Introduction »

To be or not to be… resident

The Government has published a consultation document on its plans for a statutory residence test (SRT). The aim is to enable taxpayers to assess their residence status in a straightforward way. Furthermore, it will enable those who come to the UK on business, as employees or investors, to have a clear view of their tax treatment.

Tax residence has an important bearing on an individual’s UK tax liability, especially if they have overseas income or capital gains. At present there is currently no full legal definition of tax residence, which means that the rules are unclear, complicated and seen as subjective. Instead, the definition largely rests on legal cases decided in the courts over a long period of time and is based on a world completely different from today’s fast paced global environment. The current uncertainty for individuals about their residence status is seen as a deterrent to businesses and individuals investing in the UK.

The SRT will be based on the amount of time an individual spends in the UK and other connections they have with the UK.

The SRT will:

• determine tax residence for individuals not companies
• apply for the purposes of income tax, capital gains tax and inheritance tax
• not apply for non tax purposes and
• supersede all existing legislation, case law and guidance.

Part A of the test lists various alternative conditions. Where one of the conditions is met then the individual is to be treated as not resident.

If you do not fall within Part A of the test you would then need to consider Part B or Part C.

Part B of the test outlines precise circumstances which will determine when an individual is resident for the tax year.

Part C of the test only applies to individuals whose status is not determined by Part A or Part B. A number of factors are considered to be relevant to an individual’s resident status but only when linked to the amount of time that person spends in the UK. An example of such a factor would include accessible accommodation in the UK.

These factors would then be combined with days spent in the UK on a sliding scale to determine the individual's residence status.

Finally, changes will also be made to the existing split year treatment whereby a tax year can be split into periods of residence and non residence.

We will keep you abreast of these changes as they evolve prior to the planned introduction from 6 April 2012. If you need any further advice at this stage please do get in touch.

Introduction »