A shake-up of the rules around who is eligible to be called a resident or non-resident for tax purposes in Britain is underway.
This is our FAQ for what can be a complicated and costly tax topic to get wrong:
What is happening?
New legislation is coming in 2013 which defines residency status – some points are still subject to change, but enough is known to allow people to plan for their future under the Statutory Residency Test (SRT).
Who will be tax resident?
Until now there has been no clear definition of what residency actually means. HM Revenue and Customs (HMRC) interpret the rules as they see fit, using case law and experience. The SRT is a major step forward as expats have a definition to determine residency status. However, some people will still have issues.
When does SRT start?
From April 6, 2013, SRT will effectively replace all of the current rules, case law and HMRC guidance for the tax year of 2013/14 onwards. HMRC say the new rules will also apply when making decisions about a person’s residency status before this year.
So it’s just for income tax purposes?
No, SRT is for capital gains and inheritance tax as well as income tax.
Will I be an ‘arriver’ or a ‘leaver’
SRT simplifies the process of determining this issue. Essentially, a person will be deemed an arriver if they weren’t resident in the UK in all of the previous three tax years.
The person will be deemed a leaver if they were resident in one or more of the previous three tax years.
What is SRT?
SRT consists of two tests which covers questions on whether the individual is automatically a non-UK resident or is a UK resident for tax purposes.
This is where SRT gets complicated and you’ll need to sit down with the rules.
Basically, you need to calculate how many days you were present in the UK in the tax year. Fewer than 16 days and you are a ‘leaver’; fewer than 46 days and you are an ‘arriver’.
Leave the UK to work abroad and come to visit for fewer than 91 days or work for fewer than 31 days and you will be deemed to be non-UK resident.
What is the Sufficient Ties Test?
This is for the more complex cases and covers those which don’t satisfy the ‘automatic’ criteria.
Because they are more complicated you will need to examine the rules thoroughly but the criteria boils down to counting the number of days spent in the UK and the number of ‘ties’ you have with the country.
A tie would be considered to be family members or children or owning a home, among other criteria.