How to determine a client’s status under the statutory residence test.
A Statutory Residence Test (SRT) was introduced with effect from 6 April 2013, the aim of which is to provide more certainty in determining whether a person is regarded as resident or non-resident for UK tax purposes.
Subject to the split year treatment where there are certain changes of circumstances, an individual who, in accordance with the statutory residence test, is resident (or not resident) in the UK for a tax year is regarded as being UK resident (or not UK resident) at all times in that tax year.
The SRT considers the amount of time an individual spends in the UK and any other connections they have with the UK and is divided into three parts:
automatic overseas test
automatic residence test
The tests are applied in strict order; if none of the steps in the automatic overseas test applies, the person is not conclusively non-resident and you need to consider the automatic residence test.
If none of the steps in the automatic residence test applies, the person is not conclusively resident, so you need to consider the sufficient ties test.
Automatic overseas test A person will be conclusively non-resident if they meet any of the three overseas tests, namely:
A person is resident in the previous three tax years but present in the UK for fewer than 16 days in the current tax year
A person is non-resident in all of the previous three tax years and present in the UK for fewer than 46 days in the current tax year
A person meets the work abroad condition. The work abroad condition is met where a person works abroad for an average of at least 35 hours per week assessed over the whole tax year and does not have any significant breaks from overseas work. The person must not be present in the UK for 91 days or more in the tax year and must spend fewer than 31 days working in the UK.
Automatic residence test A person will be conclusively resident if they meet any of the three automatic residence tests listed below:
A person is present in the UK for 183 days or more in the current tax year
A person has a home in the UK
A person carries out full-time work in the UK for a period of at least 365 days
A person will be regarded as having a home in the UK where they are present in that home on at least 30 separate days during the tax year and whilst they have a home in the UK, there is a period of at least 91 consecutive days when either of the following two conditions are met:
Condition A - they do not have an overseas home, or
Condition B - they do have an overseas home but are present in that home on fewer than 30 separate days during the tax year.
Sufficient ties tests If an individual is not conclusively resident or not resident when applying the above tests, it is necessary to turn to the sufficient ties test. It looks at both the number of days spent in the UK in a tax year and the number of ties an individual has with the UK. The ties are defined in the tax legislation as:
Presence (more than 90 days in either of the last two tax years)
Country (only applicable if the individual was resident for one or more of the preceding three tax years).
The ties are applied differently depending on whether an individual is an ‘arriver’ (not resident for any of the previous three tax years) or a ‘leaver’ (resident for one or more of the previous three tax years).
Family tie exists if an individual’s spouse, civil partner, common law partner or minor child is resident in the UK for the year.
Accommodation tie exists if an individual has a place to live in the UK, and that place is available for a continuous period of at least 91 days, and they spend at least one night at that place during the year. A ‘place to live’ includes a holiday home or even a hotel and may include the home of a close relative.
Work tie exists if an individual works in the UK for at least 40 days in the year, whether continuously or intermittently.
90 day tie exists if an individual spends more than 90 days in the UK in one or both of the preceding two tax years.
Country tie exists if an individual spends more days in the UK than any other country during the year.