The Statutory Residence Test involves determining the UK tax residence status of those with connections to the UK, whether they are residents in the UK or not. It was introduced by HMRC in the Finance Act 2013 – the rationale was to provide clarity on a previously grey area.
While complex, the Statutory Residence Test (SRT) is crucial when you need to understand your UK residence status since being considered a tax resident of the UK could mean that your income worldwide is subject to UK tax and failing to adequately declare and pay tax on any income could result in fines and penalties.
Due to the complexity of the SRT, it’s always advisable for individuals to seek professional help from tax experts with skills and experience in correctly determining their UK residence status.
To help give clarity, we’ve outlined the main areas of the Statutory Residency Test below, and also have a PDF flowchart which you can download.
How Does the Statutory Residence Test Work?
Since 6th April 2013, an individual’s UK residence status for each tax year has been defined by The Statutory Residence Test. The objective is to alleviate uncertainty around the tax residency of an individual. Extensive guidance on how the rules work has been established and published by HM Revenue & Customs.
The test includes three primary parts:
- Automatic overseas tests
- Automatic UK residence tests
- Sufficient ties test
Automatic Overseas Test
An individual will be automatically regarded as a non-resident in the UK for a particular tax year if any of these conditions are met:
- Present for less than 16 days in the UK and was a resident in one or more of the three previous tax years.
- Present for less than 46 days in the UK and a non-resident in any of the three previous tax years.
- Works “full-time” overseas in the tax year, with fewer than 91 days in the UK and limited workdays in the UK during the year.
Automatic UK Residence Test
If any of the conditions under the automatic overseas tests are not met, then the automatic UK residence tests must be considered. If any of these conditions are met, the individual is automatically regarded as a UK resident during the tax year:
- Spends 183 days or more in the UK
- Holds a home in the UK for more than 90 days, and you are present in the home on at least 30 separate days during the tax year (please note further factors relate to this test)
- Works in the UK full-time for 365 days or more, all or part of which falls within the tax year (without significant breaks).
Sufficient Ties Test
Individuals who are neither automatically non-resident nor resident must consider the number of UK connections or ties they have.
There are five ties used to determine the residence status:
- Family tie: civil partner, spouse, common-law partner, or minor child is a UK resident in the tax year. There are exemptions for resident minor children, provided they are in full-time education and spend fewer than 21 days in the UK out of term time.
- Accommodation tie: accommodation available to the individual in the UK for a continuous timeframe of 91 days or more in the year, and the person spends one or more nights in that accommodation. Being accommodated at the home of a close relative can be excluded if fewer than 16 nights are spent there per UK tax year.
- Work tie: the individual works in the UK (employment or self-employment) for over three hours a day on more than 40 days in the tax year.
- 90-day tie: the individual spent at least 90 days in the UK in either of the preceding two tax years.
- Country tie: this applies where the UK, where an individual spends the highest number of days during the tax year. It applies to leavers only.
When it comes to counting days in UK SRT:
- A single day is generally considered a ‘UK day’ when an individual spends the day in the UK up to midnight. However, there are exceptions (including when one is in transit through the UK).
- Departure days will not generally be counted as UK days unless the deeming rule applies.
The deeming rule applies where an individual:
- Was a resident in the UK in one of the preceding three tax years; and
- Holds three or more UK ties or connections for the current tax year.
The deeming rule restricts the number of days leavers can spend in the UK without being present at midnight (qualifying days) to fewer than 30.
Although the SRT generally defines an individual’s residence status for a whole tax year, in some circumstances, a tax year may be split into periods of non-residence and residence. This is helpful if you arrive or leave the UK during a tax year.
For the split-year treatment, a part of the year will be considered an ‘overseas part,” for which an individual will be taxed as a non-resident. Certain conditions define whether split-year treatment is applicable and, if it does, the length of the relevant periods.
Defining Key Terms
In counting UK days, those spent due to exceptional circumstances can be excluded, subject to a maximum of 60 days. Examples include a sudden life-threatening illness, injury, natural disaster, or introduction of travel restrictions such as COVID-19-related guidance.
UK full-time workday
Broadly, a UK workday is one in which an individual meets the ‘sufficient work hours teas,’ meaning they work for 3 or more hours or average 35 or more hours a week while present in the UK, without a significant break. It doesn’t matter whether one is present at midnight. So one day working in the UK can be a UK workday even if the individual leaves before midnight.
You can only be considered to be working full-time overseas if the number of days spent in the UK is less than 91 days and the days you work in the UK for over three hours are fewer than 31.
The SRT defines the concepts of home and accommodation differently.
HMRC considers a ‘home’ to be a place that a reasonable onlooker with adequate knowledge of the material facts would consider as an individual’s home. Typically, any residential dwelling where one can choose to stay at will. HMRC guidance says a home must have sufficient stability or permanence in the individual’s arrangements to regard it as their home. Consequently, the house of a friend, parent, or other family members, which is generally availed to an individual for them to stay, may be considered home by the SRT.
Accommodation, on the other hand, is described more broadly than home. For instance, it would include a temporary retreat or a holiday home. Accommodation is often considered available for accommodation tie purposes during any gap of fewer than 16 days in the property’s availability.
Talk to a Statutory Residence Test Specialists
The Statutory Residence Test allows individuals to conclusively determine their residence status in the UK for a tax year in nearly any set of circumstances. However, the rules can be particularly complex, and the HMRC-published guidance runs to over a hundred pages with many terms specifically defined.
So if you are doubtful of your tax residence status in the UK or would like some help understanding the Statutory Residence Test and how it applies to you, contact us to receive professional assistance from one of our tax experts.