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Statutory Residence Test

The Statutory Residence test has been up dated

The statutory residence test looks at whether, and to what extent, an individual is liable to UK taxation.   With effect from 6 April 2013 the ordinary residence concept was abolished and replaced with the Statutory Residence Test “SRT”.   The SRT applies for the purposes of establishing your residence status for the liability for Income Tax, Capital Gains Tax, and Inheritance Tax.  There are 2 key factors that need to be considered:-

  1. Residence
  2. Domicile

The statutory residence test is a three part test being an automatic non-residence test (not a statutory term), an automatic residence test and a sufficient ties test. 

The basic rule is that an individual is UK resident for a tax year if:

  • the automatic residence test is met for the year, or
  • the sufficient ties test is met for the year

The automatic resident test is met for the tax year if the individual meets:

  • at least one of the automatic UK tests, and
  • none of the automatic overseas tests

The sufficient ties test is met for the tax year if the individual:

  • meets none of the automatic UK tests and none of the automatic overseas tests, but has sufficient UK ties for that year
  • Therefore, an individual cannot be UK resident if he meets any of the automatic overseas tests - because he cannot also fall within either the automatic residence test or the sufficient ties test.
  • The place to start when determining residence status under the statutory residence test is with the automatic overseas tests. You then move to considering the automatic UK tests. If none of the automatic overseas tests and none of the automatic UK tests are met you then need to consider the sufficient ties test.
  • The automatic overseas tests, automatic UK tests and sufficient ties tests are all considered in detail below.

There are five automatic overseas tests, which are that, the individual:

  1. was resident in the UK for one or more of the previous three tax years and is present in the UK for fewer than 16 days in the current tax year (and it is not the year of death)
  2. was not resident in the UK for all of the previous three tax years and he is present in the UK for fewer than 46 days in the current tax year
  3. meets the 'work abroad' test
  4. dies in the tax year having spent fewer than 46 days in the UK and was not resident in the UK in both of the two previous tax years
  5. dies in the tax year and would have been treated as meeting the working abroad test if the conditions were modified to take into account the death (and conditions are met as to his residence status in the previous two years)

There are four automatic UK tests. An individual is UK resident if he meets any one of these tests, and does not meet any of the automatic overseas tests. The tests are that the individual:

  1. is present in the UK for 183 days or more in the tax year
  2. has a home in the UK
  3. carries out work in the UK, or
  4. dies in the tax year, has a home in the UK and was resident in the UK for the previous three tax years (and the immediately preceding year was not a split year). Note that there is no requirement that the person is actually present in the UK in the year of death.

Home in the UK

This test is met if all of the following three conditions are met:

  1. the individual has a home in the UK for all or part of the tax year
  2. he is present at that UK home (whilst it is his home) for a total of at least 30 days during the tax year
  3. here is at least one period of 91 consecutive days:

a) which occurs while the individual has that UK home

b) where at least 30 days of that 91 day period falls in the tax year, and

c) where throughout that 91 day period the individual (i) has no home overseas or (ii) has one or more home(s) overseas but where he is present there for a total of fewer than 30 days during the tax year.

This is a very complex area.  Individuals need to discuss the implications for them with their professional adviser, if they think that they may fall within the new SRT rules.

http://www.hmrc.gov.uk/international/rdr3.pdf