June 2011
On Friday 17th June HM Treasury released two consultation documents on implementing new rules for tax residence and domicile.
How could the proposed residency rules affect our clients?
Clients who are already resident in the UK are unlikely to see their status change.
However, there will be a significant impact on persons claiming non-residency in the UK but retaining connections to the UK. The number of days such individuals can spend in the UK before becoming UK resident will be drastically reduced if these rules are implemented.
Non residents who frequently visit the UK e.g. on business but who have no other connections to the UK are likely to be unaffected by the changes, provided that they are mindful of their days in the UK.
It is intended that the new rules will take effect from 6th April 2012. The current rules will continue to apply for tax years prior to the introduction of the statutory test, including 2011-12. It is not proposed to allow individuals to apply the new definition retrospectively to determine their residence status for prior years.
Summary of the proposed New Rules for Residency
Individuals will be conclusively not tax resident in the UK if they have not been tax resident before and are present in the UK for less than 45 days, or if they have been resident before but are present in the UK for less than 10 days, or of they have left the UK on a “full time work abroad” contract and are present in the UK for less than 90 days and working in the UK for no more than 20 days.
Individuals will be conclusively tax resident in the UK if they are either present in the UK for 183 days or more in a tax year, or if their only home is in the UK, or if they carry out full time work in the UK.
For individuals who do not fall into any of these camps there are new rules which are based on a combination of day counting and “relevant connections” to the UK.
The relevant connections for “arrivers” (persons who have not been UK resident in any of the last 3 taxyears) are as follows:-
· Your family (spouse / partner OR minor children) are UK resident
· You have substantive (40 days or more) employment or self employment in the UK
· You have accessible accommodation in the UK
· You have spent 90 days or more in the UK in either of the previous two tax years
| Days spent in UK | Impact of relevant connections |
| Less than 45 days | Always non-resident |
| 90 to 119 days | Resident if individual has 3 factors or more (otherwise not resident) |
| 120-182 days | Resident if individual has 2 factors or more (otherwise not resident) |
| 183 days or more | Always UK resident |
The relevant connections for “leavers” (persons who have been UK resident for at least one tax year) are as above plus an additional connection will apply which is whether they have spent more days in the UK in the tax year than any other single country.
| Days spent in UK | Impact of relevant connections |
| Less than 10 days | Always non-resident |
| 10 to 44 days | Resident if individual has 4 factors or more (otherwise not resident) |
| 45 to 89 days | Resident if individual has 3 factors or more (otherwise not resident) |
| 90 to 119 days | Resident if individual has 2 factors or more (otherwise not resident) |
| 120 to 182 days | Resident if individual has 1 factor or more (otherwise not resident) |
| 183 days or more | Always UK resident |
Ordinary Residence
Another significant proposal is that the Government has put forward several different options for the future of ordinary residence. These include abolition but retention for resident non-doms claiming overseas workdays relief, and a new statutory definition which will restrict the availability of notordinarily residence status to two years.
The reduction in the window of opportunity for claiming to be not ordinarily resident will be disappointing news for those of our clients on “expat” contracts or secondment to the UK.
Our View
We welcome the introduction of a statutory residence test which will remove years of uncertainty around UK residency status for even the well advised tax payer. However, these rules will encourage individuals to avoid visiting and establishing connections with the UK which will reduce their personal spending there. This consequence is in stark contrast to the proposed changes to the taxation of nondoms to encourage their investment in the UK.
We have outlined in broad terms the proposals of the new rules. Should you have any concerns or queries about these proposals, please do not hesitate to contact us for specific advice.
| Mark Davies | James Hodgson-Barker |
| Director | Senior Manager |
| Telephone: + 44 (0) 203 0088102 | Telephone: +44 (0) 203 0088108 |
| Email: mdavies@mdaviesassociates.com | Email: jhodgson-barker@mdaviesassociates.com |
View the PDF here.