UK residence test – a closer look at some of the detail

By: BILL BLEVINS | [email protected]

Bill Blevins is Managing Director of Blevins Franks. He has specialised in expatriate investment and tax planning for over 35 years. He has written books and gives lectures on this subject in Southern Europe and the UK

A few weeks ago I wrote an article in the Algarve Resident on the latest proposals for the UK’s new Statutory Residence Test (SRT). The article covered the basic elements of the test and what has changed since last year.  

The SRT will be a definitive test of residence depending on the number of days you spend in the UK and your ties with it. The more “connecting factors” you have, the fewer days you can spend in the UK before you become UK resident.  

The new test is to provide more certainty for expatriates as to whether or not they are UK tax resident and therefore liable to UK income and capital gains tax. However, ‘certainty’ does not necessarily mean ‘simplicity’, as evidenced by the fact that the latest Treasury document runs to over 120 pages.  

Expatriates should still take advice to clarify their position. Blevins Franks has in depth knowledge and experience of the tax and residence laws of both the UK and Portugal and how they interact.

This week I take a closer look at some of the detail which could affect your residence status.

“Only home”  

Anyone whose “only home” is in the UK will always be considered UK tax resident, regardless of how few days they spend there a year. This rule remains in place even though respondents to last year’s consultation document argued this very low bar would make many people automatically resident, and that the subjective term ”only home” could cause uncertainty.  

The government said it was too difficult to provide a precise definition, but it is confident that most people will know where their home is.

It did, however, provide some guidelines. A UK property will not meet the “only home” condition if it is a holiday home, or if you also have a home overseas, or if it is available for 91 days or less a year. Ownership is not a determining factor.

Connecting factors – family and accommodation  

Many respondents argued that having family (spouse, minor children) and accommodation as separate connecting factors equated to double counting and unfairly penalises families.

The government, however, kept them as two factors, making it easier for anyone with UK resident family to be caught out, arguing that having a home and family makes for a stronger connection than just having accommodation available in the UK.

However, this rule was relaxed slightly – whether or not your family has available accommodation is now irrelevant; only accommodation used by yourself is taken into account if it is available to you for a continuous period of 91 days in a tax year and you spend at least one night in it during the tax year.

A day in the UK  

Day counting refers to the number of midnights you spend in the UK during a UK tax year (April 6 to April 5).  

The government has concerns that this could be open to manipulation, so it is considering a supplementary rule to apply to anyone who spends a large number of days in the UK but always leaves before midnight.

Transitional rule  

A transitional rule will be introduced whereby you can apply the new rules to determine residency in any of the three years prior to the date the SRT comes into effect. However, you can only do this if you need to know what your residence status was then, to determine your residence in future years (i.e. whether you fall into the leaver or arriver category). Otherwise the existing guidelines continue to apply up to April 5 2013.  

Exceptional circumstances  

The government will allow days in the UK to be disregarded under exceptional circumstances. This is where you are in the UK for reasons beyond your control, such as national or local emergencies (civil unrest, natural disasters etc) or sudden or life-threatening illness or injury. It does not mention what happens if your spouse suffers an illness, nor does it include cases where you choose to undertake medical treatment or look after a sick relative in the UK.  

Split years

Under UK tax rules an individual is either resident or not resident the whole tax year. There is, however, an Extra Statutory Concession which can permit split year treatment for certain types of income and capital gains. The government now intends to place the split-year basis on a statutory footing and lists situations where a tax year can be split.

You can spend 16 days back in the UK in the tax year of departure without losing split year treatment, but you must have no home in the UK to achieve this.

The proposed new rules are a major advance in providing certainty for British expatriates. Nonetheless they are still complex and confusing to the non tax specialist, and some of the finer detail could trip you up and prove costly. You also need to take your local residence rules into account and a tax treaty can affect your position.

Blevins Franks is highly experienced in both residence and domicile matters and can guide you through the rules and help plan the best way forward for you. The tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; an individual must take personalised advice.

To keep in touch with the latest developments in the offshore world, check out the latest news on our website www.blevinsfranks.com