On 6 April 2013 the Statutory Residence Test (SRT) came into effect and must now be used in order to determine whether or not an individual is UK resident for tax purposes.
Although this definitive statutory test for residence is to be welcomed, particularly where it brings certainty to taxpayers, the new rules are complex and still open to some interpretation, particularly where an individual has a UK home or has accommodation available in the UK.
UK Home
For the purposes of the SRT, an individual may be resident under one of the automatic UK residence tests if he or she has a home in the UK for more than 90 days (which can straddle two tax years), and
- He or she is present in that UK home on at least 30 separate days during the tax year, and
- While he or she has that UK home there is at least one period of 91 consecutive days when he or she has no home overseas (or has one or more homes overseas but each of those homes is a home at which the individual is present on fewer than 30 separate days during the tax year).
Unfortunately, the definition of "home" can be uncertain. HM Revenue & Customs (HMRC) provided additional commentary and examples in its guidance note related to the SRT which it issued in May 2013. It is made clear that a home is more than merely available accommodation The guidance goes on to say that a home is what "a reasonable onlooker would regard as an individual's home" whereas accommodation is a place available at certain times but not amounting to a "home" in the normal sense of the word.
According to the examples in the guidance:
- Where an individual moves out of their home and makes it available for commercial letting on a permanent basis it will not be their home during the let period provided the individual or their family do not retain a right to live there;
- A property which is used as nothing more than a holiday home, temporary retreat or something similar is not a home. However, if the individual's use of the holiday home or temporary retreat changes so that it is used as a home, it will become a home from the time of change and will continue to be a home.
- A property in which the individual never stays will not be their home.
We should point out that a property can be an individual's home even if it is not owned by them. A property rented by the individual or owned by a friend or a family member will be a home if the individual uses it as one.
Example – UK Home
A hedge fund manager left the UK and moved to Switzerland some years ago but retained a small flat in London for him and his family to use when they visited London. During a tax year he spends at least 30 nights in the London flat.
During the same tax year, the hedge fund manager and his family move out of the property that they had been renting in Switzerland and live in a hotel for a period of three months (92 days) while they wait for the purchase of a new property in Switzerland to be completed.
In this example, the hedge fund manager will be treated as UK resident during the year under one of the automatic UK residence tests contained within the SRT even though he only stayed in the UK for 30 nights out of a possible 365.
This situation has occurred because:
- The Individual retained a home in the UK for more than 90 days;
- He was present in that UK home on at least 30 days during the tax year; and
- While having the UK home there was a period of 91 consecutive days when he had no home overseas.
Had the SRT not been introduced, it is extremely unlikely that HMRC would have been able to assert that the hedge fund manager was UK resident based on the facts of this example.
Accommodation tie
If a taxpayer is not deemed UK resident under one of the "automatic" tests, then it is necessary to go on to consider if he or she has sufficient ties in the UK to be considered resident. Of the five ties to be considered under the SRT, the accommodation tie is the most complicated and most likely to trigger inadvertent residence.
The accommodation tie is met when UK accommodation for an individual's use:
- is available to the individual for a continuous period of at least 91 days during the tax year; and
- is used by the individual for at least one night during the that tax year.
According to HMRC guidance, "accommodation" does not require the same degree of stability or permanence that a "home" does. HMRC considers that, although an individual may not have a "home" in the UK, they may still have an "accommodation" tie if they have a place to live in the UK. Specifically:
- Accommodation can be a holiday home, temporary retreat or similar;
- An individual does not have to own the accommodation; and
- Accommodation can be any type of accommodation (including accommodation provided by an employer).
Accommodation is regarded as being available to an individual for a continuous period of 91 days if the individual is able to use it or it is at their disposal at all times throughout the period (subject to the 16 day gap rule mentioned below). Therefore, if a friend were to make their home available to an individual for a continuous period of 91 days and the individual uses it just once, the accommodation tie will be satisfied.
If there is a gap of less than 16 days between periods when accommodation is available, the gap period is ignored and accommodation is regarded as being available throughout.
These rules change slightly if an individual stays at the home of a close relative. If an individual stays with a close relative the accommodation will only cause an accommodation tie if the individual spends at least 16 nights there in the same tax year and it is available to them for a continuous period of at least 91 days.
For these purpose a close relative means parent, grandparent, brother, sister and child or grandchild aged 18 or over (whether or not they are blood relatives, half-blood relatives or related by marriage or civil partnership).
Accommodation is not considered to be an accommodation tie in the following circumstances:
- Accommodation owned by the individual that is let out commercially will not be considered as available accommodation provided the individual has not retained a right to use the property;
- Accommodation that is available to the individual but in which they have not spent a single night in the tax year;
- Short stays at hotels and guesthouses will not usually be considered to be an accommodation tie.
Example – Accommodation tie
The managing director of an Italian company (with a UK branch) visits the UK every two weeks on a Tuesday to meet with the UK management. On each visit he spends a night in the same hotel which is regularly booked for him.
Presence in the same hotel for one night every 14 days throughout a period of at least 91 days will satisfy the accommodation tie, as the breaks between stays are less than 16 days.
The accommodation tie will also be satisfied even if the managing director fails to show up some weeks and does not cancel the hotel bookings.
Verfides' Comments
Of the factors that are used to determine UK residence under the new statutory test, access to UK accommodation is likely to be the one which requires the most careful attention.
It is now more important than ever that professional advice is taken with regard to UK residence matters, particularly where an individual retains a UK home.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.