At first glance, some of the proposals under HM Revenue and Customs’ consultation on the statutory definition of residence for UK tax purposes are very restrictive. The proposed number of days one may be able to visit the UK for may be greatly reduced for example.
As we warned in our recent article ‘Statutory Definition of Residence Theoretically Good News for Expats,’ if the rules become even tighter to prove the residency/non-residency rule, some expats will be extremely negatively impacted.
So, will you be badly affected by the proposed changes to the UK tax residency rules? Have you had time to read through the 37-page consultation PDF? If not, don’t worry, today we’re providing you with an overview of what’s being proposed and how you can voice your opinion. Who knows, perhaps HMRC will actually listen to those of us who legitimately live abroad permanently, but who would like to retain the right to occasionally holiday in the UK!
For the next 2 months (until September 9th 2011), HMRC wants to hear from expats like you about their proposals to define residency. Currently the ‘rules’ relating to residency are far from fixed (hence the use of inverted commas!).
In addition, recent high profile legal cases such as Robert Gaines-Cooper v HMRC have highlighted the fact that because the ‘rules’ remain open for interpretation, they can be exploited as well as inadvertently broken.
This is why HMRC wants a statutory test defined that will help anyone determine whether they are resident in the UK for tax purposes, or non-resident.
At the moment, if you were wondering when does an expatriate become non-resident for UK tax purposes, it’s a case of applying the 183-day test to your situation. However, there is an additional status of ‘ordinary resident’ – then there are the number of days you can spend in the UK which can be as many as 90, but only if that’s not a common occurrence year-in, year-out.
What’s more, back in 2006 when we first attempted to explain to readers all about how to become non-resident for tax purposes it was not the case that days of arrival and departure in and from the UK were counted towards your number of days in the UK.
Then, that all changed in 2008 – however, the change was still only an interpretation of the ‘rules’ because no real rules, set in statute, existed.
This confusion doesn’t affect most expats who are legitimately living and working full-time abroad. However, anyone can see that to have a legally defined set of rules would be advantageous. This is why HMRC have begun a statutory residence test consultation phase, during which they really do want to hear from expatriates like you.
An Overview of HMRC’s Statutory Residency Test Proposals
According to the consultation paper there will be three parts to determining residency: –
Part A: this contains conclusive factors to define non-residence for tax purposes; they are sufficient in themselves to define an individual as not resident
Part B: this contains conclusive factors to define residency for tax purposes; once again, they are sufficient in themselves to define an individual as resident
Part C: for those whose residency or non-residency cannot be concluded based on the determining factors as defined under parts A and B, part C contains other so-called ‘connection factors’ and day counting rules which will apply to determine residency or non-residency status
So, if an expatriate satisfies the conditions of Part A for a given tax year they will definitely be not resident in that tax year. If Part A doesn’t apply however, but the individual in question satisfies the conditions of Part B, they will definitely be considered resident in that tax year.
If none of the conditions of Part A or Part B can be satisfied, the individual should be considered according to Part C.
What Changes are Being Proposed and Will You be Affected?
According to the proposals, which are under consultation and therefore not yet written into law: –
An expatriate will be not resident in the UK for a tax year if:
- They were not resident in the UK in all of the previous three tax years and they are present in the UK for fewer than 45 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 10 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 90 days in the tax year and no more than 20 days are spent working in the UK in the tax year.
- An expatriate will be resident in the UK for a tax year if:
- They are present in the UK for 183 days or more in a tax year; or
- They have only one home and that home is in the UK (or have two or more homes and all of these are in the UK); or
- They carry out full-time work in the UK.
According to HMRC’s consultation paper, “Part C reflects the principle that the more time someone spends in the UK, the fewer connections they can have with the UK if they want to be non-resident. It also incorporates the principle that residence status should adhere more to those who are already resident than to those who are not currently resident.”
The connection factors will include: –
- Substantive work in the UK
- UK presence in previous tax year
- And if more time is spent in the UK than in other countries
Expatra’s Thoughts, Comments and Conclusions
The concept of a statutory test to determine residency status for tax purposes is excellent news for expatriates. It will remove all confusion and doubt, and leave expats in no doubt about their tax status.
At which point expatiates who are definitely non-resident in the UK for tax purposes will be able to explore and potentially enjoy the offshore financial opportunities available to them for example. (An overview of the opportunities potentially available is defined in our report: Expat Financial Checklist: Offshore Money Matters Made Easy.)
However – the proposed allowances for the amount of time Brits can holiday in the UK are restrictive.
HMRC may assume that an expat who lives permanently abroad may have no justifiable cause to return to Britain. But what about all of us whose parents and extended families still live in the UK for example?
What about those of us who like to holiday in Great Britain because, although we choose to live abroad, we still love many aspects of UK life? From the culture available in the museums, galleries and theatres in London, to the mountains in the Lake District and the beaches in Pembrokeshire for example, there are many reasons for us to want to spend some of our leisure time in the UK.
HMRC needs to think a little more carefully about how much of a restriction it needs to place on expats. Very few expatriates seek to flout the current ‘rules’ of residency. At the same time, we know that the majority of expatriates do like to return back to the UK occasionally – or at least have the right to return in the event of a family emergency for example.
If the rules were just a little more flexible in allowing Britons a little more time to spend in the UK, then the currently proposed statutory residence test guidelines would likely work well for the majority of expats.
If you would like to voice your opinion, HMRC really does want to hear from you, email:SRT@hmtreasury.gsi.gov.uk by the 9th of September 2011.