Until 6th April 2013, the UK did not have statutory rules to determine an individual’s residence status. However, the Finance Act of 2013 enacted the Statutory Residence Test (SRT) to take effect from 2013/14 UK tax year. The new SRT is fairly complex which is ironic when considering the objective of the statutory rules was to ‘replace the current uncertain and complicated residence rules with a clear statutory test that was easy to use.’
Essentially the old regulations and SRT are based on very similar foundations; in theory most of the taxpayers who found themselves to be resident in the UK under the old regulations should find themselves to be treated as UK resident under the new system. However, it is best to seek advice to clarify whether this is the case if in any doubt.
The detailed provisions are fairly complex as noted previously, and we will not attempt to go into the full details here. However, the ‘sufficient ties test’ has introduced new elements for those that are not automatically non-resident or resident as defined by the previous two tests.
This ‘sufficient ties’ test considers ties to the UK associated with family, accommodation, work, number of days in the UK and whether you spend more time in the UK than elsewhere in conjunction with the number of days you spent in the UK. A key point to note is that due to the ‘sufficient ties test’ those who have previously relied on the 90 days rule to remain non-resident may now be caught out, depending on the number of days spent in the UK and the number of ‘ties’ that connect the taxpayer to the UK.
As an example, if a taxpayer has been resident at least one year in the past three tax years and have 4 or more ties to the UK then the test means that you one could become UK tax resident having been present for only 16 days.
The measurable quantification element of the SRT is important. In a recent case of Rumbelow and Rumbelow (TC3022) the couple were considered as UK resident because they had not ‘substantially loosened their social and family ties.’ Interestingly, if the SRT had been in place in this case, the question about whether they had sufficiently loosened their ties to the UK would have been quantified and their residence status would have been measurable and defined.
It’s best to seek advice….
Essentially, to avoid any unnecessary confusion, penalties and costly HMRC enquiries we recommend that it is best to seek advice on your tax residence to ensure that your tax affairs are concurrent with the latest regulations. Bearing in mind the potentially restricted days allowed in the UK, it makes sense to do this in advance to plan days accordingly.