New Residence Test For UK Expats

HMRC recently ended their consultation period on new legislation governing how to determine whether or not individuals are resident in the UK

London, UK (Pryce Warner International) September 23rd, 2011 – Part of the proposed legislation that passed the consultation period is that now there will be a new statutory residence test to determine whether individuals are liable to UK income tax.

Though the consultation period of the bill has ended, some elements may change when it is submitted for comment later this year. The final draft will be published in the finance bill 2012 and will take full effect from the 6th of April 2012.

Over the past few years there have been consistent problems and ambiguities in the law as to how to determine whether or not individuals are resident in the UK for tax purposes. It is hoped that the new SRT (Statutory Residence Test) will help provide a clear guideline for how to determine an individual's country of residence.

The SRT will take into account both the amount of time an individual spends in the UK as well as another other connections, financial or otherwise, with the UK. The overall aim to the legislation has been stated as “the proposed test has been designed so that it is harder to become non-resident when leaving the UK after a period of residence than it is to become resident when an individual comes to the UK.”

At present, the SRT will contain three parts. The first part will determine whether or not there are any conclusive factors that can determine non-residency, while the second will determine whether or not there are any conclusive factors that can determine residency.

It is expected that the majority of people will fall neatly into one of those categories. If it is not clear from the first two parts of the test whether or not an individual is resident in the UK, then the third part (part C) will be used.

Part C has five factors that will be looked at in order to determine residency. These are; family in the UK, accommodation in the UK, substantive work in the UK, UK presence in the previous year and whether or not they spend more time in the UK that any other country.

After this has been looked over, two further principles will be used to determine how much weight each of these factors is given. First, the more time someone spends in the UK the fewer connections they should be allowed to keep with the UK if they want to become non-resident. Second, that UK residence status should adhere more closely to those leaving the UK rather than entering it.

David Harra, a Senior Market & Investment Analyst with Pryce Warner International, a Financial Services Provider for Expats, commented: “The initial outline for the test presented in June had some worrying elements to it but thankfully the newly consulted bill looks much more reasonable. There remain certain concerning conditions though. Part of it implies that UK residents may have to give up ties to the UK in order to be considered non-resident. It is not clear as yet what constitutes a “tie” to the UK. In theory this could be property, bank accounts or other assets, which would seem highly unfair on those trying to leave the UK. The other is that the HMRC document states that they essentially want to make it easy for people to be considered resident in the UK but hard for them to be considered non-resident. While this makes sense initially, the HMRC wants to ensure that all people that should be are paying tax, at the same time it implies that the criteria for leaving the UK may be too imbalanced, and therefore some people who should be allowed to be considered non-resident may no longer fit that category.

It is not yet clear what the full implications of the bill are, especially as they will impact every individual differently, but they should become more clear in the coming months. Anyone concerned that they may be negatively impacted by the changes should consult independent tax advisors to make any and all necessary preparations before April 2012.”

Pryce Warner International Group provide International Asset & Investment Management, Independent Financial Advice & QROPS Overseas Pensions.

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By: Aneil Fatania
Financial Editor
Pryce Warner International Group
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