The UK authorities are changing the rules when it comes to tax residence in the UK. The current rules are considered complicated and unclear. The intention of the new rules which were originally to come into force in April 2012, but due to complications raised as part of the consultation phase are now to take effect from April 2013 is make clear rules to establish if a person is classed as resident in the UK for tax purposes.
The proposals centre around a series of conclusive tests in order to establish residency. Please see below a summary of these, please note that until the Finance Bill 2013 receives Royal Assent these may be subject to further amendment.
Automatic Residence Test
First Automatic Overseas Test – if you were resident in the UK for one or more of the three tax years preceding the tax year and you spent fewer than 16 days in the UK in the tax year. Second Automatic Overseas Test – you were resident in the UK for none of the three tax years preceding the tax year, and you spent fewer than 46 days in the UK in the tax year.
Third Automatic Overseas Test – you worked full time overseas for the tax year without any significant break from that overseas work and you spent fewer than 91 days, excluding deemed days, in the UK in the tax year and the number of days in the tax year on which you work for more than three hours in the UK is fewer than 31.
If you meet any one of the above tests then you ought not to be considered resident in the UK for the tax year. However, if you do not meet any of these tests then you should look at the automatic UK tests.
First Automatic Residence Test – You spend 183 days or more in the UK in the tax year.
Second Automatic Residence Test – this is where you live in a home in the UK for a period of more than 90 days or you are present in that UK home on at least 30 separate days during the tax year. Whilst you have this UK home you are still UK resident if there is a period of 91 consecutive days when you have no overseas home or have one or more homes overseas in none of which you are present in for more than 30 days during the tax year. If you have more than one home in the UK, you should consider each of those homes separately, so if you spend time at each home which do not exceed 30 days even though you have spent more than 91 days in homes in the UK you do not meet this automatic residence test.
Third Automatic Residence Test – you work full time in the UK for 365 days or more with no significant break from UK work and all or part of that work period falls within the tax year. Please note that this full time work part of the test does not apply if you are an international transportation worker, meaning that your job consists substantially of duties performed on board a vehicle, aircraft or ship as it makes international journeys.
If you have not met any of the automatic overseas tests and you did not meet any of the automatic residence tests then you should look at the sufficient ties test.
Sufficient Ties Test
This looks at the following areas;
- Family – meaning husband, wife, civil partner, child, parent or grandparent, brother or sister
- Accommodation – if you have a place to live that is available to you for a continuous period of 91 days or more during that year.
- Work – you will have a work tie if you work more than three hours a day in the UK on 40 days or more.
- Number of days spent in the UK – if you have a 90 day tie for a tax year if you have spent more than 90 days in the UK in either or both the previous two tax year
- Whether you spend more time in the UK than any other country.
Please note that time spent in the UK due to exceptional circumstances may not count towards your total day count. Exceptional circumstances are generally circumstances out with your control, for instance if you are unable to travel due to sickness or accident.
If you work voluntary and have no contract this does not count as work for the purposes of these tests.
To help digest the above information please see the below further summarized for ease;
- Few than 45 day – always not resident
- 45-89 days resident if four connecting factors otherwise not resident
- 90-119 days resident if three or more connecting factors otherwise not resident
- 120-182 days resident if two or more connecting factors otherwise not resident
- 183 days of more always resident
You can also be entitled to split year treatment if you leave the UK to work full time overseas or vice versa.
If you are unsure if you meet any of the above tests then advise should be taken as to what your residency is.