Determining UK Residency – Statutory Residence Tax Factsheet
Generally speaking, an individual who is resident in the UK in a tax year will be taxable on their worldwide income and gains arising in that year. Individuals who are non-resident in a tax year are only taxed on any UK income arising in the tax year, they will also not be required to pay capital gains tax (subject to certain limited exceptions).
It is possible for an individual to be resident in two or more countries, in this instance they are said to have ‘dual residence’. Where dual residency applies, the Double Tax Treaty between the UK and the other country should be reviewed to understand what reliefs may be available.
From April 2013, a taxpayer’s residency for income tax and capital gains tax purposes is determined through the Statutory Residence Test (SRT).
The Statutory Residence Test
The Statutory Residency Test (SRT) uses the time an individual has spent in the UK along with other connecting factors to determine if that individual is UK resident in a given tax year.
There are three elements to the test:
- The Automatic Overseas Test – an individual is non-resident if any of these tests are met.
- The Automatic Residence Test – an individual is UK resident if any of these test are met.
- The Sufficient Ties Test – this test is applied where the automatic overseas and automatic residence tests do not provide a conclusive result.
When assessing if an individual is UK resident, the Automatic Overseas test should be considered in the first instance. If the conditions don’t apply the individual will be resident in the UK if any of the tests within the Automatic Residence test apply or if they meet the Sufficient Ties Test. The criteria underlying each test is explained in more detail below.
The Automatic Overseas Test
An individual is not resident in the UK for a tax year if they meet any of the following qualifying criteria:
- They were resident in the UK in one or more of the previous three tax years and they are present in the UK for < 16 days in the current tax year
- They were non-resident in the UK in all of the previous three tax years and they are present in the UK for < 46 days in the current tax year
- They meet the “work abroad” condition i.e. they work abroad for an average of at least 35 hours a week for the whole of the tax year and they are present in the UK for < 91 days in the tax year (with < 31 days spent working in the UK).
The Automatic Residence Test
An individual will be resident in the UK for the tax year if they meet any of the following conditions:
- They are present in the UK for 183 days or more in a tax year
- They have a ‘home’ in the UK which they are present in for at least 30 days in the tax year and for at least 91 consecutive day either the individual has no home overseas or they have one or more homes overseas but they are present in each home on fewer than 30 separate days.
- They carry out ‘full-time work’ in the UK for a period of at least 365 days, part of which falls in the tax year. There should be no significant breaks and with more than 75% of their working days should be carried out in the UK.
Where an individual satisfies conditions in both the automatic overseas and automatic residence test, the automatic overseas test takes priority.
The Sufficient Ties Test
Where both the automatic overseas and automatic residence tests fail, an individual’s residency will be determined through the ‘sufficient ties’ tests.
The sufficient ties test looks at both the number of days a taxpayer has spent in the UK along with the number of connecting factors they have with the UK. There are five connecting factors outlined in the legislation:
- Family – applies where an individual has:
- a spouse/partner/civil partner who is resident in the UK
- A minor child (under 18) resident in the UK who they see at least 61 days in the tax year
- Accommodation – applies where:
- the individual has a place to live in the UK which is available for a continuous period of at least 91 days, and
- they have spent at least one night there in the tax year
- (or 16 nights if the accommodation belongs to a close relative)
- There is no requirement for accommodation to be owned, accommodation available through a close relative or prolonged use of a favourite hotel is sufficient to create a tie.
- Work – applies where an individual works for 40 days or more in the UK in the tax year. A work day is defined as any day in which work is carried out for 3 or more hours.
- UK Presence – applies where an individual spends more than 90 days in the UK in either of the previous two tax years
- Country – applies if an individual spends more days in the UK in the tax year than any other country (only applies to taxpayers who have been resident in the UK in one or more of the previous 3 tax years).
Once the number of connecting factors has been ascertained for an individual, it must be reviewed against their ‘day count’ in the UK.
The legislation governing UK residency separates individuals into two groups – ‘Leavers’ and ‘Arrivers’. An individual is deemed to be a ‘Leaver’ if they have been resident in the UK in one or more of the preceding tax years. Conversely, an individual will be termed an ‘Arriver’ if they have not been resident in the UK for any of the preceding three tax years.
The level of connecting factors and days spent in the UK that constitute whether a person is UK resident vary depending on whether an individual is a ‘Leaver’ or ‘Arriver’.
The tables below outline the position in both instances:
Split Year Rules
If during the tax year an individual starts to live or work in the UK or abroad, the tax year may be split into two parts – a ‘UK part’ and an ‘Overseas part’.
The split year treatment allows foreign income arising during the overseas part not to be taxed in the UK. There are certain criteria which must be met for the split year treatment to apply, but assuming they do, the treatment is automatic and there is no need to make an election.
An individual is treated at being in the UK on any day where they are in the UK at midnight at the end of the day, therefore days of arrival into the UK are usually counted and days of departure are not.
There are certain instances where the ‘midnight rule’ does not apply such as for transit passengers travelling into the UK and leaving the next day or where there are exceptional circumstances beyond the individuals control for instance a sudden or life-threatening illness or injury. These are day are disregarded when looking at the day count (restricted to a maximum of 60 days).
In addition to the above, there are circumstances in which an individual may be deemed to be in the UK even if they are not present at midnight. These rules are intended to catch ‘commuter’ taxpayers who come in or out of the UK on a regular basis but are not there at midnight.
Determining an individuals residency is a complex and technical area of tax. If you would like more information specific to your own circumstances, please contact a member of our team.
This factsheet is based on law and HMRC practice at August 2018.