The UK’s Statutory Residence Test (SRT) is something you’ll come across if you live abroad, split your time between countries, or earn an income overseas – but it can be far from simple.
HMRC introduced the process in 2013 to help expatriates and foreign nationals define whether they are considered British tax residents. Although the SRT is used extensively in tax assessments, retirement planning and investment management, it’s often misinterpreted.
Let us steer you through the various elements of the test, but professional support is always advisable if you need to evaluate your position.
The UK Statutory Residence Test Explained
The Statutory Residence Test runs through three sets of ‘tests’, in ascending order of importance, to determine whether you are liable to pay UK taxes as a resident. Note that residency and tax residency are two different things and should never be confused.
You could be a resident of one country with a valid residency permit but spend enough time in Britain to still be treated as a UK tax resident.
The three parts of the SRT are as follows:
- Automatic overseas test
- Automatic UK test
- Sufficient ties test
There are also tie-breakers used where the outcome isn’t definitive, so it’s a case of methodically working through each step and never assuming that your preferred result is accurate.
What Is the Automatic Overseas Test?
The first part of the process is to check the tests that, if met, mean that you are not considered a UK tax resident within that tax year.
Examples include:
- Spending less than 16 days in Britain while being a UK resident in at least one of the previous three tax periods.
- Spending less than 46 days in Britain without being a UK resident in the previous three years.
- Working full-time overseas (based on a sufficient hours assessment) with limited working days or visits to the UK.
There are two other calculations, but these only apply when the person has passed away during the tax year and are used for inheritance tax planning and estate management.
What Are the Automatic UK Tests?
Second, you need to work through the UK tests. If you have met an automatic overseas test, the outcome is confirmed, and you don’t need to progress any further.
If any automatic UK test is met, then you are treated as a UK tax resident for the tax year due to:
- Spending 183 days or more in the UK.
- Having a UK property available for 91 consecutive days, of which at least 30 are in the tax year.
- Working full-time in Britain for any 365 days (without long breaks) if part of that period falls into the tax year.
There are several clauses within each of these tests. The second, called the 30-day test, applies in some circumstances even if the person doesn’t spend more than 30 days in a UK home. For example, if they use a British property for 30 days (or more) and don’t have a home overseas, the test is met.
Similarly, an expatriate with homes in the UK and abroad can be considered a UK tax resident if they spend less than 30 days in the overseas property and 30 days or more living in their UK home.
This process also includes a fourth test which applies when a person with an uncertain tax residency status passes away.
What is the Sufficient Ties Test?
Given the number of caveats and conditions, there are many scenarios where the outcome isn’t clear.
In this case, HMRC requires you to run through a list of potential links with the UK and report how they applied within the last three years, alongside your total time spent in Britain.
Sufficient ties include:
- Having a spouse, child (under 18), civil partner, or partner you live with who is a UK resident. This tie isn’t met if you have a UK resident child, but only because they are studying full-time and spend most holiday periods elsewhere.
- Access to a British home for 91 ongoing days per year and spending at least one night there. Family homes do not apply if you haven’t spent 16 nights there in the 12 months.
- Working at least three hours a day for 40 days within the UK during the year. The definition of work is loose and includes training, travelling and garden leave.
- The 90 days tie is met if you spent over 90 days in Britain in one of the last two tax years.
If you were a UK resident during one of the previous three periods, the country tie comes into play and looks at the country where you have spent the most days.
Again, this can be more involved than may appear since there are rules about counting applicable days. You must be in the country at midnight for it to matter, although there are varying conditions for transit periods.
The Deeming Rule
Finally, the deeming rule is a ‘last resort’ and is used where it still isn’t apparent whether a tax residency threshold has been met having run through all of the previous tests.
If you have been a UK resident in one year of the last three and meet at least three sufficient ties, you will often be classed as a tax resident.
The Importance of Tax Residency for International Expats
It is impossible to overstate the importance of understanding your tax residency status and applying the above rules and tests correctly.
Most non-residents still pay UK taxes, but only on domestic income, which can substantially affect your annual liabilities, particularly if you live in an overseas country with a favourable tax regime. There are also considerations if you are planning to relocate.
In the year you move, the period is normally split into two, with one part where you are a resident and another where you are a non-resident. This division typically means you are only liable for UK taxes on foreign-sourced income during the proportion of the year spent in Britain – and might stand to reduce your tax obligations if you time your move wisely.
Expatriates should usually submit a form P85 to HMRC to report a change in tax residency or submit a self-assessment tax return with updated information.
Understanding Your Tax Residency Status
In this article, we have simplified the Statutory Residence Test process to illustrate how it works and the particular situations which will influence your tax residency – but it is important to reiterate that the right outcome will rely on meeting specific definitions.
Therefore, we suggest seeking professional advice if you require any help planning for a tax-efficient move abroad or understanding your appropriate tax residency position.
You can find more information in our previous article: Tax Return Obligations and Deadlines as a UK Non-Resident, or are welcome to contact the Chase Buchanan team for further assistance.
*Information correct as of June 2022