Financial Update - Autumn 2012

A bit more certainty on residence

smilingThe Government plans to introduce its new statutory residence test (SRT) from April 2013. This should make it much easier for you to establish whether or not you are a UK resident if your residence status is currently unclear.

The new test was originally proposed in the March 2011 Budget in response to the uncertainty created by a string of court cases. A summary of responses to the consultation has recently been published, along with draft legislation. HMRC will provide an interactive online tool, so that individuals can self-assess their residence status, and a prototype is already available. The aim of the SRT is to ensure that an individual cannot become non-resident without reducing their UK connections, but it recognises that people should not be treated as resident where they have little connection with the UK. The SRT therefore takes account of connection factors that someone has with the UK, and the number of days they spend here.

There will be some situations where a person is always treated as UK resident – if they stay here for 183 days or more during a tax year, if their only home is in the UK, or if they work here full-time. Full-time working means an average of 35 hours a week (either employed or self-employed). Renting a home overseas will circumvent the ‘only home’ condition. In other situations, a person will automatically be treated as being not resident in the UK, for example, staying here for fewer than 16 days in a tax year or leaving for full-time work overseas. The 16-day condition increases to 46 days if a person has not been resident for any of the three previous years, and for this purpose the SRT can be used to determine residence status for years before 2013/14. Full-time work must include at least one complete tax year, with UK visits restricted to 90 days a year and working days in the UK restricted to 20 days (this might be increased to 25 days).

If your status is not definite, then residence will be determined by a trade-off between ‘connection factors’ and ‘days of presence’. It will be harder for someone leaving the UK to relinquish residence than for a new arrival to acquire it, as the table below shows.

Connection factors are:

  • Having immediate family here;
  • Having UK accommodation (made use of during the year);
  • Doing substantive work here (40 or more days a year);
  • Having a UK presence in either of the two previous tax years (more than 90 days); and
  • Spending more time here than in another country (only relevant for leavers).

Anti-avoidance provisions will be introduced to prevent, for example, a company owner drawing a large tax-free dividend during a temporary period of non-residence. Also, the concept of ordinary residence is to be abolished from 6 April 2013, although this will affect relatively few people.
The SRT will be particularly welcomed by people who leave the UK without making a clean break – for example, they retain a home here. If they want to spend, say, two months a year in the UK, then they will know that they can establish their non-residence status if there are no other connection factors for the initial two years overseas.

Days in the UK

Coming to the UK

Leaving the UK

16 to 45

Not resident

Resident if 4 factors apply

46 to 90

Resident if 4 factors apply

Resident if 3 factors apply

91 to 120

Resident if 3 factors apply

Resident if 2 factors apply

121 to 182

Resident if 2 factors apply

Resident if 1 factor applies

QUESTIONDid you know that the Government is consulting on introducing tax reliefs for the animation, high-end television and video games industries from April 2013? There will be separate reliefs for each industry, but they are all based on the existing film tax relief. Therefore an additional deduction will be given for certain core production costs, and if there is an overall loss then this can be surrendered for a payable tax credit. The Government wants to make the UK a more attractive location for creative industries, but rather than subsidising existing production activity, it aims to attract investment that otherwise would not have taken place.