In 1936 the Consolidation Committee recommended reform of the definition of residence for tax purposes. With unseemly haste, in June 2011 HMRC published the “Statutory Definition of Tax Residence” consultation paper.
For too long there has been uncertainty on the issue which has made it extremely difficult for individuals to plan their tax affairs. Some taxpayers, notably Mr Gaines-Copper, relied on HMRC published guidelines in IR20 only to be told that they had not established a ”distinct break” from the UK and could not claim to be non resident. Interestingly there was no explicit requirement in IR20 for such a break to be established. Reform is long overdue.
The proposed Statutory Residence Test “SRT” will consist of three parts. Part A outlines the conditions under which an individual is conclusively not resident in the UK. If an individual falls within these provisions he or she is definitely not resident for the year in question regardless of their connections with the UK. Part A requires residence of the 3 previous tax years to be established so the old unsatisfactory approach to residence will still be relevant until 6 April 2015. In common with previous practice the Part A requirements are less onerous for those leaving the UK to work full-time abroad.
Part B outlines the rules under which an individual is conclusively resident in the UK, provided that none of the provisions of Part A apply.
Those whose tax residence can not be determined by Parts A or B will fall within Part C which establishes residence by reference to a person’s connections with the UK and the amount of time they spend here in a tax year. The more connections they have, the fewer the number of days they can be physically present here if they wish to be non tax resident.
The concept of a statutory definition of residence and the certainty it offers has been warmly welcomed by the profession. As John Whiting of the CIOT put it “We cannot have rules dating from the age of sail and Morse code and heavily dependent on HMRC’s views governing what happens in the 21st century”.