Residency is an important concept in tax. This is because you pay tax depending on where you are resident (and domiciled) as seen by the post “ Should you pay Tax in the UK on your income?”.
- If you are resident and domiciled in the UK, you pay tax on the arising basis . This means you will have to pay tax in the UK on any income earned throughout the world.
- If you are resident but not domiciled in the UK, you pay tax on the remittance basis. This means you will need to pay tax in the UK on any income earned in the UK and any income remitted (brought back) to the UK which was earned from around the world.
- If you are not resident in the UK, you will only need to pay tax in the UK on income which is earned in the UK.
So you can see, determining your residency status is very important in UK tax law. Thus, in order to determine a persons residency status, HMRC uses the Statutory Residency Test (SRT).
The statutory residence test:
- replaces previous legislation and guidance
- applies only for tax purposes
- applies to individuals but not companies
The SRT applies to Income Tax (IT) and Capital Gains Tax (CGT). In certain circumstances however, the SRT may also apply to Inheritance Tax (IHT).
The basic rule is that an individual is resident in the UK for a tax year if, in the tax year in question, they meet:
- one of the automatic UK residence tests and none of the overseas tests
- or the sufficient ties test.
They will be non-resident in the UK if they meet
- one of the automatic overseas tests
- or fail the sufficient ties test.
The steps in doing the SRT are as follows:
- Does the individual meet first automatic UK Test – If Yes, UK resident. If No, go to step 2
- Does the individual meet one of the automatic overseas yes – If Yes non UK resident. If no, go to step 3
- Does the individual meet first automatic UK Test – If Yes, UK resident. If No, go to step 4
- Does individual meet sufficient Ties Test – If Yes Uk resident. If No non UK resident.
Step 1 – Does individual meet first UK automatic Test
1st UK automatic Test Test – Did the person spend at least 183 days in the UK?
The test is met if the individual has spent 183 days or more in the UK during the tax year in question.
The general rule is that someone has spent the day in the UK if they are here at midnight. There are three possible exceptions to this.
- Exceptional circumstances – Occasionally, someone may be in the UK, for reasons beyond their control.For example, this may be due to a sudden life threatening condition. If this is the case, when counting days in the UK for certain SRT tests including the first automatic UK test, it may be possible to ignore these days. The maximum time allowable for exceptional circumstances is 60 days.
- The deeming rule – A day is spent in the UK if the person is here at midnight. If deeming rule is met, person include all days in the UK after first 30 days even if they are not here at midnight. For deeming rule to apply, the person must have been UK resident in 1 of the presiding 3 tax years, have at least 3 sufficient UK ties for the tax year and have more than 3o qualifying days.
- Transit days – Transit days do not generally count as days spent in the UK, unless the person uses the time in the UK for a purpose substantially unconnected with their travel, such as for a business meeting; having an evening out or catching up with friends
If the individual spends 183 days or more in the UK, then they are a Uk resident for tax purposes.
If they have not spent that amount of days, go to step 2.
Step 2 – Does individual meet any of the automatic overseas tests?
1st Overseas Test – This test is met if the individual was UK resident UKR for one or more of the three preceding tax years and spent fewer than 16 days in the UK during the tax year in question. This test does not apply if the customer dies during the tax year.
2nd Overseas test – This test is met if the individual has a non-resident in the UK in all of the three preceding tax years and spent fewer than 46 days in the UK during the tax year in question.
3rd Overseas Test – To meet this test, the individual must work overseas full-time without any significant breaks during the tax year in question and have
- spent less than 91 days in the UK , and
- not worked for more than 3 hours in the UK on more than 30 days.
The 4th and 5th Overseas tests applies to people who died in the tax year in question.
4th Overseas Test – Someone who dies in the tax year in question is not resident under the fourth automatic overseas test in that tax year if they
- spent fewer than 46 days in the UK and
- they were NR in the UK for the 2 preceding tax years
- or they were NR in the preceding tax year because they met the third automatic overseas test and the tax year before that was a split year under case 1, 2 or 3.
5th Overseas Test – The fifth automatic overseas test is met if the individual who died
- was not resident in the two tax years which preceded their death because the third automatic overseas test applied for each of those years
- or was not resident in the UK in the preceding tax year because of the third automatic overseas test for that year and the tax year before that was a split year.
- and, in either case, met a modified version of the third automatic overseas test in the tax year in which they died.
If any of the above 5 Overseas Test are met, the person is not resident in the UK for tax purposes.
If the tests are not met, go to step 3
Step 3 – Does individual meet any of the automatic UK resident tests?
(Remember 1st automatic UK test was in step 1)
2nd Automatic UK Test – To meet this test, an individual must have a home in the UK for at least 91 consecutive days. At least 30 of these 91 consecutive days must fall in the tax year in question. The individual must spend sufficient time (30 days) in that UK home and either:
- have no overseas home
- or spend no more than a permitted amount of time in an overseas home or homes.
If the individual only has a UK home and owns it for a period of 91 consecutive days, 30 of which are in the tax year and lived at the home for at least 30 days, then they are a UK resident.
If the individual has UK and overseas home, then if they had the UK home for 91 consecutive days, 30 of which are in the tax year and spent less than 30 days in the overseas home, then they are a UK resident.
3rd automatic UK test – This test is met if the individual works full-time in the UK for a period of 365 days, all or part of which falls in the tax year and
- more than 75% of the total number of days when the individual works for more than 3 hours in the 365 day period are days when they work for more than 3 hours in the UK
- and at least one day in the 365 day period when the individual works for more than 3 hours in the UK, was in the tax year under consideration
- and they have no significant break from UK work.
The 4th Automatic UK test applies to people who died in the tax year in question.
4th automatic UK test – This test applies to make a deceased person resident in the UK if the following conditions are met.
The person was UKR in each of the three preceding tax years because they met one of the UK automatic tests.
If the tax year in which they died was a year of non-residence, the previous year was not a split year.
When they died they had a home in the UK and had not spent sufficient time in any overseas home they had in that tax year
If any of the above tests are met, the individual is a UK resident for tax purposes for the year in question.
If no tests are met, go to step 4
Step 4 – Does individual meet Sufficient Ties Test?
Ties that are sufficient depend on two factors:
- UK residence in the previous 3 tax years.
- Days spent in the UK in the tax year under consideration.
|Resident in one or more of previous 3 Tax Years||Non Resident in all Previous 3 Tax years|
|Family Tie||Family Tie|
|Accommodation Tie||Accommodation Ties|
|Work Tie||Work Tie|
|90 Day Tie||90 Day Tie|
So if an individual is resident on at least 1 of the previous 3 tax years, you need to consider if that individual has a family ties, accommodation tie, work tie, 90 day tie and country tie.
If an individual is not resident for any of previous 3 tax years, you need to consider if that individual has a family ties, accommodation tie, work tie and 90 day tie.
To be classes as a UK resident under this test, you need to meet a certain amount of ties which is dependent on the amount of days you have spent in the UK.
|Days in the UK||Resident in any of 3 previous years||Not Resident in any of previous 3 Tax Years|
|16 to 45 days||At least 4 Ties||N/A|
|46 to 90 days||At least 3 Ties||All 4 Ties|
|91 to 120 days||At least 2 Ties||At least 3 Ties|
|More than 120 days||At least 1 Ties||At least 2 Ties|
So If a person has spent 50 days in the UK and has been resident in one of the past 3 years, they need to meet 3 of the above ties to be classes as a UK resident in the current tax year.
On the other hand, If a person has spent 50 days in the UK and has not been a resident in one of the past 3 years, they need to meet all 4 of the above ties to be classes as a UK resident in the current tax year.
Let’s look at the ties for the sufficient tie test in more detail.
- Family Tie: A family tie exists for any tax year in which the individual has a relevant relationship with someone who is UKR in that year. A relevant relationship is one with a
spouse or civil partner, unless they’re separated
partner, with whom the person lives as if they were their spouse or civil partner.
minor child, unless the individual sees their child in the UK on fewer than 61 days during the tax year or, in the part of the year before their 18th birthday, if the child turns 18 during the tax year. This can be at any time of day and for any length of time.
- Accommodation Tie: An accommodation tie exists if the individual has a place to live in the UK and
it’s available for a continuous period of at least 91 days in the tax year
and they spend at least one night there in the tax year. If the property belongs to a close relative, the individual must spend at least 16 nights there for the tie to apply.
- Work Tie: A person has a work tie if they work in the UK for more than 3 hours a day on at least 40 days in that tax year.
- 90 Day Tie: The 90-day tie exists if an individual has spent more than 90 days in the UK in at least one of the two preceding tax years.
- Country Tie: A country tie exists if the individual spends more time in the UK than in any other country. In this case ‘time’ is based on where the individual was at midnight.
If the Sufficient Ties test is met, the individual is UK tax resident for the tax year in question.
If the Sufficient Ties test is not met, individual is not UK resident in the tax year.
(For residence purposes, the United Kingdom consists of England, Wales, Scotland and Northern Ireland, but not the Channel Islands or the Isle of Man. Like the rest of the world, these are foreign, overseas or abroad, for residence purposes.)