A new statutory set of rules are proposed, to apply from 6 April 2013, to determine UK tax residence. The current rules will continue to apply for tax years prior to the introduction of the statutory test, including 2012/13. Initially the new rules were to have applied from 6 April 2012 but the Government has decided that further consultation is required. 

The proposal rules, which remain subject to consultation, are as follows.

Non-UK resident
You are not resident in the UK for a tax year if:

• you were not resident in the UK in all of the previous three tax years and you are present in the UK for fewer than 45 days in the current tax year; or
• you were resident in the UK in one or more of the previous three tax years and you are present in the UK for fewer than 10 days in the current tax year; or
• you leave the UK to carry out full-time work abroad [see definition A below], provided you are present in the UK for fewer than 90 days in the tax year and no more than 20 days are spent working in the UK in the tax year.

UK resident
You will be resident in the UK for the tax year if:

• you are present in the UK for 183 days or more in a tax year; or
• you have only one home and that home is in the UK (or have two or more homes and all of these are in the UK; or
• you carry out full-time work in the UK [see definition B below].

If you don’t fall into either category your status will depend on how many ‘connection factors’ apply and the number of days you are in the UK; the combination differing according to whether you are an ‘arriver’ or a ‘leaver’.

Arrivers
If you were not resident in all of the three tax years preceding the year under consideration ('arrivers'), the following connection factors may be relevant to your residence status, if they occur at any point in the tax year:

• your family [see definition C below] is resident in the UK;
• you do substantive work in the UK [see definition D below], but don’t work in the UK full-time [see definition B below];
• you have accessible accommodation in the UK [see definition E below] and make use of it during the tax year;
• you spent 90 days or more in the UK in either of the previous two tax years.

These connection factors are combined with days spent in the UK to determine your residence status as follows:

Impact of connection factors on residence status

Days in the UK	Residency Status
Fewer than 45	Always non-resident
45-89	Resident if 4 factors apply (otherwise not resident)
90-119	Resident if 3 factors or more apply (otherwise not resident)
120-182	Resident if 2 factors or more apply (otherwise not resident)
183	Always resident

Leavers
If you were resident in one or more of the three tax years immediately preceding the tax year under consideration ('Leavers'), the following connection factors may be relevant to your residence status, if they occur at any point in the tax year, namely:

• your family [see definition C below] is resident in the UK;
• you do substantive work in the UK [see definition D below], but don’t work in the UK full-time [see definition B below];
• you have accessible accommodation in the UK [see definition E below] and make use of it during the tax year;
• you spent 90 days or more in the UK in either of the previous two tax years;
• you spend more days in the UK in the tax year than in any other single country.

These connection factors are combined with days spent in the UK to determine residence status as follows:

Impact of connection factors on residence status

Days in the UK	Residency Status
Fewer than 10	Always non-resident
10-44	Resident if 4 factors apply (otherwise not resident)
45-89	Resident if 3 factors or more apply (otherwise not resident)
90-119	Resident if 2 factors or more apply (otherwise not resident)
120-182	Resident if 1 factor or more applies (otherwise not resident)
183 or more	Always resident

Day of presence in the UK

You will be treated as being in the UK on any day when you are in the UK at midnight at the end of that day. The current rules for individuals travelling through the UK as a passenger where they are in the UK at the end of any day will also be retained. This will mean that a day will not count as a day of UK presence if you arrive in the UK as a passenger, depart from the UK on the next day and during your time in the UK you do not engage in any activity substantially unrelated to your passage through the UK.

Split years

Under the current rules you are either resident or not resident in the UK for the whole of a tax year. However, by Extra Statutory Concession, the tax year can be split into periods of residence and non-residence in certain circumstances, when someone comes to, or leaves, the UK part way through a tax year. This prevents some individuals being taxed as if they were resident for the parts of the year before they came to the UK or after they left.

It is proposed that, in place of a concession, the new rules will statutorily treat a tax year as being split into periods of residence and non-residence if you:
become resident in the UK by virtue of your only home being in the UK;

• become resident by starting full-time employment in the UK;
• establish your only home in a country outside the UK and become tax resident in that country and do not come back to the UK in that tax year; 
• lose UK residence by virtue of working full-time abroad; or
• return to the UK following a period of working full-time abroad.

A tax year will not be treated as split where your residence status changes due to changes in the number of connection factors such as the arrival or departure of your family.

If you become not resident by virtue of leaving the UK to work full-time abroad and are accompanied by your spouse or civil partner, split year treatment would also apply to the spouse or civil partner, provided their sole or main home is outside the UK.

Anti avoidance

The new rules will seek to counteract the risk of individuals creating artificial short periods of non-residence, during which they receive a large amount of income (which accrued during periods of UK residence) free of UK tax and then bringing the income back into the UK tax free.

There will be an anti-avoidance rule for some forms of investment income along the lines of the capital gains tax rule [which charges gains that arise during a period of ‘temporary’ non-residence – one including fewer than 5 full tax years – where the individual has been resident in 4 out of the preceding 7 years]. In particular, it will apply to dividends paid by closely controlled companies that reflect profits that have built up during a period of residence and which are then taken out during a short period of non-residence.

It would not apply to all types of income that are received when a person is non resident. For example, it would not apply to earnings from employment or self-employment or to normal types of regular investment income, such as bank interest or dividends from listed companies.

DEFINITIONS

A - Full-time work abroad

You have full-time work abroad if you leave the UK to perform work abroad and are:

• employed abroad under one or more contracts of employment (including consecutive employments) or hold offices which have combined total hours of 35 hours per week or more; or
• carrying on one or more trades or professions wholly abroad where 35 hours of work per week or more is undertaken on average.

In either of these cases the work must be carried out for at least one full tax year if it is to be classed as full-time work abroad.

When a person is working full-time abroad, no more than 20 working days can be performed in the UK in any one tax year. This limit will be reduced pro rata if you are treated as being not resident for part of a year under the split year rules.

A working day is any day on which three hours or more of work is carried out.

If you carry out fewer than three hours of work, the day will not count towards the threshold of 20 working days abroad.

Even if you are not present in the UK at the end of the day, you will still be treated as working in the UK on that day if you have worked in the UK for three hours or more.

Where you work in the UK for fewer than three hours on a particular day, you would be expected to have sufficient records to demonstrate this fact.

You must be present in the UK for fewer than 90 days. This limit will be reduced pro rata if you are treated as being not resident for part of a year under the split year rules.

B - Full-time work in the UK

You are working full-time in the UK if you are:

• employed in the UK under one or more contracts of employment (including consecutive employments) or hold offices with total combined contracted hours of 35 hours per week or more; or
• carrying on one or more trades or professions in the UK where 35 hours of work per week or more is undertaken on average.
• The work must be carried out in the UK over a continuous period of more than 9 months (excluding short breaks such as illness or holidays) and not more than 25% of the duties can be undertaken outside of the UK within that period.

C - Family

You have family in the UK in a tax year if either of the following applies:

• your spouse, civil partner or common law equivalent is resident in the UK in that tax year or any part of that tax year. This does not include a spouse, civil partner or common law equivalent who is separated from you a court order or a separation agreement or where the separation is likely to be permanent; or
• you have children under the age of 18 who are resident in the UK and you spend time with those children (one to one or with others present), or live with them, for all or part of 60 days or more during the tax year. It would not matter whether these days were spent with the child in the UK or elsewhere.

A child will not be treated as being resident in the UK for these purposes if their residence is mainly caused by time spent at a UK educational establishment. This will be when the child spends fewer than 60 days in the UK not present at the educational establishment and the child’s main home is not in the UK.

D - Accessible accommodation

You have UK accommodation if residential property:

• is accessible to be used by you as a place of residence; and 
• is used by you or your family in the year as a place of residence

The following categories of accommodation are not included as UK accommodation:

• accommodation provided by an individual’s employer where the accommodation is also accessible to, and used by, other employees of that employer who are not connected to the individual. For example, premises owned or rented by the company that is used by all employees visiting the country while on company business;
• any accommodation held on a lease of six months or less, except where there are consecutive leases taking place. For example, if an individual moves from house A, with a six month lease to house B with a six month lease, and there are fewer than six weeks between leaving one house and living in the other, they will be considered to have UK accommodation;
• accommodation accessible to a child of the individual under the age of 18 where that accommodation is provided in relation to the child being a student at a UK educational establishment;
• short-term accommodation in hotels; and
• lodging with relatives, where staying in the home of a relative is for a temporary short-term visit only.

Residential accommodation is not treated as your home if that accommodation is being advertised for sale or let and you live in another residence.

E - Substantive employment (including self-employment)

You have substantive employment or self-employment in the UK if you work in the UK for 40 or more days in the tax year. The definition of a working day is any day on which more than three hours of work is undertaken. This includes any day where the person is not in the UK at the end of that day.

Specific advice should be obtained before taking action, or refraining from taking action, on any of the subjects covered above.  If you would like advice or further information, please speak to your usual Shipleys contact.