Home and Away: An Overview of UK Tax Residence
What is The Statutory Residence Test?
The Statutory Residence Test (SRT) was introduced from 6 April 2013, to allow individuals (such as UK expats) to determine their UK tax residence status.
Where an individual is a UK tax resident, they are subject to UK tax on their worldwide income and gains. Where they are non-UK tax resident, then broadly, they will only be subject to UK income tax on their UK source income, such as income from UK property, interest from UK bank accounts, dividends from UK companies etc.
Specific rules apply for capital gains tax, and in particular on disposals of UK land/property.
The Statutory Residence Test – Necessary Steps
The SRT is made up of 3 sets of tests, which are considered in order. These are:
- Automatic Overseas Tests
- Automatic UK Tests
- Sufficient Ties Test
An individual’s number of days in the UK in the tax year (6 April to 5 April each year) is also considered when applying the tests. The general rule is that HMRC regard any day you are in the UK at midnight as a day spent in the UK.
The Automatic Overseas Test
The first tests to consider are the Automatic Overseas Tests. Where any one of these tests are met, you will be automatically non-UK resident for the whole tax year. The tests are as follows:
- You have been UK tax resident for one or more of the three previous tax years prior to the tax year, and spend fewer than 16 days in the UK in the tax year.
- You have been non-UK resident in all of the three preceding tax years, and spend fewer than 46 days in the UK in the current tax year.
- You work full-time overseas in the tax year (including amongst other conditions, spending fewer than 91 days in the UK, working in the UK for fewer than 31 days, and having no significant breaks from overseas work).
The Automatic UK Test
If you do not satisfy any of the Automatic Overseas Tests, the next step is to consider the Automatic UK Tests as follows:
- You spend 183 days or more in the UK in the current tax year.
- There is at least one period of 91 consecutive days where:
- You have a home* in the UK
- 30 days of the 91-day period fall within the tax year
- Throughout the 91 days, you either have no overseas home*, or any home you have overseas is one where you are present for less than 30 days in the tax year (*whether a property is your ‘home’ for the purposes of the SRT will depend on the circumstances).
- Amongst other conditions, you work an average of 35 hours per week in the UK over a period of 365 days, all or part of which fall within the tax year, and you have no significant breaks from UK work.
Where any of the above tests are met, you will be UK tax resident for the whole tax year.
The Sufficient Ties Test
If none of the above automatic tests are met, the sufficient ties test is considered. The number of ties required for UK tax residence will depend upon the number of days you have spent in the UK in the tax year, and whether you have been UK tax resident in one or more of the three tax years prior to the tax year in question.
The ties are as follows:
- Family Tie – You have at least one family member who is UK tax resident in the year. A family member includes a spouse/civil partner and child under 18 (where you see the child on at least 61 days in the tax year).
- Accommodation Tie – You have a place to stay in the UK that is available to you for a period of at least 91 consecutive days in the tax year, and where you stay for at least 1 day in the tax year. Note, where the property belongs to a close relative, you will need to spend at least 16 nights there in the tax year.
- Work Tie – You have worked in the UK for a minimum of 3 hours per day for at least 40 days in the tax year.
- 90 Day Tie – You have spent at least 90 days in the UK in at least one of the two previous tax years.
- Country Tie – You have spent more days in the UK in the current tax year than any other country (this latter test only applies where you have been UK resident in one out of the 3 previous tax years).
Where you do not have sufficient ties to be a UK tax resident, you will be considered a non-UK tax resident for the tax year.
Split Year Treatment
If you are a UK resident for a specific year and have departed from the UK or arrived in the UK at some point during this year, then it is possible to ‘split’ the tax year into a period of UK tax residence, and a period of non-UK tax residence, subject to meeting the conditions of at least one of the eight split year cases.
If the number of days you have spent in the UK has increased or decreased as a result of the ‘exceptional circumstances’ caused by COVID-19, then you may be able to exempt these days when calculating your residency status.
If you have any queries around any of the topics discussed in this article around your residency status, please do not hesitate to get in contact with a member of the team for expert tax advice.