The ‘statutory residence test’ was introduced on 6 April 2013, which washed away all previous rules and case law applicable to an individual who has to determine whether he or she is resident in the United Kingdom for tax purposes.
The statutory residence test is notoriously complicated, and many are put off after an initial reading because of the sheer volume of detail. However, with some perseverance, the test provides far more certainty than it did when trying to apply previous HMRC guidance and court rulings.
Particular problems have arisen around the definition of ‘home’ and ‘work’ which features in some of the tests, and the legislation only vaguely defines this. In spite of, or perhaps because of, these uncertainties and various degrees of complexity, we are now into the fourth year of the statutory residence test and there have still been no cases heard at tribunal. We can only speculate as to why this may be, particularly given that this appears to be a difficult area. High on the list of possible reasons could be HMRC’s policy of targeting its resources at areas where they perceive a significant loss of revenue to the Exchequer could be recovered with a minimum of effort. We would like to think enquiries have not been necessary because of the quality of the professional advice given!
The Remittance Basis
There have been no significant changes to the statutory residence test itself since inception, although remittance basis users (those non domiciles who are allowed only to be taxed on monies they send to the UK), will have seen some expensive changes. Originally, remittance basis users who had been resident for at least 7 years had to pay a £30,000 charge for each year they wished to access it. A second, £50,000 charge was later introduced for those resident for more than 12 years, and then from 6 April 2015 this was increased by a further £10,000 to £60,000.
Also from 6 April 2016, those resident for at least 17 years face a £90,000 remittance basis charge, but further to current proposals which are anticipated to take effect from 1 April 2017, that £90,000 charge will effectively be made redundant, because the remittance basis will be removed as an option for people who have been resident for 15 out of the last 20 years.
Impact of Brexit
Depending on which side of the fence you sit, the announcement of the United Kingdom’s exit from the European Union could cause either an outflow of individuals looking to flee to pastures new, or an influx of people looking to take advantage of the new opportunities Brexit will bring. In the case of both groups, the statutory residence test will take further prominence because it governs the taxability of those individuals and where their UK liabilities begin or end.
While many are still struggling to come to terms with the complexities of the test, we do not anticipate any changes as a result of Brexit alone. The legislation only makes such references as ‘overseas’, ‘country or countries’ and ‘cross border’ amongst other generic descriptions. Jurisdictions within the EU are not considered separately to any other overseas jurisdiction.
Some commentators have expressed concern over the need to rewrite certain double taxation treaties between EU member states and the UK. We see this as being unlikely; double taxation treaties are to encourage trade and are generally based on something known as the ‘OECD model convention’. While the OECD includes a number of EU States, it also includes such countries as Canada, Mexico, New Zealand, Australia and the United States and is not meant to be limited to just the EU. Indeed the original OECD model convention is older than the EU itself.
While Brexit may now have caused politically and economically uncertain times, death and taxes (often both at the same time) are still certain, and the mobile workforce can continue to plan their tax residency as before.