New UK residence rules announced

There is some really good news for retired UK expatriates who have been struggling with the UK’s 90 days residence rule. Under Treasury proposals, the rule is being made much clearer and much easier: Most retired expatriates will now be able to spend up to 119 days in the UK in each UK tax year, yet remain outside of HM Revenue & Customs’ clutches.

In his March Budget, the Chancellor announced that a statutory residence test would be introduced from April 6, 2012, and on June 17 the Treasury issued a consultation paper outlining its plans for the proposed test.

The taxman’s booklet on UK tax residence, known as HMRC 6 (which replaced IR20) will be torn up.

The proposed new test classifies individuals as ‘Leavers’ (people who have recently left the UK); ‘Arrivers’ (an individual who has not been UK tax resident in all of the previous three UK tax years); or ‘full-time workers abroad’ (working under contract/s of employment with a minimum of 35 hours per week).

There are to be separate rules for each category. This article covers ‘leavers’ so the points made below do not apply to ‘arrivers’. ‘Arrivers’ are subject to a different set of rules.

Tests will apply to determine if an individual can be definitively excluded from UK tax residence or definitively included.

Under the proposals, if you have left the UK you can never be UK tax resident if you spend less than 10 days in the UK in a UK tax year even though you may have a home there or a family, or whatever.

If you spend more than 10 days in the UK and have your only home in the UK (and no other home outside of the UK) you will be a UK tax resident.

If you work full time in the UK (more than nine months continuously and not more than 25 per cent of the duties performed outside of the UK) you will be classed as UK tax resident. The nine months can straddle two UK tax years.

Otherwise, to determine your tax residence, you need to see how many of the other ‘connecting factors’ apply to you. These are (i) family – if you have a spouse/civil partner and/or children aged under 18 who are tax resident in the UK; (ii) accommodation – residential property accessible to you to be used as a place of residence and used as so by yourself or your family in the year; (iii) substantive employment – if you work in the UK for 40 or more days in a tax year; (iv) UK presence in previous years – if you have been UK resident for more than 90 days in either of the previous two UK tax years; and (v) more time spent in the UK in the tax year than any other single country

So, if you spend no more than nine days in a UK tax year HMRC can never deem you to be tax resident regardless of whether any of these factors apply.

If you exceed the nine days, then the number of days you can spend in the UK before you are UK tax resident depends on how many of the connecting factors apply to you.

If only one factor applies, you can spend up to 119 days in the UK without becoming UK tax resident.

If no more than two factors apply, you can spend up to 89 days.

If no more than three factors apply you can spend up to 44 days.

If four or more factors apply you can spend no more than nine days.

If you exceed any of these timeframes in a UK tax year you will be UK tax resident. If you spend over 183 days a year in the UK, you will be UK tax resident even if none of the connecting factors apply.

The new rules are a major advance in providing certainty for individuals who have homes in the UK and visit frequently. The consultation period closes on September 9.

This is by no means a full explanation of the rules governing ‘leavers’ and it is important to seek specialist advice for personal circumstances.

david.franks@blevinsfranks.com

Mr Franks is founding director of wealth management group Blevins Franks.