Statutory residence test - updated

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While every attempt will be made to ensure that information provided is accurate at the time of publication, it should be treated as guidance only and does not constitute legal or professional advice. Tax law and guidance changes frequently and readers are advised to consult the current relevant publication for the most up-to-date information on this topic.

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As part of Tolley’s commitment to helping accountants get to grips with specialist tax issues we’ll be sharing a series of in-depth extracts from various products in Tolley’s portfolio. This selection looks at the statutory residence test and the two key factors that need to be considered when deciding whether, or to what extent, an individual is liable to tax in the UK.

All of the material in this section has come from TolleyGuidance. TolleyGuidance is a practical, tax technical service with guidance notes, templates and work-flow tools to make your job easier. This is just a flavour of what you can find in the full service -
find out more about TolleyGuidance.

There is also more information on the Statutory Residence Test available in our upcoming Domicile and Residency Issues CPD Seminar, for more information please call 020 33644580.

Introduction to SRT

Whilst some of the links within these resources resolve to publically available websites, others link to documents within Tolley®Guidance which are subscription sensitive (these links are blue to indicate the difference).

[UPDATED 2: This news item was updated on 19 July 2013 for Royal Assent to Finance Bill 2013.]

[UPDATED: This news item was updated on 12 July 2013 for the amendments tabled by the Government on 13 June and which were agreed on 18 June. For a summary of the changes see the Government amendments to the statutory residence provisions news item. Note that, as a result of amendments to the Bill during the parliamentary process, the statutory residence test provisions are now contained in Schedule 45 rather than Schedule 43.]

Residence is one of the two key factors that needs to be considered when deciding whether, or to what extent, an individual is liable to tax in the UK. The other factor being domicile. The concept of ordinary residence was abolished from 6 April 2013 (subject to transitional provisions). See the Finance Act 2013 - abolition of the concept of ordinary residence [updated] news item.

From 6 April 2013, residence is decided by applying a statutory test. This news item covers the differences between the Finance Act 2013 version of the legislation published on 28 March 2013 (as amended on 18 June 2013) and the version published on 11 December 2012. This news item also provides further detail of the statutory provisions with references to the guidance issued by HMRC on 8 May 2013.

For details of the other provisions contained within the Finance Act 2013 in relation to residence, see the following news items:

Note that both the split year and temporary non-residence rules will very frequently need to be considered, as well as the statutory residence test rules, in order to work out the taxpayer's position.

The position for many individuals will be very complicated. HMRC published an on-line residence indicator on 31 May 2013, which gives an ‘indication’ of a person’s residence position. However, this first version does not deal with the interactions between the statutory residence test and the split year and temporary non-residence rules (although this may follow in a later version).

The statutory residence test came into effect following Royal Assent to Finance Bill 2013 and has retrospective application from 6 April 2013. It applies for income tax, capital gains tax, inheritance tax and corporation tax (to the extent that the residence status of individuals is relevant to the latter two taxes). The statutory residence test will not be used for national insurance purposes.

FA 2013, s 215 and Sch 45, para 153

This news item is only intended to be a summary of the rules governing the statutory residence test and is not a substitute for reading the Finance Act 2013 provisions in relation to each point which is relevant to your client(s).

These resources are only intended to be a summary of the rules governing the statutory residence test and is not a substitute for reading the Finance Bill 2013 provisions in relation to each point which is relevant to your client(s).

Differences from the second version of the draft legislation

This resource is only intended to be a summary of the rules governing the statutory residence test and is not a substitute for reading the Finance Bill 2013 provisions in relation to each point which is relevant to your client(s).

Whilst some of the links within this resource resolve to publically available websites, others link to documents within Tolley®Guidance which are subscription sensitive (these links are blue to indicate the difference).

There are differences between Finance Act 2013, Sch 45 and the second version of the draft legislation, which include:

  • automatic UK test - the definition of 'full-time' for the working in the UK test has been significantly amended. In fact the term 'full-time' has been dropped altogether. Instead the average hours worked in the UK is assessed over a 365 day period (weekly UK hours of 35 or more are sufficient). This requires strict contemporaneous record keeping by the individual
  • automatic UK test - amendment of the 'home in the UK' test
  • automatic UK test - amendment of the test which applies if the individual dies in the tax year to include a condition which applies if the individual had a home overseas in the period to the date of death
  • automatic overseas test - again, the definition of 'full-time' for the working abroad test has been significantly amended. Instead of using the term 'full-time' the average hours worked abroad is assessed over the tax year (weekly overseas hours of 35 or more are sufficient)
  • automatic overseas test - the addition of a new test relating to the year of death (taking the total number of tests to five)
  • international transport workers - this term has been removed and the definition of people caught by this anti-avoidance rule has been relaxed
  • the transitional provisions have been extended due to amendments to the Sch 45, Part 3 (split year treatment)

These changes are discussed further here.

Overview of the statutory residence test

The statutory residence test is a three part test: 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

FA 2013, Sch 45, para 3

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

FA 2013, Sch 45, para 5

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

FA 2013, Sch 45, para 17

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.
Note that the conditions of the tests are modified for those who work on ships, planes or lorries. These people were known as 'international transport workers' under previous draft versions of the legislation, but are referred to in Finance Act 2013, Sch 45 as people with a 'relevant job' on board a vehicle, aircraft or ship.

Automatic overseas test

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)

FA 2013, Sch 45, paras 11-16

*This test has been revised in the Finance Act 2013 and is discussed below.

If any of these tests are met then the individual is not resident in the UK in that tax year.

FA 2013, Sch 45, paras 3-5 as read with para 17

See the Finance Act 2013 - statutory residence test - important definitions [updated] news item for the definition of 'work' and for how day-counting works. In particular, be aware that there are stricter deeming rules for the main tests than apply for the UK presence tie for the sufficient ties test set out later in this news item.

Work abroad

See the Finance Act 2013 - statutory residence test - important definitions [updated] news item for the definition of 'work'.

In order for the ‘work abroad’ condition to be met, the individual must:

  • 'work' sufficient hours abroad (assessed over the tax year)
  • have no significant breaks (31 continuous days or more) from the overseas 'work'
  • spend no more than 30 days 'working' in the UK in the tax year, and
  • be present in the UK for fewer than 91 days in the tax year (not including days deemed to be spent in the UK under the anti-avoidance rule discussed in 'day-counting' in the Finance Act 2013 - statutory residence test - important definitions [updated] news item)

FA 2013, Sch 45, para 14; HMRC guidance, para 1.5

Note that although the term 'full-time' has been removed from this test in Finance Act 2013, you still need to determine whether the person works an average of 35 hours per week abroad over the course of the tax year by applying the five step calculation in FA 2013, Sch 45, para 14(3). Any hours worked abroad on days where more than three hours' work is performed in the UK are disregarded.

See the Finance Act 2013 - statutory residence test - important definitions [updated] news item for details of how to calculate whether the individual has worked sufficient hours.

The difficulty with this 'sufficient hours' calculation is not the calculation itself but the enormous amount of record keeping that is required on the part of the taxpayer. The taxpayer needs to keep a daily working hours timesheet, noting whether this work was performed in the UK or abroad and whether it is performed during occasions of business travel. The taxpayer needs to have at least a basic knowledge of the definition of work for the statutory residence test so that he can keep sufficient details in the timesheet to enable his adviser to apply the test. The level of record keeping required is exceedingly onerous and will be more difficult for those who are not already used to keeping timesheets.

Note that the conditions for work abroad do not match the conditions for work in the UK and that the ‘work abroad’ test does not apply to those who have a ‘relevant job’ on board a vehicle, ship or aircraft. These rules are covered towards the end of this news item.

FA 2013, Sch 45, para 14(4)

Automatic UK tests

There are four automatic UK tests. As stated at the beginning of this news item, the 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:

  • is present in the UK for 183 days or more in the tax year
  • has a 'home' in the UK*
  • carries out 'work in the UK',* or
  • 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 *

FA 2013, Sch 45, paras 6-10

*These tests have been revised in Finance Act 2013 and are discussed below.

Again, see the Finance Act 2013 - statutory residence test - important definitions [updated] news item for the definition of 'work' and for how day-counting works. As pointed out above, there are stricter deeming rules for the main tests than apply for the UK presence tie for the sufficient ties test set out later in this news item.

Home in the UK

This test has been revised again in Finance Act 2013. The 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

FA 2013, Sch 45, para 8; HMRC guidance, paras 1.22-1.23

See Example 1. Other examples can be found in the HMRC guidance (examples 4 to 7).

In relation to (3)(c) in the above list, that condition will be met if either (i) or (ii) or a combination of the two is met during the 91 day period.

The individual is 'present' in the home if he is there at any point during the day, no matter how short the length of time.

FA 2013, Sch 45, para 8(4), (5)

If the individual has more than one home in the UK, the test must be applied to each home separately (not in aggregate). This means those with more than one home in the UK could spend time in a number of homes in succession and not be caught by this rule as any home in which the individual is present for less than 30 days in the tax year is ignored. Similarly, presence in any place which is not considered a 'home' is ignored.

FA 2013, Sch 45, para 8(8); HMRC guidance, paras 1.29-1.30

See the Finance Act 2013 -statutory residence test - important definitions [updated] news item for the definition of 'home'.

You may find the flowcharts on page 19 of the HMRC guidance useful in applying the home in the UK test.

Working in the UK

See the Finance Act 2013 - statutory residence test - important definitions [updated] news item for the definition of 'work'.

This test is satisfied if the individual:

  • works' sufficient hours in the UK as assessed over a period of 365 days and part of this period falls into the tax year
  • has no significant breaks (31 continuous days or more) from UK 'work', and
  • 'works' for more than three hours in the UK for more than 75% of the working days (a work day is a day on more than three hours' work is performed)

FA 2013, Sch 45, para 9; HMRC guidance, paras 1.33

Note that although the term 'full-time' has been removed from this test in Finance Act 2013, it is used in the HMRC guidance and, since the aim is to determine whether the person works an average of 35 hours or more per week in the UK by applying the five step calculation in FA 2013, Sch 45, para 9(2), this is most people's understanding of full-time. Any hours worked in the UK on days where more than three hours' work is performed overseas are disregarded.

See the Finance Act 2013 - statutory residence test - important definitions [updated] news item for details of how to calculate whether the individual has worked sufficient hours.

As noted above in connection with the working abroad test, the real difficulty with this 'sufficient hours' calculation is the staggering amount of record keeping that is required on the part of the taxpayer. The guidance above regarding timesheets also applies to this working in the UK test. It is important to be aware that the working hours need to be assessed over "any given period of 365 days" and, per para 9(1)(c), this test is assessed if any part of the 365 day period falls in the tax year (even if this is only one day). On this basis, the taxpayer will need to continually assess this every day until the test is satisfied. At the point the test is satisfied, it can be ignored for the rest of the tax year. The test needs to be reassessed at the start of the next tax year, at which point the review cycle begins again.

FA 2013, Sch 45, para 9(2)

Also, it is easy to forget the 75% condition. If there is a period of 365 days when the taxpayer worked sufficient hours in the UK, but he does not then meet the 75% condition relating to that 365-day period, you must consider whether there is another 365-day period (of which part falls into the tax year) when he does meet the 75% test. If there is no such period, the working in the UK test is not met. See Example 2 and Examples 10-11 of the HMRC guidance.

HMRC guidance, paras 1.34

Note that the conditions for working in the UK do not match the conditions for working abroad and that the ‘working in the UK’ test does not apply to those who have a ‘relevant job’ on board a vehicle, ship or aircraft. These rules are covered towards the end of this news item.
FA 2013, Sch 45, para 9(3)

Dies in the tax year

This test was revised by a Government amendment to the Finance Bill which was tabled and approved in June 2013. For details of the test and the new condition which applies if the individual had a home overseas in the period to the date of death, see the Government amendments to the statutory residence provisions news item.

FA 2013, Sch 45, para 10

Example 1 - illustrating the ‘home in the UK’ test

This example is example 8 of the HMRC guidance. The example relies on the understanding of the meaning of ‘home’ for the purposes of the statutory residence test. See the Finance Act 2013 - statutory residence test - important definitions [updated] news item.

Rosa is a professional cricketer who lives in New Zealand. She comes to the UK for the summer of 2015 to play for Trinity Bridge Ladies. She rents a house in Dorking for four months commencing 1 May 2015. She is present in her Dorking home on 100 days in 2015/16. After the English cricket season ends she returns to Australia. Throughout 2015/16 Rosa owns a house in New Zealand. She is present in that house on 200 days in 2015/16.

While she is in the UK, Rosa lets out her New Zealand home on a commercial basis to a third party, from 1 June to 31 August 2015 (92 days). For that period the New Zealand house is not Rosa’s home. There is a period of 91 consecutive days, at least 30 of which fall in 2015/16, when Rosa had a UK home where she spends a sufficient amount of time, and when she does not have an overseas home. Rosa meets the second automatic UK test for 2015/16.

If Rosa had not let out her New Zealand house and it had remained available for Rosa to use throughout the summer, it would have remained her home and Rosa would not meet the second automatic UK test.

Example 2 - illustrating the interaction of the sufficient hours condition and the 75% condition for the third automatic UK test

This example relies on the understanding of the steps required to calculate whether the individual has worked sufficient hours in the UK. See the Finance Act 2013 - statutory residence test - important definitions [updated] news item.

Mario travels to the UK on 1 July 2013 to start a new job on the following day. His posting finishes on 1 July 2014 and he leaves the UK on 6 August 2014, 400 days after he arrived in the UK. He needs to determine his UK residence status in the 2013/14 and 2014/15 tax years.

In order to check whether the third automatic UK test is met, several conditions must be met.

Has he worked sufficient hours in the UK in any 365 day period?

Step 1 - calculate the number of days on which he worked overseas for more than three hours during the first 365 days since Mario arrived in the UK on 1 July 2013 = 30 days. These are disregarded days.

Step 2 - add up the total hours worked in the UK for the days which are not disregarded days during this 365 day period. From his records, he has worked 2,400 hours in the UK in this 365 day period. These are his net UK hours.

At this stage, it is also worth recording how many days he worked for more than 3 hours in the UK, as you will need it later on. Assume for simplicity that he worked 10 hours a day and so he worked more than three hours in the UK on 240 days.

Step 3 - subtract from 365 the disregarded days and any days which can be deducted under FA 2013, Sch 45 para 28. These are complicated rules (see Finance Act 2013 - statutory residence test - important definitions - Example 2 for some of the complexities). In Mario’s case, assume he can deduct 40 days as non-working days under these rules.

Period

Days

 

365

Less: disregarded days

(30)

Less: days excluded by FA 2013, Sch 45 para 28

(40)

Reference period

295

Step 4 - divide the reference period from Step 3 by 7 = 42.14 (rounded down to 42).

Step 5 - divide the net UK hours from Step 2 by the answer to Step 4 = 2400 ÷ 42 = 57.14. As the answer is more than 35, Mario works sufficient hours in the UK.

Does any of that 365 day period fall into the relevant tax year?

Part of the period of 365 days falls within the tax year 2013/14 and part falls within the tax year 2014/15.

Is the 75% condition met?

You need to find out if he worked for more than 75% of the total number of days on which he worked for more than three hours, were days on which he worked for more than three hours in the UK. Note that at this stage of the calculation there are no ‘disregarded days’, so a person could do five hours in the UK and five hours overseas.

You have already worked out that over the period of 365 days ending 30 June 2014 Mario worked for over three hours in the UK on 240 days, and a further 30 days in which he works for over three hours overseas. Assume for simplicity that there is no overlap between these days (ie on the 30 days in which three hours work is performed overseas are not days on which UK work is also performed). Out of 270 total work days he works in the UK for 240 days (which is 88%).

Result

At least one day when Mario does more than three hours work in the UK falls within the tax year 2013/14 therefore Mario is resident in the UK under the third automatic UK test for tax year 2013/14.

There is also at least one day when Mario does more than three hours work in the UK within the tax year 2014/15, so Mario also meets the third automatic UK test for that year.

However, having carried out these onerous calculations, you also need to consider the split year rules. See the Finance Act 2013 - codification of split year treatment for residence [updated]news item.

Also, if he is returning to the UK in July 2013 (or has worked here before), you need to look at the temporary non-residence rules. See the Finance Act 2013 - meaning of 'temporary non-residence' [updated] news item.

Sufficient ties test

It is only if none of the automatic overseas tests and none of the automatic UK tests are met that you need to consider the sufficient ties test. Under the sufficient ties test, the individual's connecting factors with the UK must be taken into account along with the number of days spent in the UK in the tax year.

The connecting factors are:

FA 2013, Sch 45, para 31

The application of the sufficient ties test depends on the individual's previous UK residence.

If the individual was not UK resident in any of the three preceding tax years, the number of days he can spend in the UK is higher than if he was resident during one or more of those years. The original consultation document called the first group 'arrivers' and the second group 'leavers', although these labels may cause confusion where the person is neither an arriver nor a leaver (eg when deciding the residence of someone who arrived in the UK in the previous tax year).

A table showing the interaction between the two is set out below:

 

Not UK resident in any of the three pre-ceding tax years ('arrivers')

Resident in the UK for one or more of the three preceding tax years ('leavers')

Fewer than 16 days

Always non-resident

Always non-resident

16-45 days

Always non-resident

Resident if four or more connecting factors

46-90 days

Resident if four connecting factors

Resident if three or more connecting factors

91-120 days

Resident if three or more connecting factors

Resident if two or more connecting factors

121-182 days

Resident if two or more connecting factors

Resident if one or more connecting factors

183 days or more

Always resident

Always resident

FA 2013, Sch 45, paras 18-19

This table should be adjusted when applying the sufficient ties test in the year of death. See Tables C and D of the HMRC guidance.

See the Finance Act 2013 - statutory residence test - important definitions [updated] news item for how day-counting works.

HMRC has provided a list of the type of records that should be retained to support connections to the UK. See the HMRC guidance, para 7.6.

Accommodation

The individual has UK accommodation if:

  • he has a place to live in the UK
  • it is available to be used by him for a continuous period of at least 91 days in the tax year, and
  • he spends at least one night in it during the tax year

FA 2013, Sch 45, para 34(1)

There is no requirement that the individual has to own, lease or have any legal right to occupy the accommodation. The definition of a 'place to live' specifically includes the individual's home or any 'holiday home or temporary retreat (or something similar)'. HMRC states that the difference between 'accommodation' and a 'home' is that accommodation is more transient and does not require a degree of stability and permanence. See Examples A12 to A19 of the HMRC guidance. 'Home' is defined in the Finance Act 2013 - statutory residence test - important definitions [updated] news item. For details of what is not considered accommodation, see the HMRC guidance, paras A40-A42.

FA 2013, Sch 45, para 34(3),(4); HMRC guidance, paras A27-A39

Regularly booking accommodation at the same hotel appears to be sufficient to fall within the accommodation tie. Note that gaps of fewer than 16 days mean that the whole period is treated as continuing to be available. This can quite easily distort the facts for overseas executives who spend one night in the UK every two weeks - the gap between visits will be ignored and the individual can find themselves with a UK tie.

FA 2013, Sch 45, para 34(1)-(3)

A limited exemption excludes accommodation held by close relatives which may be 'available' to the individual all year round, so long as the individual spends fewer than 16 days in that accommodation in the tax year. As a result of the exemption, the connecting factor would not be triggered by staying in the UK with parents over the Christmas period (for example). However, note that this applies only to ‘close’ relatives as defined. Aunts, uncles and cousins are excluded, as are children and grandchildren under the age of 18.

FA 2013, Sch 45, para 34(5), (6)

Transitional rules

In order to apply the new statutory residence test, an individual may need to know his residence status for the previous three years (and possibly for the previous five years if Case 6 applies in relation to split year treatment, see the Finance Act 2013 - codification of split year treatment for residence [updated] news item).

Where any of the previous tax years occur before the 2013/14 tax year, strictly the individual needs to assess his residence status under the old rules. See the Residence guidance note.

However, to provide certainty for the individual, a transitional rule allows the individual to elect to use the statutory residence test for those earlier years - but only for the purposes of working out how to apply the new test. The election is irrevocable and must be made by the first anniversary of the end of the relevant tax year (ie 5 April 2015 for the 2013/14 tax year). This means that separate elections will need to be made in respect of the tax years 2013/14 to 2017/18 as appropriate. The election can be made on the Tax Return for the year (provided it is submitted by the deadline for making the election) or as a stand alone election in writing. Whilst the elections for each tax year must be separate, it is possible to make them in one letter to HMRC or on the next Tax Return (which is likely to be the 2012/13 Return). Making the elections together would have the advantage of ensuring these are processed together.

FA 2013, Sch 45, para 154; HMRC guidance, paras 8.1-8.8 (note that this guidance was published prior to the June 2013 amendments to the Finance Bill).

Individuals cannot elect to use the statutory residence test to determine their actual residence status prior to 2013/14. They must use the rules in place in those earlier years.

See Example 3.

Example 3 - illustrating the transitional rules for the statutory residence test

This example is adapted from page 41 of the summary of responses and has been updated to reflect the latest position in Finance Act 2013.

Situation

Mr Jones assesses his residence status for the 2013/14 tax year. He spent only 30 days in the UK in 2013/14 and thinks he may be non-resident under the automatic overseas test based on the small number of days he has spent in the UK. He needs to know his residence status in 2010/11, 2011/12 and 2012/13 because whether he was resident in one of those years will affect the number of days he can be present in the UK in 2013/14 and still automatically be non-resident (15 days or less if he was resident in any of the previous three tax years or 45 days or less if he was non-resident in all three previous years).

In those tax years, Mr Jones self-assessed as non-resident but HMRC may open an enquiry into those tax years.

How the transitional rule works

For the purpose of assessing his residence status in 2013/14 only, Mr Jones is able to apply the new statutory rules to the 2010/11, 2011/12 and 2012/13 tax years. When Mr Jones applies the new rules, he finds that he would have been non-resident in all those years. He therefore elects to use the transitional rule and notifies HMRC. This means he is non-resident in 2013/14 because he spent fewer than 46 days in the UK.

The new rules would not affect his actual residence status in the 2010/11, 2011/12 or 2012/13 tax years, nor would it affect any subsequent HMRC enquiry into those tax years.

People with a relevant job (i.e. international transport workers)

Special rules apply to a person who has a 'relevant job' on board a vehicle, aircraft and ship. These people were formerly termed 'international transport workers' by the draft legislation and this term might be useful still when explaining the rules to clients.

These people are workers (whether employed or self-employed) whose job it is to work on board a vehicle as it makes international journeys (eg airline crew, ferry staff, lorry drivers). In deciding whether the person has a 'relevant job', the legislation states that this is the case if ‘substantially all of the trips made in performing these duties are ones that involve crossing international boundar[ies]’. HMRC indicates that 'substantially' is to be interpreted as being 80% or more. Incidental duties should be ignored.

FA 2013, Sch 45, para 30; HMRC guidance, paras 2.27-2.30

If an individual has a 'relevant job' at any time in the tax year and undertakes six or more cross-border trips which either begin or end in the UK in the tax year, then:

  • the working in the UK test does not apply
  • the working abroad test does not apply, and
  • such workers must consider the other tests when determining their residence status

FA 2013, Sch 45, paras 9(3), 14(4)

This means that the only time that the definition of 'work' needs to be considered in relation to international transport workers is in relation to the sufficient ties test. If the international journey begins in the UK the individual is treated as having done at least three hours of work in the UK, and thus treated as having carried out a day of work in the UK. If the international journey begins overseas and ends in the UK, the individual is treated as having done three hours work overseas and so having an overseas workday. If, on the same day, the worker both starts a journey and finishes a journey in the UK then he is treated as having a UK workday. See Example 28 of the HMRC guidance. If the journey lasts more than one day, each day is considered separately. See Example 29 of the HMRC guidance.

FA 2013, Sch 45, para 36(3)-(7)

What do you need to do?

The facts and circumstances of inbound and outbound expatriates should be analysed to understand how these rules affect them and what action is necessary (or what the consequences of not taking action will mean). For example, some non-residents may need to renegotiate their UK duties with their employers in order to remain automatically non-resident.

Also, it is a good idea to start to collate information now in relation to the 2012/13, 2011/12 and 2010/11 tax years to help you decide whether it is in the client's best interest to make an election under FA 2013, Sch 45, para 154 (see 'Transitional rules' above).

You may want to write to those clients who are affected to suggest a review of their circumstances in light of the statutory residence test. See the Standard document - letter to clients regarding the statutory residence test [updated] for sample wording, although this needs to be tailored depending on the client's circumstances. Note that this letter has been updated to reflect the Finance Act 2013 legislation.

You may also wish to discuss the impact of the abolition of ordinary residence in this letter, if that is relevant to your client. See the Finance Act 2013 - abolition of the concept of ordinary residence [updated] news item.

Government amendments to the statutory residence provisions

On 13 June 2013 the Government tabled amendments to the provisions in Finance Bill 2013 that dealt with the statutory residence test (which includes split year treatment and temporary non-residence).

These changes relate to:

  • a correction of a drafting error within the third automatic UK test (working sufficient hours in the UK)
  • expansion of the fourth automatic UK test (which applies where the individual dies in the UK)
  • a very minor change in the definition of accommodation for the sufficient ties test which puts the common sense interpretation of Sch 45, para 34(4) beyond doubt
  • a new condition is inserted into split year treatment Case 6 (comes to the UK after ceasing to work abroad) in relation to residence status in prior years
  • a correction of a drafting omission in relation to split year treatment Case 7 (accompanying a partner who comes to the UK after ceasing work abroad)
  • a very minor change to the calculation of the adjusted days for the sufficient ties test for split year treatment Case 8 (so that the wording in Case 8 matches the wording in Cases 4 and 5)
  • a complete change to the order of priorities to splitting the residence status in the tax year where more than one Case applies
  • the extension of the transitional provisions for a further two tax years

There are no changes to the temporary non-residence provisions.

These amendments were agreed by the Public Bill Committee on 18 June 2013 and Royal Assent was given on 17 July 2013. Note that, as a result of amendments to the Bill during the parliamentary process, the statutory residence test provisions are now contained in Schedule 45 rather than Schedule 43.

These amendments are discussed in more detail below. The Finance Act 2013 - statutory residence test [updated] and Finance Act 2013 - codification of split year treatment for residence [updated] news items have been updated to reflect these amendments and discuss the full provisions in detail.

Statutory residence test

The new rules are covered in detail in the Finance Act 2013 - statutory residence test [updated] news item. You are recommended to read that news item first before continuing as the commentary below assumes a familiarity with the rules.

Working in the UK

There was an inadvertent error in the Sch 45, para 9(1)(e) as drafted. This meant that although the individual had to work ‘sufficient hours’ in the UK over a 365 day work period (part of which must fall within the tax year in question) and at least one day in the UK in that tax year must be a day on which he does more than three hours’ work in the UK, there was no link between the two.

As is explained in the explanatory notes to amendment 125, this meant that the test could be satisfied if the 365 period ended in, say, May (with no days of working more than three hours in the UK in that tax year) but there was a solitary seven hour work day in the following March.

The amendment ensures that the day on which more than three hours’ work is performed must fall into both:

  • the 365 day period, and
  • the tax year in question

Dies in the tax year

The original FB 2013 version of the fourth automatic UK test applied if the individual:

  • died in the tax year
  • had 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 was no requirement that the person is actually present in the UK in the year of death.

The Government amendment adds a further condition which applies if the individual has a home overseas in which he did not spend a ‘sufficient amount of time’ during all or part of the tax year. This means that he was present in the home (during the time in which it was his home) for a total of fewer than 30 days during the tax year (up to and including the date of death). The individual is 'present' in the home if he is there at any point during the day, no matter how short the length of time.

FA 2013, Sch 45, para 10(1)(e), (2)-(3)

If the individual has more than one home overseas, the test must be applied to each home separately (not in aggregate). As long as the individual does not spend a ‘sufficient amount of time’ in each overseas home in the tax year, this condition is met. This means if that he is present in any of his overseas homes for 30 days or more in the tax year (up to and including the date of death) the condition is not met and therefore the fourth automatic UK test is not met.

FA 2013, Sch 45, para 10(1)(e), (4)

Essentially, the details of this new condition mirror the conditions in relation to overseas home(s) in the second automatic UK test (home in the UK), see the Finance Act 2013 - statutory residence test - important definitions [updated] news item.

Sufficient ties test - accommodation tie

The Government amendment to the definition of accommodation clarifies that, as far as the individual is concerned, accommodation can still be ‘available’ to him even if he has no legal right to occupy it. This was the way that most people had read this subsection even without the amendment, however the tweak to the language is welcome.

FA 2013, Sch 45, para 34(4)

Split year treatment

The new rules are covered in detail in the Finance Act 2013 - codification of split year treatment for residence news item. You are recommended to read that news item first before continuing as the commentary below assumes a familiarity with the rules.

Case 6 - comes to the UK after ceasing to work abroad

There are a number of conditions which must be met in order to split the UK residence status of someone who comes to the UK after ceasing work abroad. The first condition relates to the individual’s residence status in the previous tax year; the individual must be not resident in the UK in the previous tax year because he worked sufficient hours abroad (ie met the third auto-matic overseas test), see the Finance Act 2013 - statutory residence test [updated] news item.

A further condition in relation to prior year residence status has been added via the Government amendment. In addition to the above, the individual must have been UK resident for one or more of the four tax years immediately preceding that previous tax year.

FA 2013, Sch 45, para 49(2)

On the original reading it had seemed that this Case might have been aimed at those returning to the UK after working abroad, but no part of the conditions reflected this. The amendment confirms that this Case is aimed at returners, although only those who have been outside the UK for the short to medium term. Those who have been away from the UK for longer periods will not fall within this Case.

For example, say Carol returns to the UK in the 2015/16 tax year. In order to meet the split year residence conditions for Case 6 she would have to be:

  • non-resident in the UK in the 2014/15 tax year because she worked sufficient hours abroad (ie met the third automatic overseas test), and
  • was resident in the UK in one or more of the tax years 2010/11 to 2013/14 inclusive

Due to this amendment, the transitional provisions have also been altered (see below).

Case 7 - accompanying a partner who comes to the UK after ceasing work abroad

In order to apply Case 7, the individual may need to know whether his partner met the condi-tions for Case 6 in the tax year of the individual’s arrival or the previous year.

The Government amendment corrects a drafting omission. Where the individual comes to the UK in 2013/14 it is impossible for the partner to have met the conditions in Case 6 in the 2012/13 tax year as the rules were not in force in that year. Therefore the Government has inserted a new transitional rule which means that in this situation the partner would need to fall within ESC A11 (for income tax) and ESC D2 (for capital gains tax).

FA 2013, Sch 45, para 156

Case 8 - starts to have a home in the UK which continues throughout the following tax year

When deciding whether Case 8 applies, it is necessary to examine the individual’s ties to the UK in conjunction with the number of days they were present in the UK in the tax year prior to the date he starts to have a home in the UK. The sufficient ties test is modified so that the limits on the UK days reflects the fact that the period under scrutiny is not a whole tax year.

The Government amendment ensures that the definition of ‘A’ (the numerator of the fraction that is used to calculate the limits on the number of UK days) is the same as in Cases 4 and 5, which was the original intention.

FA 2013, Sch 45, para 51(7)

This was the way that most people had read this subsection even without the amendment; however the tweak to the language is welcome.

Priority if more than one Case applies to the individual in the same tax year

In order to decide whether a taxpayer qualifies for split year treatment in the tax year, in the-ory you need to consider all the Cases relating to arrival or departure as appropriate as multiple Cases may apply.

The Government amendment changes the order of priority where the individual meets the conditions for more than one Case.

Prior to the amendment, the Case which produced the shortest period of non-residence (termed the 'overseas part' in the legislation) took priority.

Under the revised rules, when an individual leaves the UK the priority between Cases is speci-fied. A Case earlier in the list has priority over a Case later in the list. The order which applies is:

a) Case 1
b) Case 2
c) Case 3

FA 2013, Sch 45, para 54

This means that you may not need to actually work through every Case to see if it applies to the individual. You should consider each Case in the priority above and stop when the individual meets the conditions for that Case. So, for example, if Case 1 applies you do not need to consider Cases 2 and 3. Similarly, if Case 1 does not apply and Case 2 does, you do not need to consider Case 3.

The order which applies when an individual comes to the UK is much more complicated, and depends which combination of Cases apply. See the Flowchart - split year treatment on arrival in the UK (2013/14 onwards).

FA 2013, Sch 45, para 55

Unfortunately this means that you may have to consider all the Cases. You should use the above flowchart to determine which Cases you need to consider and at which point you can stop.

Transitional provisions

In order to apply the new statutory residence test and split year Cases, an individual may need to know his residence status for the tax years prior to the introduction of the rules in 2013/14. In order to provide certainty for the individual, the transitional provisions allow the individual to elect to use the statutory residence test for those earlier years - but only for the purposes of working out how to apply the new test, not for the purposes of his tax position in those earlier years.

These transitional provisions now apply up to and including the 2017/18 tax year (previously only up to the 2015/16 tax year). This is because someone who arrives in the UK will need to know his UK residency status for five tax years prior to the tax year of arrival under the amendments to Case 6 discussed above.

FA 2013, Sch 45, para 154(1)(a)

Note that if the individual arrives in the UK in 2013/14 and needs to assess his residence status in 2012/13 for the purposes of Case 6, the person will be treated as non-resident in that year if he worked abroad full-time for the whole of the tax year. This is because the third automatic overseas test did not exist in 2012/13.

FA 2013, Sch 45, para 154(5)(c)

For further discussion of the transitional provisions, see the Finance Act 2013 - statutory residence test [updated] news item.

What do you need to do?

There are no specific recommended actions in relation to the Government amendments them-selves, other than to familarise yourself with the new rules as they are extremely complicated and, in some areas, completely counter-intuitive for advisers who have worked in this field for a number of years

For more general commentary on the actions you may need to take in relation to the new statutory residence test, see the following news items:

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