tax residency

29 June 2011

a statutory definition of tax residence in the uk

The Government has set out its framework for a statutory residence test in a consultation document issued on Friday 17 June.

At present the definition of tax residency largely rests on decided case law which the consultation document concedes has “not provided clear or specific principles that are applicable to all taxpayers. The result is that the residence rules are vague, complicated and perceived to be subjective. In certain circumstances it is not possible for a person to be sure whether they are tax resident in the UK or to know what activities or circumstances would make them tax resident”.

The intention is that a statutory residence test should provide a simple process and certainty for taxpayers in assessing their residence status. The new rules are intended to be introduced with effect from 6 April 2012.

The framework

The statutory residence test essentially falls into two parts. The first part provides for “safe harbours” under which it is anticipated the majority of individuals will be able to conclusively establish their residence or non-residence. For more complex situations “tie-breaker” provisions will operate by reference to a “day count” and “residency factors” connecting individuals to the UK: the intention here being that the greater the day count (that is days of presence in the UK) the fewer residency factors permitted before residence results.

Safe harbours

The majority of the proposed safe harbour rules are based upon a day count and use the existing “presence at midnight” test in determining whether an individual was present in the UK on a particular day.

There are two circumstances under which conclusive residence in the UK will result:

Presence in the UK for 183 days or more in one tax year, and
Having your only home in (or homes) in the UK.

For those seeking to demonstrate non-residence there are three circumstances under which conclusive non residence in the UK will result:

Presence in the UK for fewer than 45 days in one tax year (where the individual has not been resident in any of the previous three years).
Presence in the UK for less than 10 days in one tax year (where the individual has been resident in any of the previous three years).
The individual leaves the UK to take up full time work abroad and it present in the UK for less than 90 days in one tax year (of which up to 20 may be working days).

The tie-breakers

For those whose residence status is not determined under the safe harbour rules there are sliding scales based on a day count and “residency factors”. Two such scales are provided for distinguishing between those who have not been resident in the UK in the previous three years “arrivers” and those who have been so resident in the previous three years “leavers”.

Residency factors

The day count is linked to a list of five defined residency factors to determine the residence position. These residency factors are:

Whether the individual’s family is UK resident

Family in this context includes spouse, civil or common-law partner and minor children (unless they are only in the UK for schooling purposes and spend less than 60 days of their holidays in the UK).

Whether the individual has “substantial” employment in the UK

“Substantial” here means working in the UK for more than 40 days in a tax year (a day comprising three hours work!).

Whether the individual has “accessible” accommodation in the UK

“Accessible” in this context refers to availability rather than ownership. The accommodation must be used as a residence.

Whether the individual has been present for more than 90 days in the previous two years

Whether the individual spends more days in a single other country than in the UK

This factor is only relevant to leavers.

The residency test

The residency test is based upon a sliding scale under which the residency factors are attributed to the relevant day count in determining residence. A seperate scale is applied to arrivers and leavers:

Arrivers

Day Count		Residency Status
Less than 45 days		Always non-resident
45-89 days		Resident if individual has 4 factors
90-119 days		Resident if individual has 3 factors or more
120-182 days		Resident if individual has 2 factors or more
183 days or more		Always resident

Leavers

Day Count		Residency Status
Less than 10 days		Always non-resident
10-44 days		Resident if individual has 4 factors
45-89 days		Resident if individual has 3 factors or more
90-119 days		Resident if individual has 2 factors or more
120-182 days		Resident if individual has 1 factor or more
183 days or more		Always resident