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Treasury proposes statutory residency test
by William Robins on Jun 17, 2011 at 11:24
The Treasury is planning to introduce a statutory residency test based on more than just time spent in the UK, arguing its plans would simplify the current rules, which it said were unclear.
The Treasury consultation puts forward plans for a statutory definition of tax residence as well as reforms of other tax rules for non-domiciles.
The Treasury said the new test would include a distinction between:
- Arrivers: individuals who were not UK resident in all of the previous three tax years and
- Leavers: individuals who were resident in one or more of the previous three tax years
The Treasury said the test would also apply for the purposes of income tax, capital gains tax (CGT) and inheritance tax (IHT) calculations. It will define tax residence for individuals but not companies.
However, it will not apply for non-tax purposes or other government services where residence
is separately defined, such as in the calculation of national insurance contributions (NICs).
According to the consultation document, the test will be based on more complex factors than just the number of days spent in the UK.
The document said: ‘Most importantly, it [the Treasury] believes a definition based purely on time spent in the UK would lead to outcomes that cannot be justified. For example, it would enable individuals to become non-resident simply by reducing their number of days in the UK below the relevant threshold without any requirement to reduce their other connections with the UK.'
Already complex rules on residency status were thrown into further confusion following a 2010 court case.
Rules covering residency status were set out in HM Revenue & Customs guide book IR20, later known as HMRC6. However HMRC argued IR20 was not binding during a judicial review into the residency status of Robert Gaines-Cooper, where the British millionaire's claim of non-residency was denied by the High Court.
The Treasury said the current rules that determine tax residence for individuals were unclear and complex. It said a statutory definition of residence could provide greater certainty for taxpayers as the test would determine what makes a person a UK resident or non-resident for tax purposes.
According to current rules, a person is a resident if they:
- Spend 183 days or more in the UK in any tax year
- Come to the UK with the intention of living here permanently or to work here for an extended period, or with no particular end date
- Come to the UK temporarily and spend 91 days or more per year in the UK on average over a four-year period
- Come to the UK for a purpose, such as employment, meaning that they remain in the UK for at least two years - whether or not, in a particular year, they spend 183 days or more in the UK.
- They usually live in the UK
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6 comments so far. Why not have your say?
Anthony Muraro
Jun 17, 2011 at 11:52
Mr Williams
Why are you bringing domicile into this?
Based on your article, this is about residency not domicile.
The same test will be applied to people who are UK domiciled...?
report thisAnthony Muraro
Jun 17, 2011 at 11:53
Sorry, Mr Robins - not Williams
report thisJ Marshall
Jun 17, 2011 at 12:05
There are two issues, Domicile and Residence see the Treasury Press Release:
Government consults on reforms to the taxation of non-domiciled individuals and a statutory definition of tax residence
The Government is today publishing a consultation on its plans to reform the taxation of non-domiciled individuals (“non-domiciles”). It wants to ensure that non-domiciles make a fair tax contribution, as well as encourage them to invest in the UK and simplify the current tax rules for them.
The consultation provides details on the package of reforms that were announced at Budget 2011 and will increase the tax charge for certain long-term resident non-domiciles to £50,000, provide a significant new incentive for non-domiciles to invest in the UK and simplify the rules to reduce administrative burdens. The Government does not intend to change the broad principles behind the existing tax system for non-domiciles.
The current rules discourage non-domiciles from bringing their income or capital gains to the UK, creating barriers to potential investment in the UK economy. The Government’s aim is to remove these barriers so that non-domiciles are encouraged to invest in UK business, contributing to its priority of generating growth and rebuilding the economy. However, a balance must be struck to ensure that they make a fair contribution.
David Gauke, Exchequer Secretary to the Treasury, said:
“The Government wants to ensure that the rules of our tax system are fair. That is why we are increasing the tax charge for those non-domiciles who have been resident in the UK for long periods of time. At the same time, it is important that skilled individuals and investors are encouraged to come to the UK from abroad and we recognise the fact that non-domiciles can make a valuable contribution to the UK economy. That is why we want to make it easier for them to invest in UK business.”
The Government is also today publishing a consultation on its plans for a statutory residence test (SRT). There is currently no full legal definition of tax residence, meaning that the rules are unclear, complicated and seen as subjective. This creates uncertainty for individuals about their residence status and is a deterrent to businesses and individuals considering investing in the UK. Today’s consultation proposes a framework for the SRT and seeks views on its design and implementation, in order to address these issues.
Both consultations published today close on 9 September 2011. A summary of responses to both will be published in the autumn. Draft legislation will be published for comment later in 2011 with a view to including final legislation in Finance Bill 2012
report thisSpartacus
Jun 17, 2011 at 15:53
There's no passport stamping inside EU. What's to stop someone having a place in a low tax place like Cyprus or the Isle of Man, but spending more than 183 days in the UK?
report thisThe Hiker 99
Jun 26, 2011 at 06:09
Spartacus.
First of all there is strict passport control between the EU and the UK.
Each time you enter the UK, even from the EU, your passport is swiped, and the information obviously goes into some sort of data base. ie there is a record of your movement into the UK.
Isle of Man I'm not sure about, but probably not.
However...
Unlike criminal law, where you are innocecnt till proved guilty, in UK tax law, if you come under investigation, you are guilty until you prove your innocence. ie HMRC do NOT have to prove that you were IN the UK for more than 90 days in a year, YOU have to prove that you were NOT.
I've been an expat for 21 years, and have looked at all the angles, trust me.
James.
report thisThe Hiker 99
Jun 26, 2011 at 06:28
Spartacus.
First of all there is strict passport control between the EU and the UK.
Each time you enter the UK, even from the EU, your passport is swiped, and the information obviously goes into some sort of data base. ie there is a record of your movement into the UK.
Isle of Man I'm not sure about, but probably not.
However...
Unlike criminal law, where you are innocecnt till proved guilty, in UK tax law, if you come under investigation, you are guilty until you prove your innocence. ie HMRC do NOT have to prove that you were IN the UK for more than 90 days in a year, YOU have to prove that you were NOT.
I've been an expat for 21 years, and have looked at all the angles, trust me.
James.
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