Written by Ray Coman
Prior to the 2013-14 tax year, residence in the UK had been determined by case law and HMRC interpretation. However with effective from 6 April 2013, a residence test has been made statue. The statutory definition of residence is effective for corporation tax, income tax, inheritance tax and capital gains tax.
There is a three step process to determining if a person is UK resident. The first is to consider whether a person is automatically non-resident and the second is to assess whether a person is automatically resident. If neither of the first two tests provide a clear indication as to residency, then the extent to which an individual has sufficient ties with the UK should be the deciding factor.
A person is automatically non-resident for a tax year if:
- UK resident for one or more of the preceding three tax years, and spends less than 16 days in the UK in the tax year; or
- Not UK resident for any of the preceding three tax years, and spends less than 46 days in the UK in the year; or
- Works overseas and spends less than 91 days in the UK. There must be less than 31 days in the tax year in which the individual works for three hours or more in the UK. Exemptions apply to individuals who work on board a vehicle, ship or aircraft.
An individual is deemed to work full time outside the UK, if on average working more than 35 hours a week. In calculating the average hours worked the following can be disregarded:
- Days spent working in the UK for more than three hours (even if hours were also worked abroad on the same day.) Hours spent on business travel are counted as hours of work.
- Gaps between employments. A gap of longer than 15 days will, however, be regarded as a gap of 15 days only.
- Days of absence for annual leave, sickness or parenting, whether statutory or agreed with the employer. For self-employed persons, allowable absences should be equivalent to those afforded to an employee in a similar line of work. Weekends are only disregarded if embedded in a period of leave.
A person is UK resident in a tax year if:
- Present in the UK for more than 183 days.
- An individual has a UK home for a period of 91 consecutive days of which 30 fall into the tax year and, during the tax year:
- Spends less than 30 days in any overseas home; and
- Spends more than 30 days in a UK home.
For this test, a person will be treated as present for a day if present for any part of that day.
- Working full time in the UK for a period of 365 days during which one or more work days fall into the tax year. To be working in the UK, at least three quarters of the work days must be days spent working in the UK. A work day is a day in which three hours or more are spent working, either as employed or self-employed. To be working full time, a person must work on average at least 35 hours a week. The annual average hours worked should exclude days spent working abroad, on annual, parenting or sick leave, and for gaps in employment, capped at 15 days.
Where neither of the automatic tests establish residence, it should be determined by the number of days present in the UK and the number of ties to the UK. If a person has been resident in the UK for one or more of the preceding three tax years, then they would be resident if they have an accommodation, family, 90-day or work tie, according to the following table:
|Days present in the UK Number of ties||Number of ties|
|Over 120||Two or more|
|91- 120||Three or more|
|46 - 90||All four|
If a person has been not been UK resident for any of the preceding three tax years, then residence will be established by the four ties above, and also the country tie, as per the following table:
|Days present in the UK Number of ties||Number of ties|
|Over 120||Any one|
|91- 120||Two or more|
|46 - 90||Three or more|
|16 - 45||Four or more|
A family tie is established where a person has a spouse, civil partner or child under the age of 18 resident in the UK. For this purpose spouses include two people living together as though they are married. There is no family tie if a person spends less than 61 days a year with their child. There is also no deemed tie to a child who is UK resident as a result of being in full time education but spends less than 21 days outside of term time in the UK.
A person has an accommodation tie if a residence is available for a period of 91 consecutive days during the tax year, and that person spends at the least one day in the accommodation. An accommodation tie is also established by spending at least 16 days at the home of a close relative. A close relative is defined as a child or grandchild under 18, a sibling, parent or grandparent. A gap of less than 16 days is disregarded when considering a continuous period of availability.
A work tie occurs where a person spends more than 40 days a year working in the UK of a tax year. A work day includes any day in which a person works three hours or more.
The 90-day tie results from being present in the UK for 90 days in one, or both, of the preceding two tax years.
A country tie is made where the UK is the country in which a person has been present the most.
For the purpose of establishing a sufficient tie, a person has usually spent a day in the UK if physically present at midnight, unless in transit only, or in the UK for exceptional circumstances.
As seen so far in this guidance, the residency of a person is determined by reference to the tax year, and accordingly UK residency will start or cease from the 6 April. However, if certain conditions are met, it is possible to split a tax year so that UK residence changes on the date that a person arrives in the UK or leaves the UK.
For the split year treatment to apply, an arriver or a leaver must be UK resident for the tax year which is to be split.
A taxpayer can split the tax year, where they leave the UK, if that person is resident in the preceding tax year, and not resident in the following tax year, and if any of the following apply:
- A person leaves the UK to take up full time work abroad.
- The person is the accompanying spouse of a leaver who is departing the UK to take up full time work abroad.
- A person ceases to have a home during the tax year, and still does not have a UK home at the end of the tax year. Upon ceasing to have a UK residence the individual must spend fewer than 16 days in the UK for whatever remains of the tax year.
A person can treat that part of the tax year in which they arrive in the UK as a period of non-residence in the following circumstances:
- A person starts to have a UK home during the tax year, and that person was not resident in the preceding tax year. It is also a requirement that the arriver was not UK resident for the part of the tax year preceding their arrival according to the sufficient ties test. The limit for the number of days used in the sufficient ties test is scaled down according to the length of the period between the start of the tax year and the date of arrival.
- An individual starts work in the UK, and meets the third automatic test for UK residence. A person must not be resident in the preceding tax year, or resident for the part of the year prior to arrival according to the sufficient ties test.
- An individual (or that persons' accompanying spouse) ceases to work overseas prior to their arrival in the UK. Neither the arriver, nor accompanying spouse, should not be resident in the preceding year, according to the third automatic test for non-residence, and must be resident in the year following the year of arrival.
A person will be temporarily non-resident where not UK resident for four out of the seven years prior to departure and non-UK resident for less than five years following departure. In some cases the date of departure or arrival will be deemed to be the start of the tax year.
Where a person is only temporarily non-resident, a liability to capital gains tax can arise on disposals made during the period of non-residence. Temporary non-residence also causes an income tax liability on certain income arising while non-resident. Examples include certain taxable lump sums from a pension, certain payments from a close company and foreign income remitted to the UK for remittance basis users.
The rules on residency can be complex. Nevertheless the tax implications are significant. A UK resident will typically be entitled to a full personal allowance, whereas a non-resident will not normally be taxable on foreign income. It is beyond the scope of this article to provide comprehensive advice on the topic. However, please contact us if your circumstances are such that you feel you would benefit from the assistance of a tax professional.