When you’re a Brit living in the UK, you generally pay tax on your worldwide income and gains.
Which is why you don’t give your residency status a second thought.
However, once you move abroad, you normally change your residency status and generally reduce or remove your UK tax burden as a result.
Because I receive many enquiries about this subject, I thought I’d try and clarify the rules around UK residency and tax liability, and their impact on senior international professionals.
The trouble is, the information is long, complex and at times tedious!
Therefore I’ve broken this down into two parts.
This first part deals with determining your residency status and everything to do with the Statutory Residence Test – the "SRT".
Part 2 covers the split year rules and how they can apply to you in the years you leave or return to the UK..
Just like in my UK property tax blog, I’ve split these two articles about UK residency rules into titled and subtitled sections, so hopefully you can just dip in and get any information relevant to yourself without getting too bogged down in the complexity.
Please note: Myself and my team have a working knowledge of tax as part of wider financial planning, but for specific questions around your tax status, a tax specialist would be your best bet.
UK residency rules explained
Whether you’re UK resident or not usually depends on the number of days you spend in Britain in a tax year.
A tax year in the UK runs from the 6th of April to the 5th of April the following year.
HMRC consider you to be automatically resident for tax purposes for a particular tax year if either:
- you spent 183 or more days in the UK in the tax year in question or;
- your only home was in the UK - you must have owned, rented or lived in it for at least 91 days in total - and you spent at least 30 days there in the tax year
HMRC consider you to be automatically non-resident for tax purposes if either:
- you spent fewer than 16 days in the UK (or 46 days if you have not been classed as UK resident for the 3 previous tax years) or;
- you work abroad full-time (averaging at least 35 hours a week) and spent fewer than 91 days in the UK, of which no more than 30 were spent working.
For most people, the above summary establishes whether they are considered resident for tax purposes or not.
But for some, at least during their early years of living abroad, the rules don’t quite cover their situation.
The Statutory Residence Test (SRT)
The SRT came into effect from 6 April 2013, and applies from 2013 - 14 onwards. For earlier years, different rules apply.
- In some situations in order to work out your residence status a taxpayer will need to know what their residence status was in the three previous years.
- Residence status for years before 2013/14 may be optionally determined by the SRT, purely for the purpose of establishing your residence status from 2013/14 and later years.
According to HMRC:
“Different rules applied for earlier years. You can, if you choose, elect to have your residence status for those earlier tax years decided by the SRT, purely for the purpose of establishing your residence status from 2013-14 onwards.”
If you do choose to do this, it doesn’t change your actual residence status for previous years.
The test allows you to work out your residence status for a tax year. Each tax year is looked at separately, so you may be resident in the UK in one year but not the next, or vice versa.
If you’ve been in the UK for 183 or more days you’ll be a UK resident. There is no need to consider any other tests.
The SRT means that you will be resident in the UK for a tax year, and at all times in that tax year, if :
- you do not meet any of the automatic overseas tests and
- you meet one of the automatic UK tests, or the sufficient ties test.
Automatic overseas tests
There are three automatic overseas tests, and if your situation falls into any of the categories, you’re likely to have been non-resident for the tax year in question:
First automatic overseas test
You were resident in the UK for one or more of the three tax years preceding the tax year in question, and you spent fewer than 16 days in the UK in the tax year in question. Note: if an individual dies in the tax year, this test does not apply.
Second automatic overseas test
You were not resident in the UK for any of the three preceding tax years, and you spent fewer than 46 days in the UK in the tax year in question.
Third automatic overseas test
You worked full-time overseas in the tax year, without any significant breaks during the tax year from your overseas work, and:
- You spent fewer than 91 days in the UK in the tax year;
- The number of days in the tax year on which you worked for more than three hours in the UK was less than 31.
Note, this specific automatic overseas test does not apply to you voluntary workers or workers with a job on board a vehicle, aircraft or ship.
Automatic UK tests
There are three automatic UK tests, and if your situation falls into any of these categories, you’re likely to have been resident in Britain for the tax year in question.
First automatic UK test
If you spent 183 days in the UK in the tax year, then you are a UK tax resident.
Second automatic UK test
If you have, or have had, a home in the UK during any of the relevant tax year the second automatic UK test will apply to you.
It has three elements:
- Did you have a home in the UK for at least 30 consecutive days of the relevant tax year?
- Were you present in this UK home for at least 30 days of the relevant tax year? Being present counts as any period, however short, that you were physically in the home between midnight and midnight on the day in question. Did you have this UK home for at least 91 consecutive days in total?
- Did you have no home overseas, or an overseas home where you spent less than 30 days in the relevant tax year?
If the answer to all three questions is yes, then you have met the second automatic UK test and you are tax resident in the UK.
If you have more than one home in the UK you should consider each of those homes separately to see if you meet the test. You need only meet this test in relation to one of your UK homes.
Third automatic UK test
You’ll be UK resident for the tax year if all the following apply:
- you work full-time in the UK for any period of 365 days, which falls in the tax year
- more than 75% of the total number of days in the 365 day period when you do more than 3 hours work are days when you do more than 3 hours work in the UK
- at least one day which has to be both in the 365 day period and the tax year is a day on which you do more than 3 hours work in the UK
The sufficient ties tests
If you do not meet any of the automatic overseas tests or any of the automatic UK tests, you should next use the sufficient ties tests to try and work out your UK residence status for a given tax year.
A word of warning: the sufficient ties tests can be really broad in terms of their application, and are subjective in many ways.
Always consider that it is in HMRC’s interests to prove you’re a UK resident and therefore liable to pay income and capital gains tax on your worldwide income.
Therefore, if you’re in any doubt about your UK ties after reading the following, err heavily on the side of caution.
Ties in this sense are connections to the UK. You have to consider your ties and then the number of days you spend in the UK in any tax year that’s under scrutiny and work out whether they are sufficient for you to be considered UK resident for tax purposes.
If you were not UK resident for any of the 3 tax years before the tax year in question, you need to consider if you have any of these UK ties:
- A family tie;
- An accommodation tie;
- An employment or work tie, and;
- A 90 day tie.
Additionally, if you were resident in the UK for one or more of the three tax years before the tax year under consideration, you will also need to consider if you have a country tie.
I discuss each of the ties below.
Number of UK ties
The number of days you spend in the UK in a tax year is relevant to the number of UK ties needed for you to be UK resident.
This is best illustrated with a table:
Table 1: UK ties needed if you were UK resident for one or more of the three tax years before the tax year under consideration:
|Days spent in the UK in the tax year under consideration||UK ties needed|
|16-45||At least 4|
|45-90||At least 3|
|91-120||At least 2|
|Over 120||At least 1|
Table 2: UK ties needed if you were UK resident in none of the 3 tax years before the tax year under consideration:
|Days spent in the UK in the tax year under consideration||UK ties needed|
|91-120||At least 3|
|Over 120||At least 2|
Definition of UK ties
There are five potential UK ties and they are as follows. Please note I have just summarised the core information relating to each! If you’re in any doubt whatsoever, I recommend you refer to the HMRC website for greater clarification.
Remember, when it comes to tax, err on the side of caution.
A family tie
You have a family tie for the tax year under consideration if any of the following are UK resident for tax purposes for that year:
- Your husband, wife or civil partner, (unless you are separated);
- Your partner, if you are living together as husband and wife or as civil partners;
- Your child, if under 18-years-old.
An accommodation tie
You have an accommodation tie for a tax year if you have a place to live in the UK and:
- It's available to you for a continuous period of 91 days or more during that year, and
- You spend 1 or more nights there during that year.
“You have a home, holiday home or temporary retreat in the UK, or other accommodation that you can live in when you are in the UK.”
A work tie
You are considered to have an employment or work tie for a tax year if you do more than three hours of work a day in the UK on at least 40 days in that year.
The 40 days to not have to be continuous back-to-back days.
However, there are special rules about what constitutes three hours of UK work for people in relevant jobs.
What constitutes “a relevant job” for a work tie?
If an individual has a job aboard a vehicle, aircraft or ship, they might have a ‘relevant job’. If so, some parts of the statutory residence test will apply slightly differently to them.
If in doubt, you have a relevant job if you meet BOTH conditions below:
- your job’s duties are performed on board a vehicle, aircraft or ship while it is travelling, or;
- you’re a tradesperson whose work is done on board a vehicle, aircraft or ship while it is travelling, and you have to be present in person on board the vehicle, aircraft or ship while it is travelling.
- substantially all of the trips made in performing those duties or carrying out those activities are cross-border trips. That is, that involve crossing an international boundary at sea, in the air or on land.
A 90 day tie
You have a 90 day tie for a tax year if you have spent more than 90 days in the UK in either or both of the previous two tax years.
You are deemed to have a country tie for a tax year in question if the UK is the country in which you were present at midnight for the greatest number of days in that tax year.
If the greatest number of days you were present in a country at midnight is the same for 2 or more countries in a tax year, and 1 of those countries is the UK, then you will have a country tie for that tax year.
For the purposes of this specific Statutory Residence Test, presence at midnight in any state, territory or canton into which a country is subdividedm is regarded as presence at midnight in that country.
How to determine your residence status using the Statutory Residence Test
Firstly, for the tax year in question, did you spend 183 days in the UK in that tax year?
If yes, then you will be resident in the UK.
If no, then go through the three automatic overseas tests.
If you meet any one of these, then you will not be UK resident for the tax year in question.
If you do not meet any, then did you meet any of the UK tests?
If you meet any of these, then you are UK resident.
If you do not, then you have to consider the sufficient ties tests.
If you meet these, then you are UK resident.
If you do not, then you are not UK resident.
Working out the number of days you’ve spent in the UK
HMRC considers you to have spent 1 day in the UK if you are in the UK at the end of that day, i.e., at midnight.
However, even something that simple is open to interpretation!
The above rule is subject to:
- The deeming rule, which may count certain other days even if you were not in the UK at midnight on that day;
- Transit days;
- Time spent in the UK due to exceptional circumstances. These days might not count towards the total day count for certain parts of the SRT and for certain people.
What is the SRT deeming rule?
If you’ve read this far you deserve a medal, and you will also have noted that some of the SRTs require you to count the number of days that you’re in the UK in a given tax year.
Days you are still physically in the UK at the end of that day, at midnight, count as days spent in the UK for the purposes of tax and residency.
In theory, if you aren’t present in the UK at the end of a day, that day does not count towards your total of days spent in the UK.
But all this is subject to the deeming rule, which applies to you for a tax year if you have:
- been UK resident in one or more of the preceding three tax years;
- got at least three UK ties for the tax year;
- been present in the UK on more than 30 days without being present at the end of that day (known as a 'qualifying day') in the tax year.
Note: this deeming rule does not apply to the limit on days spent in the UK under the third automatic overseas test.
If you meet all the above conditions then the deeming rule means that, after your first 30 qualifying days, all other qualifying days within the tax year in question are actually treated as full days that you spend in the UK.
If the deeming rule applies to you, for the purposes of counting up the number of days you have spent in the UK, you must total up all your days spent, i.e., the days when you were present at the end of the day and any qualifying days, over and above the 30 day threshold.
Transit days don’t count towards your total day count for the purposes of the Statutory Residence Test.
A transit day is a day when you’re travelling from a country outside the UK to another country outside the UK, and while on route:
- you arrive in the UK as a passenger, and
- you leave the UK the next day.
There is a caveat to this however.
Between your time of arrival in the UK and your departure, you’re not allowed to: “engage in any activities that are to a substantial extent unrelated to your passage through the UK.”
HMRC give a useful example of what they mean by this as it’s really wide open to interpretation:
“Merely taking dinner or breakfast at your hotel, in the normal course of events, would be related to your passage. In contrast enjoying a film at the local cinema or catching up with friends would be considered substantially unrelated to your passage through the UK.”
A final caveat to keep in mind, the day you arrive in the UK when you’re in transit won’t count as a day spent in the UK for the purposes of the Statutory Residency Test. But…the next day, when you leave the UK, may count as a qualifying day under the deeming rule. See the above section on this for greater clarification.
When it comes to tax and your liability for it, never assume anything, i.e., don’t assume that you’re not liable for tax in the UK or you don’t have a tax charge on income or gains.
My advice would be to always seek professional guidance.
And on that note, although I am a chartered financial planner rather than an international accountant, if you are interested in discussing your residence status and whether there are any ways you may be able to save taxation on any area of your portfolio, assuming you’re an expat with a net worth in excess of £500,000, do get in touch, this is a particular area of interest and expertise of mine.