Residency rules under scrutiny

Current residency rules allow Britons who live abroad to spend up to 182 days in the UK in a single tax year, or up to 90 days a year on average over a four-year period, without being considered a UK resident.The proposed new framework would replace the day-counting approach with a more complex system that, among other things, objectively evaluates an individual’s ‘connecting factors’ to the UK.

This means that HMRC will look at the number of days an individual spent in the UK but also at their ties to work, accommodation and family in the UK, as well as time spent here in previous years.

If the proposed changes go ahead, there could be financial implications for UK nationals who are living abroad, or who intend to move or retire abroad in the future and have made their plans based on the current regime. The change could also affect anyone who works full-time abroad. The proposals, however, will allow individuals to spend up to 90 days a year in the UK, up to 20 of which can be working days, and still be considered non-resident for tax purposes.

“We welcome clarity in this area, which has created uncertainty for taxpayers over the last few years, although the proposed new system is much more complicated than we would have hoped for,” comments Andrew Shaw, Kingston Smith tax partner. “We would advise anyone who is currently living abroad, or considering moving abroad, to familiarise themselves with these new proposals and any subsequent amendments, and consider which part of the test and ‘connecting factors’ might apply to their circumstances, so that they can plan accordingly.”

He continued, “With the statutory residence test anticipated to come into force in April 2012, and with few significant changes expected to the proposals between now and then, the sooner individuals get to grips with the proposed framework for the test, the better.”

HMRC is currently consulting on the proposals and details can be seen at http://www.hmtreasury.gov.uk/d/consult_condoc_statutory_residence.pdf. If you are concerned about residency issues, contact your local partner for advice.

For further information, contact:

Andrew Shaw, Partner
Tel: 020 7566 3807
E: ashaw@kingstonsmith.co.uk