Posted by Nick Day on 13 Jul 2012
UK Statutory Residence Test (SRT)
The UK Government has recently issued a summary of responses to last year’s consultation on a UK Statutory Residence Test (SRT).
Please see our previous articles about the UK SRT:
Statutory Residence Test (SRT) (15/12/11)
The Government remains committed to having a statutory test and to introducing the new rules with effect from 6 April 2013.
The UK SRT will in basic terms have three parts:
- Part A – factors that will conclusively determine when someone is not resident for UK tax purposes.
- Part B – factors that will conclusively determine when someone is resident for UK tax purposes.
- Part C – will apply only to those with more complex affairs who cannot conclusively determine their status under Part A and Part B, using various potential “ties” or connections with the UK to measure the position.
These ties are then referenced against the amount of time spent in the UK to determine whether UK tax residence exists.
Main Government responses/proposals
In determining the conclusive non-residence test (Part A) the proposals are:
- The day count limits are increased slightly and for example, where someone has been UK tax resident in the UK in at least one of the three previous tax years, they can spend up to 15 days per tax year in the UK (increased from previously proposed 10 days) before becoming UK tax resident.
- For individuals leaving the UK to work full time abroad – they will either be allowed to work for 25 days in the UK per tax year (rather the previously proposed 20 days) or the 20 day test will remain, but the Government is considering increasing the number of hours counted towards a “working day” from 3 to 5 hours (so that those working days under 5 hours will possibly be disregarded for the purposes of this test).
In determining the conclusive residence test (Part B) the proposals are:
- The test relating to whether someone has “only one home and that home is in the UK” is kept but where this is the individual’s only home for a short period of time (i.e. it is available for less than 91 days) this test will not be satisfied.
- The “full-time working in the UK” test may be extended to a period of work in the UK of at least 12 months (previously 9 months).
Regarding (Part C) – “ties” to the UK – the main proposals are:
- A minor child will not be treated as creating a family connecting tie if they spend less than 21 days in the UK outside of school term time. This limit is reduced from the originally proposed and more generous less than 60 days limit.
- There are some minor changes to the accommodation tie test – for example, a parent’s home was to count as a UK tie if used for one night but this limit has been relaxed and will not now count if it is used for no more than 15 nights in a tax year.
Other general issues covered in the Government’s response include:
The “midnight rule” for counting days for UK tax residence purposes will remain but the Government is also considering introducing a targeted supplementary rule for those that depart the UK shortly before midnight on a regular basis and maintain strong links with the UK. The Government has stated that it does not want such a rule to affect those who legitimately commute to and from the UK frequently, especially if they do not have significant ties to the UK.
“Ordinary Residence” as a UK tax concept will no longer exist but non-domiciled individuals arriving to work in the UK for less than 3 years should still be able to claim relief for non-UK business travel i.e. their overseas workdays.
We welcome the Government’s on-going commitment to reform the current rules, which are severely outdated.
Each individual should be reviewing their own particular circumstances to ensure that they know what their UK tax residence status will be from 6 April 2013 onwards. It may be easier in some instances to establish non-residence before the end of the 2012-13 year under the current rules rather than wait until after 5 April 2013. If you need any help in establishing what your position will be, please contact us.
We will continue to provide updates on this topic – the Government continues to consult with the UK public and a further update should be available in the autumn.
Tax Innovations Limited, July 2012.
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