On 28 August, HMRC updated their guidance note on the Statutory Residence Test, originally published in May 2013.
There are four main points to note. The first two pick up on legislative changes made during the Committee Stages of this year’s Finance Act:
- Changes have been made to the special ‘fourth’ automatic UK residence test which applies only to the tax year in which an individual dies. These special rules are complicated but can cause a person (who would not have been UK resident while they were alive) to become UK resident in the year of death. The Committee Stage changes limit the application of these special rules so that the retention of a home in the UK is not always sufficient for them to apply. The changes are therefore helpful but the rules in this area nevertheless remain complex.
- An order of precedence has been introduced in relation to the ‘split year’ rules. There are a number different circumstances which can trigger the application of the split year rules and sometimes more than one set of these circumstances can apply to a particular individual, with subtly different tax consequences. The introduction of an order of precedence ensures that only one set of rules can apply to any individual in any tax year therefore avoiding any ambiguity.
In addition, the guidance provides clarity in relation to two areas where there had been a concern about how the existing legislation should be interpreted:
- In relation to the country tie, HMRC have confirmed their view that presence in any state, territory or canton into which a country is subdivided should be regarded as presence in that country. There had previously been some debate as to whether you look at the days an individual spends in a particular country (e.g. Switzerland or the USA) or the days he spends in a particular canton or state in that country (e.g. Geneva or New York).
- The normal rule is that days where an individual is present at midnight will be counted; however, transit days where someone is only here because they are merely passing through and happen to arrive and leave either side of midnight are disregarded.
Such transit days will not be disregarded, however, where an individual engages in any activities that are to a substantial extent unrelated to their passage through the UK.
HMRC have confirmed that they will set the bar low in relation to what counts as ‘substantial’ in this context, so that having breakfast or dinner at the transit hotel will not count but something as simple as watching a film at the local cinema or meeting friends will. This may seem unduly rigid but in the context that ‘transit days’ are in effect a concession to the normal midnight rule, it is perhaps understandable that they should be defined very narrowly.