UK Tax: What is UK Statutory Residence Test?

UK Statutory residence test (SRT) came into effect on 6 April 2013. It significantly reduced the inherent ambiguity on whether an individual is tax resident in the UK.

The 3 tests within the SRT

There are 3 major tests:

• Automatic Overseas Test
• Automatic UK Test
• Sufficient Ties Test

The application of statutory residence test

You first apply the automatic overseas test and if the outcome is that the individual not UK tax resident then you do not need to apply any of the subsequent tests.

Each major test contains 3 further sub-category tests. If any of these tests determine that you are automatically not resident in the UK, then this is your answer.

This was in fact the intention behind this legislation, to make it clear and simple to determine.

Once you apply the first major test – automatic overseas test and determine that the person is not automatically non-resident in the UK, then you need to apply the next test, which is automatic UK test.

You only need to apply the last test – sufficient ties test if the individual circumstances do not clearly fall under the automatic UK test.

• Automatic Overseas Test

Automatic Overseas Test is made up of 3 tests:

• First Automatic Overseas Test

You are not resident in the UK if you were resident in the UK for one or more of the 3 tax years before the current tax year, and you spent fewer than 16 days in the UK in the tax year.

• Second Automatic Overseas Test

You are not resident in the UK if you were resident in the UK for none of the 3 tax years before the current tax year and spent fewer than 46 days in the UK in the tax year.

• Third Automatic Overseas Test

You are non-UK resident if you work full-time overseas during the tax year and:

• spent fewer than 91 days in the UK in the tax year
• the number of days on which you work for more than 3 hours in the UK is less than 31
• there is no significant break from your overseas work

You’ll be non-UK resident for the tax year if you work full-time overseas over the tax year and:

• you spend fewer than 91 days in the UK in the tax year
• the number of days on which you work for more than 3 hours in the UK is less than 31
• there is no significant break from your overseas work
• Significant break when at least 31 days go by and during none of these days you:
• work for more than 3 hours overseas
• would have worked for more than 3 hours overseas, but you did not do so because you were on annual leave, sick leave or parenting leave

If you have a significant break from overseas work, you will not qualify for full-time work overseas.

• Automatic UK Test

Automatic UK test is made up of three tests:

• First Automatic UK test

You are resident in the UK if you spent more than 183 days in the UK during the tax year.

• Second Automatic UK test

You are resident in the UK if you have or had a home in the UK during the tax year and:

• there is or was at least one period of 91 consecutive days when you had a home in the UK
• at least 30 of these 91 days fall in the tax year when you have a home in the UK and you have been present in that home for at least 30 days at any time during the year
• at that time you had no overseas home, or if you had an overseas home, you were present in it for fewer than 30 days in the tax year

If you have more than one home in the UK you need to consider each of those homes separately if you meet the test. You need only meet this test in relation to one of your UK homes.

• Third Automatic UK test

You are resident in the UK if all apply:

• you work full-time in the UK for any period of 365 days, which falls in the tax year
• more than 75% of the total number of days in the 365 day period when you do more than 3 hours work are days when you do more than 3 hours work in the UK
• at least one day which has to be both in the 365 day period and the tax year is a day on which you do more than 3 hours of work in the UK

• Sufficient Ties Test

Sufficient ties test makes you tax resident in the UK based on the “ties” you have to the UK and the days spent during the tax year.

These are the 4 ties:

• a family tie – your family lives in the UK (it may also be your minor children studying in the UK, a boarding school for example)
• an accommodation tie – you have accommodation available to you in the UK, please note that you do not necessarily need to own it and it can be provided to you
• a work tie – you work in the UK
• a 90 day tie – applies to persons who spent 90 days in the UK during the previous tax year

This a simplified explanation of the sufficient ties test. The rule of the thumb is, the more ties you have to the UK and the more time you spend in the UK during any given tax year, the more likely you are to meet UK sufficient ties test and become tax resident in the UK.

Split Year Treatment and the Application of SRT to a Deceased Person

As you consider the provisions of the UK Statutory Residence test, you need to be aware that a split year treatment applies for the new arrivals and leavers.

 As well as, there are specific rules for the deceased persons.

• Split Year

Split year treatment under SRT allows you split your UK tax year into an overseas and a UK part if you were not resident in the UK for the whole year.

There are specific split year statutory cases that you need to consider for the part of the year that is actual or deemed departure (cases 1 to 3) from the UK or an arrival to the UK (case 4 to 8).

The ordering priority rules apply if more than one case applies.

• SRT Application to Deceased Persons

Further two automatic overseas tests only apply to deceased persons:

• Fourth automatic overseas test
• Fifth automatic overseas test

More detailed guidance applies for each of these tests that need to be assessed individually.

Double-Taxation Treaties and UK SRT

UK Statutory Residence Test helps to determine whether you are resident in the UK under UK’s domestic legal provisions.

Double-taxation treaties contain specific tie-breaker clauses to help determine individual’s residence between the two countries that are signatories of the respective double-taxation treaties.

Why Do You Need a UK SRT Applied to Your Circumstances?

UK introduced a sufficiently clear test to determine your UK tax residence status in the UK.

Although, the test may appear to be sufficiently clear these are still nuanced provisions that need professional care and attention and help you with your UK tax planning and protect your worldwide assets as you start to continue to spend more time in the UK.

Your yourself may continue to live overseas, but significant annual presence of you family members in the UK may spillover into the unintended your own UK tax residence in the UK.

Ever since, the SRT was introduced it became a common practice with our clients to apply for the initial assessment of your personal circumstances to make sure that you become or do not become tax resident in the UK.

In fact, the SRT assessment became one of the most popular of our services with our clients.

You cannot implement your UK tax planning without getting clear on your UK tax residence status.

In fact, HMRC clearly encourages you to document your UK tax residence and domicile status with your UK tax advisor.

Consult the Expert

Book a call with me to discuss your Global Wealth Strategy, including your global assets and how UK tax applies to your circumstances.

 You may submit your enquiry here.

Saule Voluckyte, M.A.E.S, LL.B, FAIA

I have been working exclusively with UHNWI in Mayfair, London since January 2008. I built specialist knowledge and expertise required to serve ultra high net worth individuals investing, operating and relocating to the UK or Switzerland.

Within the industry, I am the single adviser who is able to traverse the different areas of expertise and bring a comprehensive approach across: global structuring, UK immigration, international taxation and FOREX to develop their global wealth strategy, while they build, grow and expand their wealth worldwide.

Previous experience as one of the senior advisors for the government, made me a go-to person when delicate and uncomfortable scenarios involving heads of state need to be handled with care and preserve privacy.