Statutory Residence Test Flowchart

The Statutory Residence Test (SRT) determines an individual’s residence status for international tax purposes.

In this article, we share more information regarding the test and how this is used by HMRC. We cover:

• What is the Statutory Residence Test?
• Who does the Statutory Residence Test apply to?
• What are the automatic overseas tests, automatic UK tests and sufficient ties tests?
• Statutory Residence Test – exceptional circumstances
• How split years are treated
• Glossary

What is the Statutory Residence Test (SRT)?

The SRT is a set of HM Revenue and Customs tests used to determine whether an individual is resident in the UK or not. It is also used to determine how many days an individual can remain in the UK without becoming a UK resident. Each tax year is looked at separately.

It can provide individuals with welcome certainty in relation to their UK residence status, but it is important not to underestimate the complexities of the rules.

Who does the Statutory Residence Test apply to?

It can apply to anyone arriving in the UK, leaving the UK, living in the UK, or those that have recently left but return to the UK on a regular basis.

What are the automatic overseas tests, automatic UK tests and sufficient ties tests?

On a high level, the SRT is relatively straightforward. It is based on three definitive tests, the automatic overseas tests, the automatic UK tests, and the sufficient ties tests, and, although each of the tests are based on distinct criteria, the key component in each is the counting of the number of days during which an individual is present in the UK.

As advisers, we look at the automatic overseas tests first. These are used to determine whether a person is automatically resident overseas. If none of the conditions are met, we look at the automatic UK tests. These are used to determine whether a person is automatically resident in the UK. If none of those conditions are met, we finally turn to the sufficient ties tests. The sufficient ties tests determine whether an individual is resident in the UK subject to the number of ‘ties’ they have. It can also be used to determine how many days an individual can spend in the UK without becoming a UK resident based on their ‘ties’.

Statutory Residence Test – exceptional circumstances

Determining residency is largely dependent on the number of days spent in the UK along with connecting ties to the UK.

However, days spent in the UK may be ignored if the individual’s presence in the UK is due to exceptional circumstances beyond their control. This will usually only apply to events that occur while an individual is in the UK and which prevent them from leaving the UK.

Exceptional circumstances will normally apply where the individual has no choice concerning the time they spend in the UK, or in coming back to the UK and subject to the circumstances an individual can disregard up to 60 days spent in the UK when looking at their residency position for a particular tax year.

Case study

A recent anonymised case of Taxpayer vs. HMRC [2022] provides useful insights into HMRC’s approach when considering exceptional circumstances.

During the 2015/16 tax year, an individual who lived in Dublin, having moved from the UK, spent more than 45 days in the UK and assessed herself as being a non-UK resident as the days spent in the UK fell within the “exceptional circumstances” exemption due to the fact that she was in the UK to support her twin sister and to care for her two young children. Furthermore, her husband remained a UK resident, from whom she was not separated. In March 2016, the taxpayer received dividends of approximately £8 million from the family company. As she is assessed to be a non-resident, she would not be liable to pay UK income tax on the dividends received.

Applying the SRT, having spent more than 45 days in the UK during a tax year, the individual would be considered to be a UK resident, provided the exceptional circumstance conditions are not satisfied. Thus, HMRC deemed the taxpayer to be a UK resident and amended her 2015/16 self-assessment tax return to reflect additional tax due of approximately £3.15 million.

HMRC argued that the conditions for exceptional circumstances were not met due to the following:

• The taxpayer would have been able to foresee a need to support her twin sister
• Exceptional circumstances did not encompass a person who came to the UK under a moral obligation
• Exceptional circumstances only applied to persons who were already in the UK and not to those who came to the UK because of exceptional circumstances and who were then prevented from leaving the UK by those same circumstances.
  All of the above arguments were rejected by the tribunal.

The taxpayer appealed the assessment, on the basis that she was subject to the exceptional circumstances exemption. Out of the 50 days spent in the UK during the 2015/16 tax year, the taxpayer claimed that six days were due to exceptional circumstances concerning the taxpayer’s need to care for her sister, and her sister’s minor children, as mentioned above. The removal of these six days would make the taxpayer a non-UK resident under the Statutory Residence Test (SRT).

Although the exact consequences of this are yet to be seen it is clear that the tribunal felt that the exceptional circumstances exemption had a wider scope than initially suggested by HMRC. It will be interesting to see how this decision affects HMRC’s approach to exceptional circumstances and whether HMRC would seek to appeal to the Upper Tribunal.

How split years are treated

An individual is, generally speaking, either a UK resident for a whole tax year or not. However, where an individual arrives in or leaves the UK partway through a tax year, split-year treatment may apply.

Split-year treatment allows an individual to ‘split’ their tax year into a non-UK resident portion and a UK resident portion which can then determine their UK tax obligations.

Conclusion

If you are unsure of your residence status, we’ve created an SRT flowchart to help navigate the complexities. The flowchart provides guidance and questions for you to answer to give you an indication of your residence status. It asks a series of questions that will easily identify if you are automatically a non-UK resident or automatically a UK resident. Finally, it looks at the sufficient ties test which requires you to consider the number of ties you have with the UK which then concludes your residency status.

Please contact the International Tax team for detailed advice.

Glossary

Days Spent

An individual spends a day in the UK for SRT purposes if he is in the UK at the end of the day. However, he is not treated as spending a day in the UK if the day is considered a transit day with no work or the individual is in the UK due to specified exceptional circumstances beyond his control for a maximum of 60 days. In certain circumstances an individual will be deemed to spend a day in the UK even though he is not in the UK at the end of the day.

Working full-time overseas (WFTO)

The individual must work sufficient hours overseas (average of 35 hours per week disregarding certain defined days) in the tax year with no significant breaks from overseas work and spend fewer than 91 days in the UK and work (in this instance for more than three hours a day) in the UK for fewer than 31 days.

All Homes are in the UK

An individual will be regarded as resident if the individual has a home in the UK for more than 90 days in which the individual is present on at least 30 separate days in the relevant tax year. In addition for 91 consecutive days, at least 30 of which are in the tax year, the individual must have no home overseas in which the individual is present on 30 separate days in the tax year. If the individual has more than one home in the UK, the test must be met in relation to at least one of those homes when considered separately from the other home(s).

Works Sufficient Hours in the UK (WSHUK)

The individual must work sufficient hours in the UK over a 365 day period (average of 35 hours per week disregarding certain defined days where all or part of the 365 day period is in the current tax year) with no significant breaks from UK work. More than 75% of the days in the period when the individual does more than three hours work per day must be worked in the UK and the individual must work for more than three hours in the UK on at least one day in the current tax year.

Workdays

A work day in the UK for the purposes of the SRT is a day on which more than three hours work is performed. Work includes incidental and non inci[1]dental duties and most travel. There is a complicated test to determine whether an individual works sufficient hours in the UK or overseas for the WFTO or the WSHUK tests. Although the distinction between incidental and substantive duties is not relevant for the purposes of the SRT the distinction remains important for the purposes of calculating the tax liability of employees. When the employee is regarded as being non UK resident, incidental duties will continue to be deemed to be performed offshore and only substantive UK duties are taxable.

Sufficient Ties Test

When an individual does not meet any of the automatic overseas tests nor any of the automatic UK tests, the individual’s residence will depend upon the number of UK ties (or connections) the individual has and the number of days spent in the UK. UK resident family. A family tie exists if a person’s spouse, civil partner or minor child is resident in the UK in the relevant tax year. A person with whom the individual is living as husband and wife or as if they were civil partners is also included. Where a minor child is UK resident because they are in full-time education in the UK, they will not be treated as UK resident for family tie purposes unless they spend more than 20 days in the UK outside of term time during the tax year.

Split years

Although an individual can only be regarded as resident for a complete tax year, special rules apply when an individual commences or ceases residence which are outside the scope of this flowchart. The tax year may be spilt in to an overseas part and a UK part for certain purposes.