The statutory residence test (SRT) for individuals has been effective since 6 April 2013. The test must be applied in a strict order:
- An individual will be resident in the United Kingdom for a tax year if they meet any of the ‘automatic residence tests’.
- If they don’t meet any of the ‘automatic residence tests’, but do meet any of the ‘automatic non residence tests’, they will be non-UK resident for the tax year.
- If they do not meet any of the ‘automatic residence tests’ nor any of the ‘automatic non residence tests’, the ‘sufficient ties test’ is applied to determine their residence status.
Each of the tests and the underlying elements are defined to some extent in UK tax legislation, and HMRC have produced extensive guidance.
There are four ‘automatic UK residence tests’:
- Spending at least 183 days in the United Kingdom in the year. An individual will be present for a day if they were in the United Kingdom at the end of the day, unless they were only in the United Kingdom for either ‘exceptional circumstances’ or they were in transit between arrival in the United Kingdom and departure from the United Kingdom. These exceptions are subject to an additional 'deeming rule' that looks at the individual’s presence in the United Kingdom, their ties to the United Kingdom, and their UK residency position in the prior three tax years. Where the deeming rule applies, any of these days in excess of 30 days will be treated as days in the United Kingdom for the 183 count.
- The individual’s only home is in the United Kingdom for at least 91 days in the year.
- Working full-time in the United Kingdom for a period of 365 days, and, during that period, there are no significant breaks from UK work and all or part of that period falls within the year; where full time work is on average 35 hours or more per week over the period.
- Dying in a tax year when you were previously automatically resident for the previous three tax years and where the individual had a home in the United Kingdom.
There are four ‘automatic overseas tests’ (i.e. for non-UK residence):
- If the individual was UK resident in one or more of the three prior tax years and they spent less than 16 days in the United Kingdom in the year in question.
- If the individual was not UK resident in any of the three prior tax years and they spent less than 46 days in the United Kingdom in the year in question.
- If the individual works full-time overseas in the year in question, they spend less than 31 days working in the United Kingdom, and they spend less than 91 days in the United Kingdom; where a UK workday is a day on which an individual works more than three hours in the United Kingdom.
- Dying in a tax year when the individual was not UK resident in any of the two prior tax years and they spent less than 46 days in the United Kingdom in the year in question.
The ‘sufficient ties’ test is met if the individual does not meet any of the automatic UK tests or the automatic overseas tests but has ‘sufficient UK ties’ in a year to make them UK resident. The possible ties are set out in the legislation. They are the family tie, the accommodation tie, the work tie, the 90 day tie (i.e. 90 days or more spent in the United Kingdom in either of the previous two tax years), and the country tie (i.e. the United Kingdom is the country in which an individual spends most of their time).
If an individual has been a UK-tax resident for one or more of the preceding three tax years, they have to consider all of those ties; otherwise, they can ignore the country tie. The more days an individual spends in the United Kingdom, the fewer UK ties are needed for them to pass the sufficient ties test and be UK resident. This ranges from one tie if they spend more than 120 days in the United Kingdom to four ties if they spend fewer than 46 days in the United Kingdom.
The SRT legislation states that up to 60 days spent in the United Kingdom due to exceptional circumstances, which prevent an individual from leaving the United Kingdom, can be disregarded when calculating days spent in the United Kingdom. The COVID-19 pandemic has impacted where many individuals lived and worked since March 2020, and this in turn may affect an individual’s UK residence position and liability to UK taxation. The normal SRT rules continued to apply but with some modifications. For example, HMRC published guidance as to whether days spent in the United Kingdom can be disregarded for the purposes of some SRT tests. Examples of such 'exceptional circumstances' include being required to self-isolate or being unable to leave the United Kingdom due the closure of international borders. In addition, HMRC issued guidance on the taxation of non-UK residents who work in the United Kingdom as a result of COVID and the Organisation for Economic Co-operation and Development (OECD) has advised on how to apply Double Tax Agreements where COVID has impacted where employees are living and working.
If an individual is domiciled outside the United Kingdom, this has a significant impact on their UK tax status under current legislation. An individual’s domicile is usually the country or state in which they have their permanent home and typically follows that of their father if their parent were married when they were born. As an example, a person whose family came from France and continues to have ties to France is likely to be considered as domiciled in France, even if they have lived in the United Kingdom for a number of years, provided they can demonstrate to HMRC when and in what circumstances they will return to France. The individual must have strong evidence to be able to demonstrate they do not intend to reside in the United Kingdom permanently or HMRC are likely to contend they have obtained a domicile of choice in the United Kingdom.
Domicile is an area that HMRC are looking into very closely and are raising enquiries into claims for non-UK domicile status.
The United Kingdom now has the concept of deemed domiciled for all UK taxes as of 6 April 2017 once an individual has been UK resident for 15 out of the previous 20 tax years.