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finance

tax

UK’s New Statutory Residence Test words | Lynette Chaudhary, Tax Manager, STM Fiscalis

As of 6th April 2013, a new Statutory Residence Test (SRT) came into effect in the UK. The SRT sets out the rules which determine an individual’s tax residence. The objective of this test is to replace the uncertain and complex UK tax residency rules with a clear statutory test. Principally this test bases an individual’s residency status on their days spent in the UK and connecting factors with the UK. Essentially, the more connecting factors an individual has with the UK, the greater the length of time that individual must stay out of the UK to be non UK resident. Residency is paramount in determining an individual’s tax position in the UK. The SRT will apply to individuals for UK income tax, capital gains tax, inheritance tax and corporation tax but not for national insurance and non-tax purposes. The aim of the SRT is to be able to ascertain fairly readily whether an individual is resident or not resident in the UK and hence whether they are liable to UK tax, for example, on their worldwide income. For residents of Gibraltar who spend time in the UK or have ties to the UK, it is recommended they familiarise themselves with the new rules, so they are aware of their tax residency position and to ensure they don’t inadvertently overstep the mark! The intention to introduce the SRT was announced by the UK Government in March 2011. After an extended consultation period and draft legislation, revised draft legislation was published in the Finance Bill 2013, in December 2012. Until this Finance Bill receives Royal Assent this law may be subject to further amendment (although generally thought unlikely and if so, only minor changes).

183 days or more in a tax year, or There is a period of more than 90 days when they have a home available in the UK and visit that home for 30 days in the tax year, and either this is the individual’s only home or the individual has an overseas home but does not use it for at least 30 days in the tax year, or Carry out full time work in the UK, or This may be of particular importance to those Category 2 residents in Gibraltar who have a home available in the UK and do not spend more than 30 days a year in their Gibraltar home. They may now consider spending more time in their Gibraltar home. The Automatic Overseas Test It is proposed that an individual will be conclusively non-resident if they meet any of the following conditions: They were not resident in the UK for the previous three tax

years and are present in the UK for fewer than 46 days in the current tax year, or They were resident in the UK in one or more of the previous three tax years and they are present in the UK for fewer than 16 days in the current tax year, or They leave the UK to carry out full time work abroad, provided they are present in the UK for fewer than 91 days in the tax year and no more than 30 days are spent working in the UK in the tax year. The Sufficient Ties Test This will apply to individuals whose residence position is not determined by the two tests above, and this focuses on the number of ties to the UK. The UK ties to consider are: family in the UK, accommodation in the UK, work in the UK, 90 days in the UK (i.e. more than 90 days in either or both of the previous 2 tax years) and if the UK is the country in which the greatest

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• Your partner, if you are living together as husband and wife or as civil partners • Your child, if under 18 years old, unless you see your child in the UK on a total of 60 days or fewer in the year, or your child turns 18 during the year and you see your child in the UK a total of 60 days or fewer in the part of the year before their 18th birthday.

Once the number of UK ties is established, an individual refers to a sliding scale of UK days (defined in the table below) to see whether the number of days they spend in the UK will treat them as a resident or not. The factors are applied differently depending on whether an individual is an “arriver” in the UK or a “leaver” from the UK. The latter is more stringent, reflecting the view that residence has an adhesive quality.

Split year treatment Under the SRT, an individual is either UK resident or non-UK UK resident for a full tax year. However the legislation will also provide for a tax year to be split in certain circumstances. For example, if during a year

• The Automatic Residence Test • The Automatic Overseas Test • The Sufficient Ties Test

UK Tests It is proposed that an individual will be conclusively resident if they meet any of the following conditions: They are present in the UK for

• Your husband, wife or civil partner (unless you are separated)

Year of death There are also separate automatic residence tests determining the position in the year of death. For example, an individual is treated as non-UK resident in that year if they spent fewer than 46 days in the UK and they were resident in the UK for neither of the two preceding tax years.

So what are the new rules? In outline, there are three aspects to the SRT:

The Automatic Residence Test The Automatic Residence Test is met if the individual meets any of the UK tests, outlined below, and none of the Automatic Overseas Tests.

number of days are spent. Each tie is defined. For example, you are treated as having a family tie if any of the following people are UK resident for tax purposes for the year concerned:

Days spent in UK

Arrivers in UK

Individuals non UK resident in all of previous 3 tax years

Leavers from UK

Individuals UK resident in 1 or more of the previous 3 tax years

Fewer than 16 days

Always non resident

Always non resident

16 - 45 days

Always non resident

Resident if individual has 4 ties

46 - 90 days

Resident if individual has 4 ties

Resident if individual has 3 ties or more

91 - 120 days

Resident if individual has 3 ties or more

Resident if individual has 2 ties or more

121 - 182 days

Resident if individual has 2 ties or more

Resident if individual has 1 tie or more

183 days or more

Always resident

Always resident

GIBRALTAR MAGAZINE • MAY 2013

The Gibraltar Magazine - May 2013  

Gibraltar's fabulous business and leisure magazine. Crammed full of great features from finance to football, from fashion to arts. Enjoy i...

The Gibraltar Magazine - May 2013  

Gibraltar's fabulous business and leisure magazine. Crammed full of great features from finance to football, from fashion to arts. Enjoy i...