UK Tax Residence: Consultation on Statutory Definition of Tax Residence for Individuals

Sullivan & Cromwell LLP - July 25, 2011

The UK government has released a consultation document proposing the introduction of a statutory residence test (“SRT”) for individuals. The new test is intended to give the same outcome as the existing test in most cases. The aim is that it will be more transparent, objective and simple to use.

Key features of the SRT include:

  • simple rules to deal with the more straightforward cases;
  • separate treatment of “arrivers” and “leavers”;
  • the placing of “split-year” concessions on a statutory footing; and
  • a reduction in the number of factors which may affect residence.

The SRT would apply to individuals for the purposes of:

  • income tax;
  • capital gains tax; and
  • inheritance tax.

Strangely, however, it would not apply for the purpose of National Insurance (social security contributions).

The government proposes that the new definition would apply from 6 April 2012 (the start of the next UK income tax year).

The proposals would bring a welcome degree of clarity to what has been an unsatisfactory area of law.