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Residency laws

Out with the old…

The proposed new system will be based around a statutory residency test (SRT), split into three parts designed to divide individuals into one of three groups:

The UK’s definition of residency has always been impossibly blurred, thanks largely to the ad hoc nature of its residency laws

will have the benefits of certainty,” says Julian Hayden, Director at Hawksford International. “Individuals and their advisers need a better idea of where they stand. Any certainty is definitely welcome.” If the consultation is anything to go

by, it looks like such certainty is on the way. HMRC reckons that the proposed statutory residency test (SRT) will have no impact on most people’s residency status – they will remain clearly resident or non-resident. But it will be easier to clarify where they stand. The main advantage with the SRT will be to clarify the treatment for people who don’t fall into either category. There the new regime will weigh up an individual’s ties to the UK, with a direct correlation to the number of days they’re allowed in. The result? A more objective test.

Greater clarity “Now we’ll be able to punch in the numbers and give concrete advice: ‘You can have ‘X’ number of days in the UK without risking tax issues’,” says Jason Laity, an Executive Director at KPMG in the Channel Islands. “That’s good for the UK. It recognises that employees of multinational companies should be able to come to the UK and contribute to the economy, without risking their own tax status.” Indeed, it looks like anyone fearing

a clampdown – a restriction in the movements of people in places like the Channel Islands – has the wrong end of the

20 August/September 2011

stick. Contrary to the popular view of the UK Government’s current tax reforms, the aim isn’t to unearth people who should be paying more. Even the much-feared 10-day rule was a red herring. Rather than being a blanket criteria, it applies purely to former residents who have left the UK for a full- time contract abroad – and may actually be raised to 20 days. And the results look good for business.

“It potentially encourages people to leave the UK to work here,” says Laity. “They’ll know where they stand, which makes it easier to tell them what they need to do to leave. And going the other way, we can now advise business people here on what they can do in the UK without becoming a UK resident.” The changes are still only in consultation

and are set to be voted on in September, with the SRT coming into force in April 2012, all being well. Interested parties are being advised to wait and see what emerges. As the 10-day rule shows, there’s a danger in shouting that the sky is falling, only to find that the rules have evolved into something different. The name of the game here is clarity.

“Be patient,” says Garry Bell. “You may not end up getting what you want, but at least you’ll know for sure which side of the line you’re on.” n

DAVE WALLER is a freelance business writer

PART A: CONCLUSIVELY NON-RESIDENT An individual will be conclusively non-resident if any of the following conditions are met: they’re not resident in the three previous tax years and present in the UK for less than 45 days in the present tax year; they’re resident in the UK in one or more of the previous three tax years but spend less than 10 days in the UK in the present tax year; or they leave the UK to carry out full-time work abroad, provided they are present in the UK for less than 90 days in the current tax year and spend no more than 20 days working in the UK in the current tax year. Even if an individual doesn’t meet the criteria

set out in part A, they wouldn’t necessarily be UK resident. That’s down to parts B and C.

PART B: CONCLUSIVELY RESIDENT An individual will be conclusively resident if any of the following conditions are met: they’re present in the UK for 183 days or more in a tax year; they have only one home and that home is in the UK; or they carry out full-time work in the UK. If the individual satisfies one of the conditions in both part A and part B, part A will take precedence – the individual will be treated as non-resident for the tax year in question.

PART C: THOSE IN THE ‘GREY AREA’ Part C will apply where parts A or B aren’t conclusive. It takes into account both the number of days spent in the UK and the following ‘connecting factors’: UK-resident family members; substantive employment or self-employment in the UK (40 days where more than three hours of work a day is undertaken in the UK); accessible accommodation in the UK; whether 90 days or more are spent in the UK in either of the two previous tax years; and whether more days are spent in the UK than in any other single country.

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