The Treasury published responses to it's consultation on changing the rules governing UK tax residence. The Treasury documents can be accessed at

The new approach from April 2013 is a 'statutory' residence test - that is, one set in law rather than relying on interpretation by HM Revenue & Customs. The new rules take effect from April 6, 2013.

In previous years the interpretations of residence issues by HMRC has become increasingly out of touch with modern international working practices. There have also been a number of tax cases, most significantly the high-profile case of Robert Gaines-Cooper which raised a number of inconsistencies in the current practice.

Recognising this change the Treasury has consulted widely in order to draft new legislation which is appropriate for the 21st-century.

Well, as an example, Francesca Lagerberg, head of tax at Grant Thornton, has said “It is not without its challenges - running to over 50 pages of draft legislation, but with consultation it could provide the clarity that many internationally mobile individuals have been seeking".

Additionally, John Barnett, chairman of the Chartered Institute of Taxation Capital Gains Tax and Investment Income Sub-Committee also welcomed the news, but added “The rules on tax residence are messy and uncertain and a long way from what we need for a modern tax system. Moving to a statutory test will give businesses and individuals greater certainty in an increasingly mobile world".

The basic structure of the residence test consists of three tests:

  1. Bullet    Automatically non-UK resident test

  2. Bullet    Automatically UK resident test

  3. Bullet    Sufficient ties and day count test

Before we look at the detail of these tests there are some changes which need to be considered :

Temporary Non-Residence

New targeted anti-avoidance rules have been introduced to prevent people from using short periods of non-residence to receive income free of UK tax.

These rules already apply to capital gains, pension scheme withdrawals and remittances of foreign income in some cases.

The  rules will now extend to include -

  1.     dividends and other income from personal or family companies ( if the income came from profits which arose at a time of UK tax residence.

  1.     lump sum benefits from an employment in certain cases.

‘Ordinary Residence’ is Abolished

The concept of ordinary residence is abolished from 6 April 2013. In practice this change means that -

  1.     the remittance basis is now only available for someone claiming to be domiciled outside the UK (it was previously also available to anyone claiming they were not ordinarily resident).

The starting point is the ‘Automatically Non-Resident’ test.

Automatically Non-Resident

You cannot be UK resident if :

  1. Bullet    you spend less than 16 days in the UK during the tax year

  1. Bullet    you were not UK resident in the  previous three tax years, and you spend less than 46 days in the UK; or

  1. Bullet    you have left the UK for full-time work abroad (this includes self-employed work)

For the purposes of this test, work abroad is considered to be “full-time” if it is on average more than 35 hours per week over the whole tax year. Where some employment duties are performed in the UK you can spend up to 30 working days per year in the UK without overturning non-resident status.

If you do not qualify as automatically non-resident under the test outlined above then the next step is to consider whether you would be considered to be automatically UK tax resident.

Automatically UK Resident

You will be automatically UK tax resident for a tax year if :

  1. Bullet    you spend at least 183 days in the UK during the tax year: or

  1. Bullet    your only home is in the UK for more than 90 days during the tax year and you occupy that home for at least 30 days

  1. Bullet    you are in full-time work in the UK for a continuous 12 month period (not necessarily coinciding with the tax year)

In many cases it is possible to not meet the conditions of either the automatic non-resident test or the automatic resident test. In these cases you need to consider a series of further tests known as the “sufficient ties test”.

Taken together, the number of your ties with the UK and the days spent in the UK will decide your tax residence status.

Here is an overview of how the UK ties and UK days tests work together :

The Ties Tests

Family Tie :

You have a UK family tie if you have

  1.     a spouse

  2.     a civil partner

  3.     someone with whom you are living as a partner

  4.     a minor child

who is resident in the UK.

A minor child who is only resident in the UK because they are in full-time education in the UK will not be considered a connecting factor provided they spend fewer than 21 days in the UK outside term time. A half term holiday will count as term time for these purposes.

Accommodation Tie :

You have a UK accommodation tie if :

You have ‘available accommodation’ for a continuous period of at least 91 days in the tax year, ignoring any gaps of fewer than 16 days.

Available accommodation is widely defined and will include a home in the UK, holiday home, temporary retreat or similar’ and could include the use of a hotel if the same hotel is always used.

Work Tie :

You have a UK work tie if you spend at least 40 days working in the UK, where a working day is defined as three hours.

90-day Tie:

You will have the 90 day tie if you spent more than 90 days in the UK in at least one of the previous two tax years.

Country Tie :

This only applies when you leave the UK

You will have the UK country tie if the UK is the country where the greatest number of days has been spent.

For day counting purposes, days spent in the UK at midnight are counted.

However an anti-avoidance provision will apply to individuals who manipulate this rule to attempt to qualify for non-resident status, despite spending considerable time in the UK and having substantial ties.

Days spent in the UK as a result of exceptional circumstances will not to be counted as UK days - up to a maximum of 60 days.

Guidance will be published by HMRC at a later date to explain how it will apply these provisions in practice.

New rules have been introduced and relate to anyone who avoids tax on certain types of income - such as dividends paid by a company they control or proceeds from single premium insurance bonds -  while they are temporarily non-resident.

These new rules apply if you have been UK resident for four or more of the previous seven tax years.

Tax residence always relates to whole tax years and the tests described above will decide if you are resident or is not resident in a tax year.

However, in the year of departure from or arrival in the UK it is possible to split a tax year between periods of residence and non-residence.

The split year treatment applies where you :

  1.     start to work full-time overseas

  2.     accompany your spouse or partner who is working full-time overseas

It also applies if you :

  1.     leave the UK to live abroad and you move your home there within six months of your departure and do not return to the UK for more than 15 days for the rest of the relevant tax year; or

  1.     you come to the UK to live here and your only home is in the UK; or

  1.     you come to work full-time in the UK; or

  1.     you acquire a home in the UK and continues to be resident in the UK in the next tax year.

New Tax Residence Rules

What has changed?

Why is change needed?

Does it work?

So what are the new rules?

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The Tests

Day Counting - The Midnight Rule

Exceptional Circumstances

New Temporary Residence Rules

Split Year Treatment

Following Royal Assent of the 2013 Finance Act, on 28 August, HMRC updated their guidance note on the Statutory Residence Test, originally published in May 2013.

Changes have been made to the special ‘fourth’ automatic UK residence test which applies only to the tax year in which an individual dies.  These special rules are complicated but can cause a person (who would not have been UK resident while they were alive) to become UK resident in the year of death. 

Clarification is made to the ‘split year’ rules :  Sometimes more than one set of circumstances can apply to a particular individual which trigger the split year rules.  There is now an order of precedence to ensure that only one set of rules can apply to any individual in any tax year.

For the country tie, HMRC have confirmed their view that presence in any state, territory or canton into which a country is subdivided should be regarded as presence in that country.  

For UK days, the normal rule is that days where an individual is present at midnight will be counted and transit days where someone is only here because they are merely passing through and happen to arrive and leave either side of midnight are disregarded.

Transit days will not be disregarded where an individual engages in any activities that are to a substantial extent unrelated to their passage through the UK.

It seems that in this context, having breakfast or dinner at the transit hotel will not count as ‘substantial’ but something as simple as watching a film at the local cinema or meeting friends will.  The transit rule is a concession to the normal midnight rule so HMRC are looking to ensure it is not abused.

2013 Finance Act Update

"In a funny way, nothing makes you feel more like a native of your own country than to live where nearly everyone is not."

Bill Bryson

Non-Residents and Tax Records

Non-UK residents who visit the UK must keep careful records of the dates of their visits to this country, as demonstrated by two recent cases*.  The outcome of the cases was largely influenced by the quality of record keeping made by the individuals concerned. Taken together, just over £6m of tax was in dispute.  [Rumbelow & Anor v. Revenue & Customs 2013 UK FTT 637, Glyn v. Revenue & Customs 2013, UK FTT 645].

There were similarities between these cases, but very different results for the taxpayer. The Tribunal took notice of the meticulous records of movements kept by Mr Glyn – and found in his favour - while they noted the absence of records and inconsistencies in the case of Mr and Mrs Rumbelow  - and the Rumbelows lost. 

“This case demonstrates that millions of pounds can be won or lost due to the quality of an individual’s record keeping,” warned Richard Mannion, national tax director at Smith & Williamson, the accountancy and investment management group.

“These cases focused on tax years before the new statutory residence test was introduced, but the need for detailed records remains paramount.

Many people spend a large portion of the year abroad, but keep ties with their family in the UK. Mannion advises: “In such cases, it is important that people keep scrupulous records of not just the date, but the time of their arrival, into and out of the UK.  They should also note the reason for their visit, where they stay and where time is spent outside the UK.  The extent of record keeping required will depend on individual circumstances, but a full list appears in section 7 of HMRC’s guidance note RDR3.”

* The two cases focused on residence status (with the rules applying before the statutory residence test in Finance Act 2013) which were at First-tier Tribunal. They concerned:

  1. 1.Mr & Mrs Rumbelow (TC03022) (involving disputed tax totalling approximately £0.59m between 2001/02 and 2004/05);

  2. 2.James Glyn (TC03029) (involving disputed tax of £5.5m for the 2005/06 tax year).

Source : Smith Williamson

A Recent tax Case

A couple from Salford face a £600,000 tax bill after a tribunal found they were still UK residents despite moving to Portugal more than 10 years ago.

Stephen and Pauline Rumbelow left England after Mrs Rumbelow suffered a breakdown. The couple had hoped to spend their retirement in a villa they built for themselves in Silves, southern Portugal.

But a long-running dispute with HMRC [Rumbelow v commissioners for HMRC, TC03022] meant that they faced a tax bill of almost £600,000 (in income tax and capital gains tax) after a judge ruled that the UK farmhouse they owned remained "essentially a family home".

Stephen Rumbelow, who made his fortune in building and property development, was “deeply suspicious” of HMRC, the tribunal heard.

After briefly living in an unfurnished flat in Belgium the couple built themselves a mansion in Portugal. But their plans for a relaxing retirement were challenged when HMRC refused to accept that they were resident abroad in the tax years 2001-2005. HMRC charged the couple with retrospective tax demands.

The Rumbelows lived at Yew Tree Farm, Crowton, before moving abroad. In the tribunal they argued that they had intended to move permanently abroad when they boarded a Europe-bound train in April 2001.

They said they had only since returned to England as visitors to see friends and family – and never for more than the 90 days a year, the threshold then applied by HMRC for overseas residence.

When dismissing the couple's appeal, Judge Cannan noted Mr Rumbelow's "deep suspicion" of the tax authority and found that their departure had not marked "a distinct break" with the UK.

Although the couple protested that their intention to make their permanent home abroad "could not have been more distinct or clear", the judge said that Yew Tree Farm had "remained, essentially, a family home". The couple made frequent trips home.

Although there had been some "loosening" of their social and family bonds with Northwich it was not "substantial" enough to make them non-UK residents, the tribunal ruled.

The £600,000 figure is based on disputed income tax and capital gains tax from the years 2001 to 2005 for both Mr and Mrs Rumbelow.

Source : AccountingWeb