ExpatRoute is here to help you understand how the Statutory Residence Test works and how to use it to calculate your UK tax responsibilities.
The Statutory Residence Test (SRT) is one of the main tools the UK government now uses to calculate the tax status for many expats.
When you leave the UK to begin a new life as an expat overseas, it is important to make sure you understand your tax responsibilities now you’re living in a new location. This is particularly important if you split your time between the UK and another country, and you are continuing to work. We will explore the SRT and what this might mean for you and your tax obligations.
What is the Statutory Residence Test?
Originally introduced by the UK government in 2013, the SRT was set up to help expats work out their UK resident status for any given tax year.
Each tax year is viewed separately and usually runs from 6th April to 5th April of the following year. This means you could be classed as a UK resident one year, and not the following year.
Why the Statutory Residence Test is important?
For any expats living abroad, it’s crucial to work out what your resident status is to ensure you comply with the appropriate tax laws. As an expat, you may have new financial responsibilities in your new country of residence. At the same time, it’s possible you will still have financial obligations to HMRC in the UK, particularly if you spend time in the UK as well as overseas. The SRT will ensure you can work out what your status is and avoid any fines or penalties by making your tax payments on time.
The test comes in various sections and will help you work out your tax obligations in relation to:
- Income tax.
- Capital gains tax.
- Corporation tax.
- Inheritance tax.
How the Statutory Residence Test works
The test calculates your status as an expat by analysing the amount of time you might spend and work in the UK alongside your UK connections.
If you have been in the UK for at least 183 days of the tax year, you will be considered a UK resident.
If you have not, you will need to take the test to calculate your status. It is split into the parts below:
- Automatic overseas tests.
- Automatic UK tests.
- Sufficient ties test.
- Split years.
You’ll be resident in the UK for a tax year and at all times in that tax year if:
- you do not meet any of the automatic overseas tests;
- you meet one of the automatic UK tests or the sufficient ties test.
If one of the automatic overseas tests is met, you will not be classed as a UK resident. If there is no result, the automatic UK tests should be taken. With these tests, if one is met, you will be classed as a UK resident.
If there is still no result, the sufficient ties test should be taken. If you do not meet this, you will not be a UK resident for the year.
Automatic Overseas Test
You would normally be considered a non-UK resident if you meet any of the following requirements in the Automatic Overseas Test.
- You were a UK resident in one or more of the previous three tax years, but you’ve spent less than 16 days in the UK during this current tax year.
- You’ve spent less than 46 days in this current tax year and you were classed as a non-resident in the last three tax years.
- You currently work full-time outside the UK and spend less than 91 days in the UK. You also work fewer than 31 days in the UK for three hours or less on any given day.
Automatic UK Residence Test
If the results of the first test are not clear, you will need to undertake the Automatic UK Residence Test. If any of these are met, you will be classed as a UK resident for tax purposes.
- You spent more than 183 days in the UK during the tax year.
- You have a home in the UK for over 90 consecutive days (30 of which fall within the tax year) and were present in this home for 30 days or more. While you have this home, for at least 91 days, you had no overseas home. If you did, you were present in it for less than 30 days in the tax year.
- You worked full-time (an average of 35 hours or more per week) in the UK without a significant break, assessed over a 365-day period, all or part of which is within a tax year.
The Sufficient Ties Test
Following these tests, if you are still unsure about your status, you will need to take the Sufficient Ties Test. Consider the number of UK connections you have, your UK residence status during the last three years, and the number of days you have spent in the UK. There are five ties to evaluate:
- Family tie: this applies if your spouse, partner or children live in the UK.
- Accommodation tie: this applies if you have a residence to stay in for a continuous period of 91 days.
- Work tie: this applies if you work in the UK for over three hours a day on at least 40 days in the tax year.
- 90-day tie: this applies if you’ve spent more than 90 days in the UK during the previous two tax years.
- Country tie: this applies if you have spent more time in the UK than anywhere else.
A day is usually counted as a UK day when you are present in the UK at midnight. Departure days will not usually be included in a UK day count.
Split Year Treatment
If you have left the UK or arrived in the UK during a tax year, you may be able to apply split year treatment to help reduce your tax liability. The year can be split when:
- You lose UK residence by starting to work abroad.
- You give up the UK home and become a resident in a different country.
- You become a UK resident by beginning full-time work in the UK.
- You resume UK residence having ceased to work full-time abroad.
- You establish your only home in the UK.
While the SRT can give an answer on whether you are classed as a UK resident for tax purposes, it can be a complex area of finance to clarify. Everyone is different with a unique set of circumstances and you should always consider the rules in relation to your specific financial situation.
Tax legislation for expats can be confusing and potentially costly if you fail to honour your commitments and meet your financial obligations as an expat.
ExpatRoute is on hand to help provide you with support and guidance to help you clarify your tax status and ensure you pay the appropriate authority when required. Contact a financial adviser today for more information.