UK tax residency

Whether an individual is resident in the UK in a given tax year is governed by the UK’s statutory residence test (known as “the SRT”). If an individual is UK resident, the SRT also determines the date on which the individual’s period of UK residence commences.

The default position is that, when an individual first becomes resident in the UK, they will be treated as UK resident from the beginning of the tax year of their arrival (i.e. from 6 April in that tax year). If this default position applies, it can mean that their period of UK residence commences on a date prior to their arrival in the UK. For example, an individual may move to the UK on 1 June, but be resident from the preceding 6 April.

In some cases, however, "split-year" treatment applies, the effect of which is that the individual is treated as UK resident for most tax purposes from an alternative date: the tax year is split into a “non-UK resident period” and a “UK resident period”. Split-year treatment is limited and will only apply if (at least) one of the following tests is met:

• They start to have a home in the UK at some point the tax year;
• Their UK home becomes their only home during the tax year;
• They commence full-time work in the UK;
• They cease working full-time overseas; or
• Their partner ceases working full-time overseas.

It is important to stress that within each of the above tests, there is a set of strict criteria that must still be met. For example, if an individual starts to have a home in the UK halfway through the tax year, split-year treatment will only apply if the number of days that they have spent in the UK in the first half of the tax year is small enough for them to be non-UK resident for this period. The relevant number of days permitted in the purported non-UK resident period is calculated by reference to the number of “ties” that they have in the UK throughout the tax year.

Another point is that, even with split-year treatment, the UK resident period may not necessarily commence on the day that the individual actually moves to the UK. For example, it may commence on the day they acquire a UK property, sell an overseas property; commence work in the UK etc. In some cases, this may even result the individual being resident from a date prior to the date that they consider their official “move” date.

Split-year treatment aside, there are also traps for the unaware in the SRT, in particular regarding the “full-time work in the UK” and “home in the UK” tests, which if satisfied will result in the individual being automatically UK tax resident. With respect to the full-time work in the UK test, in some cases, an individual may be treated under the SRT as commencing full-time work in the UK on a date prior to what they consider their full-time commencement date merely because they undertake a relatively small amount of work on an earlier date. If they undertake this earlier work on a date in the previous tax year, the consequences can be significant. With the “home in the UK test”, a strict reading of the legislation may result in the individual becoming UK resident if they replace their overseas home and they do not spend a sufficient number of days at their former or new overseas home in the tax year.

It is therefore absolutely vital to seek professional advice on the application of the SRT at the earliest opportunity in order to ensure that one’s affairs can be put in place prior to the commencement of UK residence.

For more information or advice, please contact John FitzGerald, Senior Associate in our Private Client team.

Senior Executives: thinking of relocating to the UK?

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