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Treasury releases details of new Statutory Residence Test

We now have a first look at the long-awaited statutory test for whether an individual is UK tax resident. To some extent, this represents a work-in-progress as there will now be a welcome period of consultation before the proposal become law (the new rules are expected to apply from 6 April 2012).

In essence, the new rules identify:

  • three categories of individuals ("Arrivers", "Leavers" and "Full-time workers abroad")
  • "safe-harbours" for each of these categories, under which an individual can have clarity that he/she will not be regarded as UK resident – these are based on the number of midnights in a tax year on which an individual is physically present in the UK
  • tests outside of these safe-harbours to establish whether an individual will otherwise be regarded as UK resident – these are based on time spent in the UK and the following 5 factors:
    • family in the UK – spouses/civil partners and minor children are relevant here
    • 'substantial' employment in the UK – 40 days or more in a year (a day being more than 3 hours work in the UK)
    • 'accessible' accommodation in the UK – availability and use of a residence is key, as opposed to ownership
    • time spent in the UK in previous tax years
    • time spent in another jurisdiction (for Leavers only)

Once introduced, these new tests will provide welcome certainty for many but, almost inevitably, there will be winners and losers. The proposals are detailed and, outside of the safe-harbours, careful consideration will be required to apply these to individual circumstances.

We can expect some revisions to the rules as a result of the consultation, but wholesale changes are now unlikely. Those who live overseas and spend time in the UK, and those who have designs on leaving the UK, should therefore start to think about how the rules may affect them and adapt their decisions and behaviours as necessary.

Please click here to speak to an adviser about the proposals and how they might affect you.