My client has been a resident of Cyprus since retiring in 2003. He has paid tax to the Cypriot authority for ten years on his UK-based occupational pension. Under the new residential rules, I consider him to be an ‘arriver’ with only one connecting factor (which is a house bought in 2011), who will be allowed to stay at his house for up to 119 days next tax year. I believe that he will be allowed to visit the UK and stay in the house for up to 119 days in 2013/14, but will this give him a second connecting factor and therefore in 2014/15 reduce his allowable days to 90? Further, if he continued to ‘use’ the house for more than 90 days in the year 2014/15, would he eventually be considered to be UK resident?
The UK government initially announced its intention to introduce a statutory residence test (SRT) in the UK in March 2011. The SRT was expected to come into effect as from 6 April 2012, but this was pushed back to 6 April 2013 to ensure that all stakeholders’ views were taken into account, and due to the impact these rules may have on large multinationals with employees arriving in and leaving the UK.
The draft SRT legislation has undergone several changes following consultation, and the recently published Finance Bill 2013 contains further changes, including an additional automatic overseas test, three additional cases where split year treatment applies, and an amended definition of ‘home’.
Based on the information you have outlined, provided your client did lose his UK resident status when he left the UK in 2003 and has remained non-UK tax resident since then, he will be considered as an ‘arriver’, as he would not have been UK resident in any of the last three UK tax years.
You then need to consider whether he meets the tests to be considered as either automatically resident or not resident. It appears that he does not meet either of those tests, broadly because he will spend more than 46 days but less than 183 days in the UK, he has a home in Cyprus where he spends more than 30 days a year, etc. (A day for these purposes is when the individual is present in the UK at midnight.)
You will then also need to consider the ‘sufficient ties test’ to which you alluded, particularly the ‘arriver’ table, to ascertain your client’s UK tax residence position. The number of ties to the UK is matched to the number of days actually spent in the UK to determine the UK residence status, according to the relevant table for ‘arrivers’ or ‘leavers’.
If he has only one tie to the UK in 2013/14, i.e. available accommodation in the UK, your client can spend up to 182 days in the UK and still be considered as not UK resident. However, as you say, in 2014/15, he will have an additional tie to the UK, the 90-day tie. This is because the 90-day tie applies if an individual has spent more than 90 days in the UK in either or both of the preceding two UK tax years. Therefore, in 2014/15 and 2015/16 and subsequent tax years your client will only be able to spend up to 120 days in the UK if he wishes to remain non-UK resident.
This still gives him significant flexibility to spend time in the UK. However, care should be taken to ensure that he does not have or acquire additional ties to the UK. For instance, a family tie can be acquired if a spouse moves back to the UK during the course of a tax year and becomes UK resident in that year. In this case, if your client spends more than 90 days in the UK in the tax year (assuming he already had two ties in the year), he will be UK resident for that tax year.
The accommodation tie applies in a tax year if the individual has a place to live in the UK (your client’s house in this case), the accommodation is available for his use for at least 91 days in the tax year, and he spends at least one night in the year at the house. A ‘place to live’ is very widely defined, and can include a holiday home, a hotel and may include the home of a close relative. Therefore, the accommodation tie applies if these criteria are met.
Your client will have an accommodation tie to the UK provided he spends at least one night at his house, and regardless of whether the property is otherwise let out or not available for his use for a large part of the year, provided it meets the conditions above.
There are various pitfalls in the legislation for the unwary, and your client should keep his position under review on a year by year basis. However, the SRT will certainly give your client far more flexibility to come back and forth to the UK and stay in his property without the fear of potentially becoming UK tax resident.
It will be interesting to see how HMRC applies the SRT in practice. There are some oddities in the legislation. For instance, in determining whether a person has a family tie to the UK, the legislation includes a person with whom they are ‘living together as husband and wife’ or as civil partners in the definition of family. It is unclear at what point a relationship evolves to the point of ‘living together as husband and wife’ and there is no precedent or guidance as to how the courts may apply this in practice. Therefore, advising taxpayers regarding whether they have a family tie or not in the UK may be difficult. In addition, there are similar oddities for the accommodation tie as, for instance, having a canal boat moored in the UK which is available for your use and in which you spend one night in the year is considered as ‘available accommodation’ for you. This is because the definition of having a ‘home’ in the UK includes any ‘building or part of a building or, for example, a vehicle, vessel or structure of any kind’.
We do welcome the statutory test, which hopefully provides more certainty than the previous rules. The SRT also provides a clear indication of what ties to the UK are relevant in determining tax residence.
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