Welcome clarity? Or clear as mud? Consultation launched on the new statutory residence test
There's a new test in town. The government has launched a well-overdue consultation on a new statutory test to determine tax residence, which is intended to become law in April 2012.
The current rules are an unhelpful hotchpotch of old case law, statutory rules and HMRC "guidance". They look at a person's subjective intention as well as his physical presence in this country. This makes it difficult to assess someone's residence status with full confidence.
The proposed test promises more certainty. There will be circumstances when you are definitely not resident in the UK and circumstances when you definitely are. But how will the new test work for the many people in the middle ground?
Am I definitely not resident?
If you have not been resident in the UK in any of the previous three tax years, you will definitely not be resident in the current tax year if you are here for fewer than 45 days.
If you have been resident in the UK in any of the previous three tax years, then only if you are here for fewer than 10 days will you definitely not be resident in the current tax year.
You will also definitely not be resident in the UK if you leave the UK to work full-time abroad.
Am I definitely resident?
If you spend 183 days or more in the UK in a tax year, you will definitely be resident here for that year. You will generally also be resident in the UK for tax purposes if you only have one home and it is in the UK, or if you carry out full-time work here.
Might I be resident?
Many people will not fall into either of the “definite” categories and that’s where things get interesting. In these cases, whether you are resident in the UK in a given tax year will be determined by three factors:
- Whether you were resident in the UK at any point in the last three tax years;
- The number of days in the tax year you were in the UK; and
- Five criteria referred to as “connection factors”. These include whether you work in the UK, whether you have accommodation in the UK and whether your spouse or minor children are resident here.
Those with the loosest connections with the UK who do not spend many days here and have not been UK-resident at any time in the past three years will need to satisfy all or most of the connection factors before being treated as resident in the UK under the proposed test.
Those with the strongest connections with the UK who spend considerable time here and have been resident in the UK at some point in the past three years will only need to meet one or two of the connection factors before being treated as resident in the UK.
The rules distinguish between those arriving in the UK and those leaving.
Comment
The proposed statutory test will generally be good news for taxpayers as it offers far more clarity. However, it may mean some people who currently escape UK tax residence will be caught. There also remains a degree of subjectivity in interpreting the meaning of some of the “connection factors”.
Although the new test is not yet law, if you think it might affect your residence status then please contact Andrew Goldstone on +44 (0) 20 7440 7205 or by e-mail.