to be in the tax year in question and you either have no home overseas or you have one or more overseas homes but you spend less than 30 days at each home (an attempt to block the financial nomad who claims to live nowhere)
If you do not pass any of the Stage 1 Automatic Overseas Resident Tests or do not fail any of the Stage 2 Automatic UK Resident tests, your residency is still unclear and you move to testing whether you have large ties and connections with the UK.
Stage 3 - The Sufficient Ties Test
Have you severed ties with the UK or do you have sufficient ties for HMRC to consider you UK resident? The following close ties must not have applied in any of the three previous tax years for you to be non-resident based upon a points system):
1. Accommodation Tie
- You have a place to live in the UK. If it is available to you for 91 days in succession (ignoring short term 16 days or less unavailability) and you spend just one night in the tax year there.
- You have access to a relatives property to live in the UK If it is available for 91 days in succession (ignoring short term 16 days or less unavailability) and you spend 16 nights there.
- If you have been UK resident in any one of the previous 3 tax years and you then leave. If you then spend time in the UK and other countries, if you are in UK at midnight for more days than any other country, you are UK resident. Even if there is a tie breaker and you spend exactly the same amount of days in the UK and another country, if you spent more ‘midnights’ in the UK than the other country you are resident UK.
- Your spouse, civil partner (unless legally separated) or co-habitee is resident in the UK in the tax year or
- Your child (below age 18) is resident in the UK and you see your child for 60 days or more per year
- You work in the UK for 40 days a year and more than 3 hours per day
- You spend more than 90 days in the UK in either of the previous two years.
How Sufficient Ties Test Works - Points Scoring
There are 5 ‘sufficient ties’ points above. The number of points that apply to you and the total days that you actually spend in the UK (in tax year) will then answer whether you are deemed resident in the UK for tax.
Leaving the UK - But Still Have Ties
- 183+ days = Automatically resident
- 121-182 days, 1 or more sufficient tie = resident
- 91-120 days, 2 or more sufficient ties = resident
- 46-90 days, 3 or more sufficient ties = resident
- 16-45 days, 4 or more sufficient ties = resident
- Less than 16 days = Automatically Non resident
Coming to UK (previously non resident)
- 183+ days = Automatically resident
- 121-182 days, 2 or more sufficient ties = resident
- 91-120 days, 3 or more sufficient ties = resident
- 46-90 days, 4 or more sufficient ties = resident
- 45 days or less = Automatically Non resident
The UK Statutory Residence Test as you can see is highly complex. Do not leave it to chance, it may cost you dearly from a tax perspective. Contact us for expert tax advice.