The transitional rules and the new Statutory Residence Test

The new statutory residence test will apply from April 2013. It will bring in a radical shift in how UK tax residence is determined and should make it much more clear when you are non-resident. Although the statutory residence test only applies for periods after April 2013 in certain limited circumstances the rules can be applied for earlier periods. When can the new statutory residence rules apply before April 2013? There are part of the new test where you need to know what your residence status was in one or more of the three years prior to the introduction of the test for the purpose of determining their residence in future years. New transitional rules therefore allow individuals to apply the new rules to those preceding years for this specific purpose only. The current rules will continue to apply for determining actual residence status and tax liability in the earlier years. If you wanted to apply the transitional rules you would need to make a formal election. The transitional rule will only be applicable to the following parts of the Statutory Residence Test: • Part A -- where residence in prior years affects whether the relevant threshold for automatic non-residence is 15 days or 45 days and • Part C -- where residence in prior years affects which of the day counting "ladders" should be used to assess residence status Example Jack spent 32 days in the UK in 2013/14 and thinks he may be automatically non-resident under Part A of the test. Crucial to this, will be his residence status for the previous 3 tax years (2010/11, 2011/12 and 2012/13 because whether he was resident in one of those years will affect the number of days he can be present in the UK in 2013/14 and still be automatically non-resident. If he was non resident in all of the previous 3 years then he is automatically non resident in 2013/2014 if he spent less than 46 days in the UK in 2013/2014. If he was UK resident for at least one of those years then he would only be automatically non resident if he spent less than 16 days in the UK. Therefore determining his residence status for the previous 3 years will be essential in determining his residence status. For the purpose of assessing his residence status in 2013/14 only,Jack would be able to apply the new statutory rules to 2010/11, 2011/12 and 2012/13. When Jack applies the new rules he finds that he would have been non-resident in all those years. He therefore elects to use the transitional rule and notifies HMRC. This means he is treated as an "arriver" for the purposes of Part A and is automatically non-resident in 2013-14 because he spent less than 46 days in the UK. The new rules would not affect his actual residence status in 2010/11, 2011/12 or 2012/13.