International accountant and shipping adviser Moore Stephens says the introduction by the UK of a statutory residence test will bring much greater certainty to an area previously decided largely on the basis of case law and government practice.
The UK is introducing the statutory residence test with effect from 6 April, 2013. Gill Smith, a tax partner with Moore Stephens, explains, “At present, there is no statutory definition of residence, but rather case law and HMRC practice. This has resulted in residence being a rather grey area, but the new test should bring much greater certainty.”
Under the new test, individuals will always be resident if they spend 183 days in the UK. As is the case now, a day counts if the individual is in the UK at midnight. Automatic residence is also achieved if individuals are working in the UK full-time or, broadly, have their only home there.
Individuals are automatically non-resident if they are in the UK for less than 46 days in the tax year. This limit is restricted to less than 16 days for an individual who has been UK-resident for one or more of the preceding three tax years. Additionally, individuals are non-resident if they work full-time abroad.
For individuals who are neither automatically resident nor non-resident, there is a ‘sufficient ties test’. The legislation sets out a number of ties, and the number of days in the UK that would make individuals UK-resident for a tax year is calculated according to the number of ties they have. For arrivers (individuals who have not been resident in the UK in any of the three previous tax years) the ties are: having family resident in the UK (family includes a spouse, partner or minor children); having accommodation available and using it for one night in the tax year; working in the UK for 40 or more days in the tax year for at least three hours per day; having been present in the UK for more than 90 days in either of the previous two tax years.
For leavers (individuals who have been resident in the UK in one of the previous three tax years) the day counts are more stringent. Leavers also have an additional tie to consider, namely that they are not in the UK more than any other single country.
There are a number of specific rules dealing with matters such as split year, where an individual can be treated as non-resident part-way through the tax year, and the treatment of income and capital gains earned in periods of temporary non-residence.
International transportation workers, including seafarers, also have their own rules. In their case, the tests relating to working full-time in the UK or abroad are dis-applied when looking at the automatic residence or non-residence position. When considering day-count, a work journey that starts in the UK is considered a day of UK residence, whereas one that ends in the UK is not.
“The statutory residence test for the 2013/14 tax year should give greater certainty regarding an individual’s residence position,” concludes Gill Smith. “The basic rules are quite straightforward, but there is considerable detail to catch the unwary.”