Posted by Nick Day on 22 Dec 2011

UK Statutory Residence Test (SRT) Update

In June this year, we advised our clients that a Statutory Residence Test (SRT) was due to be introduced by the UK Government with effect from 6 April 21012. The proposed test was to be introduced to give individuals clear guidance and certainty in determining their UK tax residence status from this date. The briefing paper we sent out in June can be found here – UK Statutory Residence Test and Non-Domiciled Reforms

The Government has recently announced that it has decided to delay the introduction of the new SRT until 6 April 2013.

This is frustrating for all. The official reason for the delay is that HM Revenue and Customs (HMRC) need time to consider issues that arose as a result of the consultation process with the public, but there is no guarantee that the test will not change significantly from the previously proposed measures.

We assume that the current rules for determining UK tax residence, which are a mixture of mainly HMRC practice/guidelines and case law, will continue to apply at least for the 2011-2012 and 2012-2013 years.

Non-Domiciliaries
The draft 2012 Finance Bill contains details of the proposed increase in the annual remittance basis charge from £30,000 to £50,000 for longer-term UK residents, and a significant new relief for remittance basis users who wish to invest in a UK business. The Government intends for both measures to be introduced from 6 April 2012 onwards.

The proposed investment relief should offer the opportunity for those individuals with “non-dom” status to invest in the UK without creating UK tax liabilities in certain circumstances.

On a positive point it has been clarified that residential property companies will be able to qualify as an “investment” for these purposes, provided that any non-trading activity gives rise to less than 20% of overall business activities.

Non-doms who are interested in investing in a UK business should:

  • Start considering what other consequences would result from claiming the remittance basis, if they do not elect for this basis on their tax returns at present;
  • Prepare any necessary re-ordering of their affairs and overseas funds/assets, to ensure arrangements are in place and investments will be available when required;
  • Search for an appropriate business in the UK to invest in, or prepare to set up a new business; and
  • Undertake the usual remittance basis planning required – for example segregating/ring fencing income and capital accounts, setting up trusts, etc.

It has been announced that following the introduction of these measures, there will be no other substantive changes to the UK taxation of non-domiciliaries before the next general election which brings welcome stability and should allow efficient tax planning to take place.

As always, if you feel you need advice in these highly complex areas, please do not hesitate to contact us.