The Residence Tests

Determining your tax residency status in the UK involves considering various factors such as the number of days you spend in the country, your work situation, and your ties to the UK. We're here to help you navigate through the HMRC's residence tests and figure out if you're a UK tax resident or not.

The HMRC's statutory residence tests were introduced in April 2013 to provide clarity for taxpayers regarding their UK tax residency status. The tests include a series of steps that you need to follow in order.

First, you'll need to assess whether you meet any of the automatic overseas tests. If you do, then you are not considered a UK tax resident for the relevant tax year. If you don't meet any of the automatic overseas tests, you'll move on to see if you meet any of the automatic UK tests. Meeting any of these tests means you are a UK tax resident for that tax year. If you don't meet any of the automatic tests, you'll need to apply the sufficient ties test, which takes into account both the number of days you spend in the UK and your ties to the country.

If you are deemed a UK tax resident for a tax year, you may also have the option to qualify for split year treatment. Split year treatment can be applied in the year you move to or leave the UK, allowing you to be taxed as a non-UK resident during the overseas part of the year for certain tax provisions.

So let’s take a look at the tests themselves:

1. Automatic Overseas Tests

• If you were a UK resident in one or more of the previous three tax years and spent fewer than 16 days in the UK.
• If you were not a UK resident in any of the previous three tax years and spend fewer than 46 days in the UK.
• If you work full-time overseas with limited visits to the UK, there are specific criteria to consider.

2. Automatic UK Tests

• If you spend 183 days or more in the UK.
• If you have your only home in the UK for at least 91 consecutive days, using it for at least 30 days during the tax year.
• If you work full-time in the UK for a 365-day period within the relevant tax year.
• If you meet the 30-day rule for presence in the UK.

3. The Sufficient Ties Test

This test is designed to assess the strength of an individual's ties to the UK, considering both the number of days spent in the country and various ties in specific categories.

Here's a more detailed breakdown of the Sufficient Ties Test:

Days Present in the UK:

The calculation of the days an individual is considered present in the UK can be somewhat complex. It's computed as follows:

• Midnight Presence: Start by counting the number of days at which the individual is present in the UK at midnight during the tax year.

• Deduct Transit Days: Deduct any days on which the individual is only present in the UK due to transiting through the country. These are typically days when an individual is in transit to another destination and not intended as a stay in the UK.

• Deduct Exceptional Circumstances: There's an allowance to exclude up to 60 days if the individual was present in the UK due to exceptional circumstances and left the UK as soon as those circumstances allowed. Examples of such exceptional circumstances include national or local emergencies, sudden life-threatening illnesses or injuries, or other extraordinary events.

Ties to the UK:

In addition to counting days, the Sufficient Ties Test considers various ties an individual may have to the UK. These ties are categorized as follows:

• Family Tie: An individual has a family tie if their spouse, civil partner, cohabiting partner, or minor child is a UK tax resident for the tax year. However, there are exemptions when minor children are only in the UK for full-time education or when the individual does not spend sufficient time with the minor child.

• Accommodation Tie: An accommodation tie exists if an individual has accommodation available to them for at least 91 days during the tax year, and at least one day of their stay falls within that period. Additionally, the home of a close relative can also be considered for the accommodation tie, but only if the individual spends a total of 16 nights or more there during the tax year.

• Work Tie: This tie applies when an individual works in the UK for 40 days or more, during which they perform more than three hours of work per day.

• 90-Day Tie: An individual has this tie if they spent more than 90 days in the UK during at least one of the two previous tax years.

• Country Tie: This tie is relevant for individuals who have been UK residents in one of the three previous tax years. It applies if the country in which they spent the most days in the tax year is the UK. Days are counted when the individual is present at any time during the day.

The number and strength of these ties, along with the number of days spent in the UK, determine whether an individual qualifies as a UK tax resident for a given tax year.

Complexities:

However, there are some complexities and inconsistencies in these tests, such as the differences between accommodation and home criteria, full-time work in the UK versus overseas, and various day counting methods for different purposes. Uncertainties also exist, particularly regarding what qualifies as a 'home' and the interpretation of 'exceptional circumstances' when counting days of presence in the UK.

Keeping accurate records is crucial to determine your residency position and provide evidence to HMRC in case of an inquiry.

Navigating HMRC's residence tests can be complex, but understanding these rules is essential to ensure you meet your tax obligations correctly. Stay informed and consult a tax advisor for specific guidance on your situation.