UK tax residence update

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As reported by Grant Thornton, the Government has today released its consultation on the long awaited statutory definition of residence which they are seeking to introduce from 6 April 2012.

Current position

Taxpayers are generally held to be resident in the UK if they are physically present in the UK for 183 days in any one tax year, or more than 90 days on average per tax year over a period of four years.

In an increasingly globalised world, it is essential that all taxpayers have certainty as to their tax position. Not being sure whether you are resident or not in the UK has become an increasingly difficult issue due to changing guidance and court decisions. In particular the recent high profile Gaines- Cooper case has highlighted how the absence of clear rules in the UK can lead to years of uncertainty for taxpayers.

Changes proposed

The Government has recognised this and are now seeking to provide the clarity that taxpayers need.

The new rules are thankfully a mixture of objective tests (day-counting) and more subjective rules, albeit with an objective outcome, looking at a sliding scale of how closely a taxpayer is linked to the UK. It will now be a case of running through a checklist to understand whether a person’s residence status can be determined with certainty.

Along with this, the time a person can spend in the UK before gaining UK resident status is significantly limited with the biggest losers being those individuals who have previously lived in the UK and now spend more than 45 days working in UK employment and whose family live in the UK, who will now always be deemed resident.

Another sting in the tail of the proposed rules is the intention to introduce a temporary non-residence test, much like the current capital gains tax rules.

This would cover the situation where a person leaves the UK for a short period (less than five tax years) and pay themselves dividends from UK companies in respect of profits which had been generated whilst the person was UK resident.


Although the proposed rules are complex they would, in most circumstances, give a taxpayer greater certainty on their residency position, which is what taxpayers and advisors alike have been calling for. This consultation is therefore certainly a step forward and provides a more objective platform for considering a person’s residency position.

Following the consultation which is to close on 9 September, draft legislation will be released and changes are set to apply from April 2012.

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