Statutory Residence Test

The con­cept of res­i­dence in the Unit­ed King­dom is fun­da­men­tal to the deter­mi­na­tion of UK tax lia­bil­i­ty for any indi­vid­ual.

The Statu­to­ry Res­i­dence Test (SRT) pro­vides, through a series of tests, a defin­i­tive process to deter­mine the UK res­i­dence sta­tus of any indi­vid­ual. That sta­tus applies for income tax, cap­i­tal gains tax and inher­i­tance tax pur­pos­es.

Once that sta­tus has been estab­lished then oth­er rules deter­mine the extent of an indi­vid­u­al’s lia­bil­i­ty to UK tax­es. These oth­er rules may include not just UK statute but also dou­ble tax treaties with oth­er coun­tries. These rules are not cov­ered in this fact­sheet.

Counting days

The SRT relies heav­i­ly on the con­cept of count­ing ‘days of pres­ence’ in the UK in the rel­e­vant tax year and so it is impor­tant to under­stand what this term means. The basic rule is a day of pres­ence is one where the indi­vid­ual was in the coun­try at mid­night. There are two excep­tions to this:

• the indi­vid­ual only arrives as a pas­sen­ger on that day and leaves the UK the next day and in between does not engage in activ­i­ties that are to a sub­stan­tial extent unre­lat­ed to their pas­sage through the UK and
• the indi­vid­ual would not be present in the UK at the end of the day but for excep­tion­al cir­cum­stances beyond their con­trol which pre­vent them from leav­ing and they would intend to leave as soon as those cir­cum­stances per­mit.

A fur­ther rule applies where an indi­vid­ual has been res­i­dent in the UK in at least one of the three pre­vi­ous tax years and has at least three ‘ties’ with the UK. It will then be nec­es­sary to add to the total of ‘mid­night days’ the excess over 30 of any oth­er days where the indi­vid­ual spent any time at all in the UK.

Three tests

The SRT is based on a series of three tests which must be con­sid­ered in a par­tic­u­lar order in every case. The tests are applied to the facts in the ‘rel­e­vant tax year’ i.e. the year for which res­i­dence sta­tus is being deter­mined:

• first con­sid­er the Auto­mat­ic Over­seas Test (AOT). If this test is sat­is­fied the indi­vid­ual will be not res­i­dent in the UK in the rel­e­vant tax year and no fur­ther tests are required. If the AOT is not sat­is­fied then move on to
• the Auto­mat­ic Res­i­dence Test (ART). If this test is sat­is­fied the indi­vid­ual will be res­i­dent in the UK in the rel­e­vant tax year and no fur­ther tests are required. If the test is not sat­is­fied move on to
• the Suf­fi­cient Ties Test (STT). If this test is sat­is­fied the indi­vid­ual will be res­i­dent in the UK and if it is not sat­is­fied they will be not res­i­dent.

The detailed con­di­tions relat­ing to each test are dis­cussed below. There are fur­ther tests which only apply if the indi­vid­ual has died in the year but these are not dealt with here.

The Automatic Overseas Test (AOT)

There are three pos­si­ble tests in the AOT and if an indi­vid­ual sat­is­fies any one of these they will be not res­i­dent in the UK in the rel­e­vant tax year. The con­di­tions are that the indi­vid­ual:

• was res­i­dent in the UK in one or more of the pre­vi­ous three tax years and they are present in the UK for few­er than 16 days in the rel­e­vant tax year
• was not res­i­dent in the UK in all of the pre­vi­ous three tax years and they are present in the UK for few­er than 46 days in the rel­e­vant tax year
• works full time abroad and they are present in the UK for few­er than 91 days in the rel­e­vant tax year and no more than 30 days are spent work­ing (cur­rent­ly defined as more than three hours) in the UK in the tax year.

The first two tests are sim­ply based on a day count and ignore the exis­tence of oth­er fac­tors such as oth­er links with the UK like the avail­abil­i­ty of accom­mo­da­tion in the UK.

There are con­di­tions for the third test which need to be con­sid­ered by those plan­ning to go abroad to work either as an employ­ee or on a self-employed basis. Obvi­ous­ly the days of pres­ence and the work­ing days must be con­sid­ered care­ful­ly. In addi­tion it should be not­ed that:

• the indi­vid­ual must work ‘suf­fi­cient over­seas hours’ which are cal­cu­lat­ed over the tax year. This equates to an aver­age of 35 hours a week over the whole peri­od of absence. Account can be tak­en of a range of fac­tors such as hol­i­days and sick leave to effec­tive­ly improve the aver­age
• work­ing days in the UK do not have to be the same as the days of pres­ence so a day where there is UK work but the indi­vid­ual leaves the UK before the end of the day may well count as a work­ing day.

HMRC will expect evi­dence to be pro­vid­ed if it is claimed that the time lim­it for a work­ing day has not been exceed­ed.

The way in which the sub­se­quent tests are struc­tured mean that it is real­ly impor­tant that a work­ing expa­tri­ate can pass the AOT and be treat­ed as not res­i­dent oth­er­wise they are like­ly to find a real prob­lem under the lat­er tests.

The Automatic Residence Test (ART)

If the AOT is not met then the indi­vid­ual must next con­sid­er the con­di­tions of the ART. This test will be sat­is­fied if any of the fol­low­ing apply to the indi­vid­ual for the rel­e­vant tax year:

• they are present in the UK for 183 days or more in a tax year
• they have a home in the UK and they are present in that home on at least 30 sep­a­rate days in the rel­e­vant year. There must be a peri­od of at least 91 con­sec­u­tive days dur­ing which the home is avail­able and at least 30 of those days must fall with­in the rel­e­vant tax year
• they car­ry out full time work in the UK for a peri­od of 365 days dur­ing which at least 75% of their time is spent in the UK.

The ‘home’ test may be of real sig­nif­i­cance because, if that test applies, the num­ber of days in the UK is irrel­e­vant. The leg­is­la­tion makes clear that a home can be a build­ing or part of a build­ing and can include a ves­sel or vehi­cle. It must have a degree of per­ma­nence or sta­bil­i­ty to count as a home but spe­cif­ic cir­cum­stances may have to be con­sid­ered. If the indi­vid­ual also has a home or homes abroad, the sec­ond test above will not apply if the per­son spends more than 30 days at each home abroad in the tax year.

The Sufficient Ties Test

If no con­clu­sive answer to res­i­dence sta­tus has arisen under the first two tests, the indi­vid­ual must then look at how the STT applies to them for the rel­e­vant tax year. The test will be sat­is­fied if the indi­vid­ual has suf­fi­cient UK ties for that year. This will depend on two basic con­di­tions:

• whether the indi­vid­ual was res­i­dent in the UK for any of the pre­vi­ous three tax years and
• the num­ber of days the indi­vid­ual spends in the UK in the rel­e­vant tax year.

The STT reflects the prin­ci­ple that the more time some­one spends in the UK, the few­er con­nec­tions they can have with the UK if they want to be not res­i­dent. It also incor­po­rates the prin­ci­ple that res­i­dence sta­tus should adhere more to those who are already res­i­dent than to those who are not cur­rent­ly res­i­dent.

Under the STT an indi­vid­ual com­pares the num­ber of days of pres­ence in the UK against five con­nec­tion fac­tors. Indi­vid­u­als who know how many days they spend in the UK and how many rel­e­vant con­nec­tion fac­tors they have can then assess whether they are res­i­dent.

The five ties are sum­mar­i­ly set out as:

• a fam­i­ly tie — this will apply if either a spouse or minor child is res­i­dent in the UK in the rel­e­vant tax year
• an accom­mo­da­tion tie — where there is accom­mo­da­tion which is avail­able for at least 91 days in the tax year and is actu­al­ly used at least once
• a work tie — where there are at least 40 work­ing days of three hours or more in the UK in the rel­e­vant tax year
• a 90-day tie — more than 90 days were spent in the UK in either or both of the two imme­di­ate­ly pre­ced­ing UK tax years and
• a coun­try tie — more time is spent in the UK than in any oth­er sin­gle coun­try in the rel­e­vant tax year.

An indi­vid­ual who has been res­i­dent in the UK in any of the three pre­ced­ing tax years must con­sid­er all five ties and they will be res­i­dent if any of the fol­low­ing apply:

An indi­vid­ual who has not been res­i­dent in any of the three pre­ced­ing years must con­sid­er all the ties apart from the coun­try tie and they will be res­i­dent in any of the fol­low­ing sit­u­a­tions:

Special rules for international transport workers

The SRT rules are adapt­ed where an indi­vid­ual is an ‘inter­na­tion­al trans­port work­er’ This is defined as some­one who:

• holds an employ­ment, the duties of which con­sist of duties to be per­formed on board a vehi­cle, air­craft or ship, while it is trav­el­ling or
• car­ries on a trade, the activ­i­ties of which con­sist of the pro­vi­sion of ser­vices on board a vehi­cle, air­craft or ship as it is trav­el­ling.

In either case sub­stan­tial­ly all the jour­neys must be across inter­na­tion­al bound­aries. The indi­vid­ual has to be present on board the respec­tive car­ri­er as it makes inter­na­tion­al jour­neys in order to pro­vide those ser­vices.

An indi­vid­ual who has some duties on pure­ly domes­tic jour­neys will still be regard­ed as with­in the def­i­n­i­tion if the inter­na­tion­al duties are sub­stan­tial (prob­a­bly at least 80%).

Where an indi­vid­ual falls with­in this group the impli­ca­tions for the SRT are (broad­ly) that the indi­vid­ual:

• can­not be non-UK res­i­dent on the grounds of work­ing full time over­seas
• can­not be UK res­i­dent on the grounds of work­ing full time in the UK and
• in con­sid­er­ing the work day tie for the STT an inter­na­tion­al trans­port work­er is regard­ed as doing more than three hours work where any jour­ney that day com­mences in the UK and few­er than three hours on any oth­er day.

Split year rules

The basic rule will be that if an indi­vid­ual sat­is­fies the con­di­tions of the SRT to be treat­ed as res­i­dent for a part of the UK tax year then they are res­i­dent for the whole of that year. Spe­cial rules will apply in cer­tain cir­cum­stances to allow a year of arrival or depar­ture to be split into res­i­dent and non-res­i­dent parts as appro­pri­ate. We shall be pleased to dis­cuss whether your plans or cir­cum­stances will be eli­gi­ble for such treat­ment.

Anti-avoidance rules

The gov­ern­ment wants to ensure that indi­vid­u­als are not able to exploit the rules to become not res­i­dent for a short peri­od dur­ing which they receive cer­tain types of income or make cap­i­tal gains. Basi­cal­ly an indi­vid­ual with a his­to­ry of at least four out of the pre­vi­ous sev­en years as a sole UK res­i­dent will need to main­tain not res­i­dent sta­tus for at least five UK tax years oth­er­wise cer­tain income and all cap­i­tal gains made in the peri­od of absence will become tax­able in the UK in the next year in which they are res­i­dent.