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Tony Wickenden: A closer look at the sufficient ties test

Tony Wickenden Tax Planning Technical Area

Last week I looked at the new statutory residence tests and, in particular, the automatic residence test and the automatic non-residence test. Where neither of these automatic tests are met, the “sufficient ties” test must be used to determine UK residence status in any given tax year. The sufficient ties test looks at days spent in the UK in a particular tax year combined with the following connection factors or ties:

Family tie – an individual will have a family tie if either their spouse (or civil partner) or children under age 18 are resident in the UK. For a child to count, so to speak, the individual must spend more than 60 days in the UK with their children (certain situations where children are in the UK, e.g. at boarding school, may not count)

Accommodation tie – having a place to live in the UK (including a holiday home), which is available for a continuous period of 91 days or more in the tax year, will constitute an accommodation tie if at least one night is spent there (or 16 or more nights if the home belongs to a close relative). Gaps of 15 days or fewer will count towards the continuous period of availability.

Work tie – doing more than three hours work a day in the UK for an aggregate of 40 or more days in the tax year

90 day tie – the 90 day tie will be relevant if the individual spent more than 90 days in the UK in either or both of the previous two tax years

Country tie – the country tie only needs to be considered by ‘leavers’ and applies if more midnights were spent in the UK than in any other country during the tax year

In essence, the greater the number of days spent in the UK, the fewer the number of UK ties needed for someone to be considered UK resident. There is a distinction between ‘arrivers’ and ‘leavers’ for these purposes with more stringent conditions applying to ‘leavers’. Boxes A and B below show the interaction between ‘ties’ and days spent in the UK for arrivers and leavers respectively:

A: UK ties needed for individuals who were UK resident for one or more of the three tax years before the tax year under consideration (‘arrivers’)

Days spent in the UK in the tax year under consideration UK ties needed to be UK resident
0 – 15 Non-resident
16 – 45 At least 4
46 – 90 At least 3
91 – 120 At least 2
Over 120 At least 1

B: UK ties needed for individuals who were not UK resident in any of the three tax years before the tax year under consideration (‘leavers’)

Days spent in the UK in the tax year under consideration UK ties needed to be UK resident
0 – 45 Non-resident
46 – 90 At least 4
91 – 120 At least 3
Over 120 At least 2

Special rules apply to international transportation workers (ie those who work on vehicles, aircraft or ships making international journeys) as well as to deceased persons.

Persons treated as UK resident in a tax year may be eligible for split year treatment where they either leave the UK or come to the UK part way through the tax year.

Temporary non-residence

Under the new rules, certain income arising during a period of temporary non-residence will become taxable on the individual’s return. This is similar to the current rule for capital gains made by temporary non-residents. This rule will apply where an individual has been solely resident in the UK for a period of at least four of the last seven tax years and becomes UK resident again within five years of leaving.

Ordinary residence and overseas workday relief

The concept of ordinary residence will be abolished. However, the concept of overseas workday relief will still apply. This will be placed on a statutory footing and basically restricted to non-domiciliaries who have not been resident in the UK in the immediately preceding three tax years.

The relief will be available for the year of arrival and the following two years, irrespective of the intended length of stay in the UK. Transitional rules will apply to individuals claiming overseas workday relief who were ‘not ordinarily resident’ in the year ended 5 April 2013.

While the new rules are comprehensive and will reduce much of the uncertainty that currently exists when advising clients with overseas connections, there is a huge amount of detail in both the legislation and the accompanying guidance and both professional advice and detailed record-keeping will be crucial.

Abolishing ordinary residence will be a major simplification to the current rules and will lessen the administrative burden for individuals – but there will be winners and losers. For example, it is currently possible to claim the remittance basis on the grounds of being not ordinarily resident but this will not be possible after the reforms are introduced. The retention of overseas workday relief on a statutory footing is, however, welcomed and will widen the availability of the relief to all arrivers regardless of the length of time they intend to stay in the UK.

Tony Wickenden is joint managing director at Technical Connection

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