Statutory Residence Test
Following a lengthy period of consultation, a new statutory residence test (SRT) has now been introduced, with the aim of helping to determine whether or not an individual is resident in the UK for tax purposes.
Background to the changes
The intention to introduce a statutory residence test was first announced in the 2011 Budget, and the test was passed into law with Royal Assent of the Finance Act 2013 in July, although the rules apply retrospectively from 6 April 2013.
Previously, many of the decisions regarding tax residence were dependent on case law. The aim of the new statutory residence test is to provide greater clarity and certainty regarding the tax status of individuals.
The test applies for the purposes of income tax and capital gains tax, as well as inheritance tax and corporation tax where appropriate.
The new system: an overview
The concept of ordinary residence was abolished from 6 April 2013 and replaced with the new statutory test (subject to transitional provisions).
The statutory residence test consists of three parts:
- the automatic residence test
- the sufficient ties test
- the automatic overseas test.
The basic rule
An individual is resident in the UK for a tax year if:
- the automatic residence test is met for that year, or
- the sufficient ties test is met for that year.
If neither of these tests are met, the individual is not resident in the UK for that year.
The automatic residence test is met if the individual meets:
- at least one of the four automatic UK tests, and
- none of the five automatic overseas tests.
Transitional provisions apply to the tax years 2013/14 to 2017/18 inclusive.