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STATUTORY RESIDENCE TEST FOR INDIVIDUALS (SRT) - CONSULTATION
On Friday 17 June two separate consultation documents were published by HM Revenue & Customs, outlining proposed reforms of the taxation of non-domiciled individuals and the introduction of a Statutory Residence Test. Both were originally announced in the 2011 Budget, and this note covers the proposals for the latter.
It should be remembered that the consultation documents are merely step 2 of a 5 stage process, in advance of the reforms being implemented from April 2012 and this current consultation process will run for 12 weeks to 9 September 2011.
The Proposed New Test
The new test for residence seeks to provide fairness and clarity in determining one’s residence. The test has been designed to make it harder to become non-resident when leaving the UK, than it is to become resident when an individual comes to the UK. As such, distinction is made between arrivers to the UK and leavers.
Part A of the SRT sets out factors which are conclusive in themselves to make an individual non-resident.
Part B of the SRT sets out factors which in themselves are conclusive to make an individual resident in the UK.
Part C sets out factors and rules which will need to be considered where it is not possible to determine one’s residence status under Part A or Part B.
Parts A and B can be summarised in the table below:-
PARTS A & B| Part A –Conclusive Non Resident | Part B –Conclusive Resident | |
| Arrivers to the UK – persons not resident in UK in any of the previous 3 tax years | In UK for less than 45 days | Present in UK for 183 days or more |
| Leavers from UK - persons resident in UK in any of the previous 3 tax years | In UK for less than 10 days | Only one home and it is in the UK (or 2 or more homes and all are in the UK) |
| Full time work | Full time work abroad but in UK for less than 90 days, and working in UK for up to 20 days only | Full time work in the UK |
Where it is not possible to determine one’s residence on the basis of the factors set out in Parts A and B, then Part C sets out five further factors, which need to be considered in order to determine residence. These take into account the number of days spent in the UK as well as five connecting factors. The connecting factors are broadly as follows:
- Family - which includes spouses and civil partners and minor children resident in the UK.
- Accommodation – the individual has accommodation which he makes use of during the tax year.
- Substantial work in the UK.
- UK presence in the previous 2 tax years – 90 or more days in the UK in either of the previous two years.
- More time in the UK than in other countries.
The following table summarises Part C of the statutory residence test:
| PART C | ||
| Days in the UK | Arrivers (Persons not resident in the UK in previous 3 tax years). | Leavers Persons resident in at least 1 of previous 3 tax years. |
| Fewer than 10 days | Always non-resident | Always non-resident |
| 10 – 44 days | Always non-resident | Resident only if at least 4 factors apply |
| 45 – 89 days | Resident only if at least 4 factors apply | Resident only if at least 3 factors apply |
| 90 – 119 days | Resident only if at least 3 factors apply | Resident only if at least 2 factors apply |
| 120 – 182 days | Resident only if at least 2 factors apply | Resident only if at least 1 factor applies |
| 183 days or more | Always resident | Always resident |
Presently, where an individual becomes resident or non-resident during a tax year, split year treatment is available by way of extra statutory concessions. The Government proposes to put this on a statutory footing, broadly in line with the existing extra statutory concessions.
Ordinary Residence
It appears that the Government is unclear what to do about ordinary residence but has proposed a narrower definition, so that a resident would also be ordinarily resident unless he has been non-resident in the UK in all of the previous 5 tax years. Also, for those arriving in the UK, the not-ordinarily status is to be available for the tax year of arrival and for a maximum of 2 further tax years. However if a person is resident in the UK on the basis that their only home is in the UK, or has more than one home and all of their homes are in the UK, then the not ordinarily resident status will not be available.
In order to apply the SRT it will be necessary to take account of the numerous terms and definitions used, which may then create difficulties in applying the new proposed rules. Whilst the new rules may provide some certainty, they are not in any way overly generous when compared to the rules they seek to replace.
The above summary is merely highlighting the salient points of a 30 page consultation document and if you would like to discuss any points please do not hesitate to contact the team at Saffron.
June 2011