If you're a UK taxpayer or plan to become one, it's important to understand the UK Statutory Residence Test (or SRT). The test determines whether you're considered a UK tax resident or non-UK tax resident and has implications on your UK tax obligations. In this post, we'll at the different tests involved, including the automatic overseas tests, automatic UK tests, and sufficient ties test. We will also touch on Split Year Treatment for those coming to or leaving the UK during a taxpayer.
What is the UK Statutory Residence Test?
The UK Statutory Residence Test is a set of rules used to determine an individual's residency status in the UK for tax purposes. It considers factors such as the amount of time spent in the UK, connections to the UK, and the individual's work and family ties.
Taxation as a UK Tax Resident vs. Non-UK Tax Resident
If you're a UK tax resident, you're typically taxed on your worldwide income and gains, while non-UK tax residents are only taxed on their UK income and gains. Being a UK tax resident also has implications on the availability of tax-free personal allowances and other tax reliefs.
There are exceptions for persons considered non-UK domiciled where it is possible for them to be UK tax resident and taxed on their UK-sourced income and gains only.
Automatic Overseas Tests
The first set of tests are the automatic overseas tests.
You will be considered non-UK tax resident under these tests if you meet none of the automatic overseas tests.
At a high level, the tests are as follows:
- You were not a UK tax resident in any of the previous three tax years and spend fewer than 16 days in the UK during the tax year under consideration.
- You were a UK tax resident in one or more of the previous three tax years, spend fewer than 46 days in the UK during the tax year under consideration.
- You work fulltime overseas during the tax year without a significant break from overseas work. Broadly, fulltime work is considered an average of 35 hours of work per week (actual hours worked rather than contracted hour) and a significant break is one where 31 days goes by without an overseas workday.
Automatic UK Tests
The second set of tests are the automatic UK tests.
You will be considered a UK tax resident under these tests if you meet none of the automatic overseas tests.
At a high level, the tests are as follows:
- You spend 183 days or more in the UK in the tax year.
- Your only home is in the UK, it is available to you for at least 91 consecutive days, at least 30 of those days you are present at the home and these fall within the tax year. Finally, you have no overseas home or are present in it for fewer than 30 days in the tax year.
- You work full-time in the UK for any period of 365 days within that year, with more than 75% of days worked being in the UK and at least one day worked being both in the 365 day period and the tax year.
Sufficient Ties Test
If you don't meet the criteria for either the automatic overseas tests or automatic UK tests, you'll need to consider the sufficient ties test. The test looks at factors such as the amount of time spent in the UK, family ties, accommodation, and work in the UK.
Split Year Treatment
In some cases, where you arrive or leave the UK during a tax year, you may be eligible for split year treatment; which allows you to split your tax year into two parts, one where you're considered a UK tax resident and one where you're considered a non-UK tax resident. This can drastically reduce your UK tax liability.
How can we help?
If you're unsure about your residency status or have questions about your tax obligations as a UK taxpayer, it's best to consult with a tax professional.
As Chartered Tax Advisers, we can provide guidance on the UK Statutory Residence Test and other tax-related matters.
Contact us today through the website contact page to learn more and schedule a consultation.