What is RDR3?
RDR3 was a Guidance Note drafted by the UK HMRC (HM Revenue and Customs) regarding the Statutory Residence Test (SRT). Prior to its withdrawal from the HMRC website in October 2019, this helped to decide whether a person should be taxed as a UK resident or a non-UK resident by determining a person’s residence status.
UK non-resident status provides exemption from UK Income Tax on all non-UK sources of income and, generally, exemption from UK Capital Gains Tax on gains made from the sale of assets with the exception of assets used in a UK trade and UK land and property, regardless of where they are situated provided that the non-residence period spans at least five complete years. If in doubt about your UK residency status, you should always consult a UK tax specialist for advice.
Like most tax laws, the Statutory Residence Test and HMRC guidance is comprehensive, lengthy and difficult for the lay person to grasp. This article provides an overview of the key components. However, there are many exceptions, particularly for those falling into the “Split Year Treatment”. Here are the four main criteria that make up the Statutory Residence Test.
1. Number of days spent in the UK
If you spent more than 182 days in the UK in any tax year (6 April through to the 5 April the following calendar year) you are a UK resident. You must include any day that you were in the UK at midnight, even if your visit is a matter of hours, unless it meets the Transit Rule (when you are just passing through the UK and stay airside at the airport) or is a day spent in the UK due to ‘exceptional circumstances’ (bereavement and sudden illness may qualify).
In addition, days which were spent in the UK working which are caught by the complex “deeming” rules can also count as days of presence in the UK even if you are not in the UK at midnight on those days.
2. Automatic overseas test
Another simple test states that you are a non-UK resident if any of the following apply:
- You spent less than 16 days in the UK in the current tax year (even if you were a UK resident for one or more of the past three tax years)
- You spent less than 46 days in the UK and and have been non-resident for at least three tax years You spent less than 91 days in the UK, providing you work overseas full time and undertake fewer than 31 UK workdays.
In rare cases, there are other factors that may also affect your residency status, an example of this would be If you are an international transport worker (for example a pilot or lorry driver) it may be more difficult to meet the tests to be automatically UK non-resident.
3. Automatic UK Tests
If you do not meet the conditions to be automatically UK non-resident, you must then consider whether or not you meet any of the following conditions to be automatically UK resident:
- Spending at least 183 days in the UK in the tax year; or
- If you have your only home in the UK for a sufficient period of time, which can be as little as 30 days; or
- If you have a qualifying period of full-time work in the UK beginning or ending in the tax year.
4. Sufficient Ties Test
If you do not meet the tests to be automatically non-UK resident or automatically UK resident your UK residence status will be determined by the “Sufficient Ties Test”. The Sufficient Ties Test considers the connections you have with the UK (called ties). The more ties you have with the UK the less time you are able to spend in the UK without becoming UK resident.
If you were not UK resident for any of the three tax years before the tax year under consideration the ties to consider are as follows:
- UK resident family
- Accessible accommodation in the UK
- Substantive UK employment (or self-employment) i.e. 40 UK workdays
- More than 90 days in the UK in either of the previous two tax years
The number of nights you are able to spend in the UK without triggering UK tax residence are as follows:
- 4 ties – 45 nights
- 3 ties – 90 nights
- 2 ties – 120 nights
- 1 tie – 182 nights
However, if you were resident in the UK for one or more of the three tax years before the tax year under consideration, you will also need to consider if you have a country tie, i.e. you spend more time in the UK in the tax year than in any other country. In addition, the number of nights you are able to spend in the UK without becoming UK residence is reduced in accordance with the following table:
- 4 or 5 ties – 15 nights
- 3 ties – 45 nights
- 2 ties – 90 nights
- 1 tie – 120 nights
- 0 ties – 182 nights
If you do not adhere to these limits, then you will be tax resident in the UK.
From this brief overview, you will realise the Statutory Residence Test is a complex piece of legislation. Understanding your UK residence status is fundamental to determining your exposure to UK tax. Therefore, it pays to consult a UK tax expert, so you know exactly where you stand regarding your resident status and subsequent tax liabilities.