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How The New UK Tax Residence Rules Work

The government is proposing new rules that come to effect from 6 April 2013 that will put UK residence for tax purposes on a statutory footing, instead of relying on HMRC guidelines and case law. In principle this is a sensible move and will provide certainty for anyone unsure at present whether they qualify as being non-resident in the UK for tax purposes. However the rules are complex and have attracted some criticism for this reason.

Under the current rules you are resident in the UK if you spend 183 days or more in the UK and you could be resident if you spend more than 90 days on average. Under the new rules there will be no more four-year average and if you spend more than 90 days in the UK in any tax year you will always be considered to be resident. As before, you need to be away from the UK for a whole tax year in order to qualify as non-resident and a day counts as being a day on the UK if you are here at midnight on that day.

However, the new law is generally designed to leave most people in the same position as previously so you are unlikely to find your situation suddenly altered. It is important though that you understand the new test of residence and non-residence. There are three sections of the test which have to be considered in order. In other words, if you are definitely non-resident on the basis of Part A, then you don’t have to consider parts B and C.

So, we think most of our clients should be still covered by the provision in Part A that you are non-resident if you have left the UK to carry out full-time work abroad and are present in the UK for fewer than 91 days in the tax year and no more than 20 days are spent working in the UK in the tax year. Here though are the three parts of the test.

Part A: You are definitely non-resident if:

You were not resident in the UK for the previous 3 tax years and present in the UK for less than 46 days in the current tax year; or You were resident in the UK in one or more of the previous 3 tax years but present in the UK for fewer than 16 days in the current tax year; or You have left the UK to carry out full-time work abroad and provided you were present in the UK for fewer than 91 days in the tax year and no more than 20 days are spent working in the UK in the tax year. Training paid for by your employer and taken in the UK will be considered work and this will be taken from your 20 day working allowance.

Part B: You are definitely resident if:

You are present in the UK for 183 days or more in a tax year; or You have only one home and that home is in the UK or have more homes and all of these are in the UK; or You carry out full-time work in the UK.

Part C: If your situation is not described in Parts A and B then you need to compare the number of days spent in the UK against a small number of clearly defined connection factors. These connection factors are as follows:

Family- your spouse or civil partner or common law equivalent (provided you are not separated from them) or minor children are resident in the UK. Accommodation – you have accessible accommodation in the UK and makes use of it during the tax year (subject to exclusions for some types of accommodation). Substantive work in the UK – you do substantive work in the UK i.e. more than forty days in the tax year but do not work full-time in the UK. UK presence in previous years – you spent more than 90 days in the UK in either of the previous two tax years and you spend more days in the UK in the tax year than in any other single country.

These connection factors are then combined with day counting to determine whether you are resident or non-resident. There are two categories, arrivers and leavers.

If you were not resident in any of the previous three tax years – ‘Arrivers’:

Fewer than 46 days in UK: Always non-resident. 46 – 90 days: Resident if 4 or more connection factors. 91 – 120 days: Resident if 3 or more connection factors. 121 – 182 days: Resident if 2 or more connection factors. 183 days or more: Always resident.

If you were resident in one or more of the three tax years immediately before the tax year under consideration – ‘Leavers’:

Fewer than 16 days in UK: Always non-resident. 16 – 45 days: Resident if 4 or more connection factors. 46 – 90 days: Resident if 3 or more connection factors. 91 – 120 days: Resident if 2 or more connection factors. 121 – 182 days: Resident if there are 1 or more connection factors. 183 days or more: Always resident

When the Finance Bill is produced there may be some changes to the legislation and more detail may emerge, but there has been considerable consultation and it is sensible to prepare for the new rules now. If this is relevant to your situation you should take professional advice to make sure you don’t fall foul of the new legislation.

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