There are many reasons why individuals may decide to leave the UK; a lifestyle choice, employment reasons or other personal circumstances.
A move out of the UK can happen at short notice with the individual intending their non-residence to have immediate effect. However, for tax purposes the date non-residence begins and ends is defined by the statutory residence test (SRT).
The SRT, while complex, provides some certainty surrounding the steps an individual must take to become non-resident for UK tax purposes. Each individual’s position must be looked at based on their personal circumstances so detailed records must be kept to support any residence position.
The SRT comprises three parts: an automatic non-resident test, an automatic resident test and a sufficient ties test. The tests should be considered in that order but as soon as the conditions of one test are met, the other tests do not need to be considered.
The automatic non-resident test
An individual will be non-resident for a tax year if they are present in the UK at midnight at the end of the day for less than a specified number of days in the tax year in question, as follows:
- For an individual who was resident in the UK for one or more of the preceding three tax years the limit is 15 days or
- For an individual who was resident in the UK for none of the preceding three tax years the limit is 45 days or
- For an individual who works abroad ‘full-time’ throughout the tax year (broadly, 35 hours per week on average), without a significant break (more than 30 days, with exceptions for annual, sick or parenting leave), the limit 90 days. Such an individual must also have less than 31 days in the tax year on which he does more than three hours’ work in the UK.
Days of presence will be disregarded where an individual spends a day in the UK due to circumstances beyond their control or where it is a day spent in transit.
If none of the three tests above are met, the automatic resident tests must be considered.
The automatic resident test
An individual will be conclusively regarded as resident in the UK in a tax year if:
- They are present in the UK for 183 days or more in that years or
- They have a home in the UK for 91 consecutive days or more (where at least 30 days of that period fall within the tax year in question), are present there for some time on at least 30 days in the tax year, and during that 91 day period either have no home overseas, or have one or more such homes but are present for fewer than 30 days at each of those homes in the tax year or
- They work full-time in the UK for a period of at least 365 days, all or part of which falls within the year, without a significant break. More than three quarters of the days in the 365 day period when they work for more than three hours must be days where they work in the UK.
Provided none of the automatic resident tests are satisfied, the sufficient ties test must then be considered.
The sufficient ties test
For individuals who want to spend more than 15 or 45 days a year in the UK and do not want to work full-time abroad, it is still possible to become non-resident. However, it will be necessary for them to substantially reduce both the amount of time they spend in the UK and the number of ‘ties’ they have with the UK.
The sufficient ties test combines the concept of UK ties with the number of days that the individual is present in the UK. There are many situational complexities to each of the five UK ties but, in outline, the ties are:
- Family tie – the individual has a spouse, civil partner, unmarried partner or minor child resident in the UK. Children will not be taken into account if the individual sees the child in the UK on fewer than 61 days in the year or the child is only resident because they are in full-time education in the UK and they spend less than 21 days in the UK outside term time.
- Accommodation tie – the individual has accommodation in the UK that is available to be used by them for a continuous period of at least 91 days in a tax year and they spend at least one night there in the year. If the accommodation is the home of a close relative the ‘one night’ test is extended to 16 nights. This tie does not require the individual to own the accommodation so holiday homes and even hotels may trigger this tie.
- Work tie – the individual works in the UK for 40 or more days in a tax year, for at least three hours per day.
- 90 day tie – the individual has been present in the UK for more than 90 days in either of the previous two tax years.
- Country tie – the individual is present in the UK at midnight in the tax year as much as (or more than) they are present in any other single country. This tie applies to ‘leavers’ only (see below).
The more ties an individual has the less time they may spend in the UK if they wish to be regarded as non-resident. Please note that the table below only applies when the individual is a ‘leaver’ (an individual who was UK resident in one or more of the three previous tax years).
Please note that certain legislative changes were made to the SRT rules (for the 2019/20 and 2020/21 tax years only) which are related to time spent in the UK due to COVID-19. These changes apply in limited circumstances and only to certain elements of the day counting tests under the SRT. For more information on these new rules please read our article here. Individuals who feel they may be impacted by these changes should seek professional advice.
Split year treatment
Residence status is determined for a complete tax year. However, if the individual’s circumstances fit one of the cases for split year treatment to apply then the tax year of departure will be split into a resident period and a non-resident period. These rules are complex so personal advice based on an individual’s circumstances is required.
Anti-avoidance provisions apply to prevent individuals leaving the UK for a short period to realise substantial amounts of income or capital gains. An individual must be non-resident for a specified period otherwise they will be taxed on certain types of income and capital gains in the year they return to the UK.
The UKs tax residence rules are complex and anyone trying to assess their residence status should seek expert advice - please get in touch with your usual BDO contact or Fiona Hall.