This article was first published in the October 2011 edition of Accounting and Business magazine. 

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Generally, people that are resident in the UK are taxed on their overseas income, whereas non-residents are not.

People who leave the UK to work full-time overseas have always had certainty regarding their residence status, but other leavers have had to rely on the habitual and substantial test. It was previously believed that non-residence status could be established by restricting UK visits to less than 91 days per tax year averaged over four consecutive years.

However, following recent tax cases involving Lyle Grace and Robert Gaines-Cooper, HMRC now only consider this test to be relevant once a 'distinct break' has been made from the UK. Although both Grace and Gaines-Cooper stayed in the UK for less than 91 days each year, factors such as the continuing ownership of property in the UK meant that neither of them had made a distinct break – and were therefore both still resident here.

Such uncertainty has led to the Government consulting on the introduction of a statutory definition of residence, with the intention of implementing changes from 6 April 2012. This article outlines the proposals made in the consultation document.

Always resident

There are some situations where a person will always be treated as UK resident. These are where:

  • a person stays in the UK for 183 days or more during a tax year – no change from the current situation. There is also no change to the definition of a 'day in the UK', so a person is treated as being in the UK for any day when they are here at midnight
  • a person's only home is in the UK
  • a person works full-time work in the UK – defined as working more than 35 hours per week either on an employed or self-employed basis.

The split year treatment can be applied to the second and third situations. For example, if a person came to the UK on 1 November 2012 to take up full-time employment, then for 2012-13 they would be treated as non-resident from 6 April to 31 October 2012, and resident from 1 November 2012 to 5 April 2013.

Always non-resident

Just as some situations will always make a person resident, other situations will result in them always being treated as non-resident. These are where:

  • a person stays in the UK for less than 10 days during a tax year
  • a person stays in the UK for less than 45 days during a tax year provided they have not been resident for any of the previous three tax years. The Government is not proposing any transitional rules, so if a person wishes to rely on this test for 2012-13 their residence status for 2009-10, 2010-11 and 2011-12 will be determined using the old, less certain, rules
  • a person has left the UK for full-time work overseas. Full-time work is as previously defined, and must be carried out for at least one complete tax year. Visits to the UK have to be less than 90 days a year, and no more than 20 days a year can be spent working in the UK. A working day is any day where at least three hours of work are carried out. This is similar to the current situation, although the 20-day rule should be more generous than the 10 days that are presently accepted as incidental by HMRC.

The split year treatment will apply when a person leaves the UK for full-time work overseas, and also when they subsequently return to the UK.

In the rare situation where a person could be treated as both resident and also non-resident under the above rules (such as where their only home is in the UK, but they spend less than 10 days here during a tax year), then they will be treated as non-resident.

Less straightforward situations

For people who are not definitely resident or non-resident, their residence status will be determined by a combination of whether they are an arriver or a leaver, the number of days they stay in the UK during a tax year, and the number of connection factors that they have with the UK. There are five connection factors:

  •  having a spouse, civil partner or minor children resident in the UK
  • having accommodation in the UK which is made use of during the tax year. There are several exceptions for this connection factor, such as where accommodation is held on a lease of six months or less, or where a person stays in hotels or with relatives
  • doing substantive work in the UK. This is defined as working for 40 or more days during a tax year
  • spending 90 days or more in the UK during either of the two previous tax years
  • spending more time in the UK than in any other single country.

To establish their residence status for a particular tax year a person will simply compare the number of days they spend in the UK against how many connection factors they have. Someone who has not been resident for any of the previous three tax years is classed as an arriver, and for them only the first four connection factors are relevant:

  • Days in the UK / Impact of connection factors
  • Fewer than 45 / Always not resident
  • 45 to 89 / Resident if four connection factors
  • 90 to 119 / Resident if three connection factors or more
  • 120 to 182 / Resident if two connection factors or more
  • 183 or more / Always resident

Someone who has been resident in the UK for any of the previous three tax years is classed as a leaver, and for them all five connection factors are relevant:

  • Days in the UK / Impact of connection factors
  • Fewer than 10 / Always not resident
  • 10 to 44 / Resident if four connection factors or more
  • 45 to 89 / Resident if three connection factors or more
  • 90 to 119 / Resident if two connection factors or more
  • 120 to 182 / Resident if one connection factor or more
  • 183 or more / Always resident

It is therefore more difficult for a leaver to become non-resident than it is for an arriver to remain non-resident.


Joanne is self-employed as a painter. She has always been resident in the UK, spending more than 250 days here each year. On 6 April 2012 Joanne purchased a property in Spain, and during 2012-13 she mainly lived and worked there. However, she still has a house in the UK where her husband and family live. Joanne visits the UK on a regular basis, staying in the family home. During 2012-13 a total of 60 days were spent in the UK, of which 35 were for work.

Joanne is not definitely treated as resident or non-resident since even although she now works in Spain, more than 20 days were spent working in the UK. As Joanne has previously been resident in the UK she is a leaver. During 2012-13 between 45 and 89 days were spent in the UK, so Joanne is permitted just two connection factors before being treated as resident.

In fact, she has three connection factors – UK resident family, assessable accommodation in the UK, and staying 90 days or more in the UK during the previous tax year. However, if Joanne's lifestyle remains unchanged, the last of her connection factors will no longer apply after two tax years overseas. She should therefore qualify as non-resident from 2014-15 onwards.


The Government recognises that with more certain rules regarding residency, it will be much easier in future for people to arrange a temporary period of non-residency in order to avoid a large income tax liability.

For example, the owner of a limited company has accumulated large profits within the company so as to avoid higher rate income tax. Without an anti-avoidance rule it would be possible to become non-resident for a tax year, withdraw the profits by way of dividends without any additional UK income tax liability, and then return to the UK.

Such an anti-avoidance rule is likely to be similar to that which applies for capital gains tax purposes, where exemption is only available if a person is non-resident for at least five tax years.

Ordinary residence

The Government's proposals for ordinary residence are far less certain than they are residence. Ordinary residence can also have a bearing on a person's tax liability, although the consultation document makes it clear that this affects relatively few people. Two options are being considered:

  • simply abolishing the concept of ordinary residence for most tax purposes.
  • Retaining the concept of ordinary residence but create a statutory definition. The basic rule will be that people who are resident will also be treated as ordinarily resident unless they have not been resident for all of the previous five tax years. A person coming to the UK will be allowed to remain not ordinarily resident for up to three tax years. However, this status will not be available if a person becomes resident as a result of having their only home in the UK – this is because the Government does not want to extend the ordinarily non- resident status to people coming to live permanently in the UK.


The introduction of a statutory residence test will bring more certainty to this area of tax, although the application of the connection factors will not always be straightforward. This will especially be the case for wealthy taxpayers who may have several homes, numerous businesses, with changeable work and lifestyle patterns.

Unlike the habitual and substantial test, with the statutory residence test there is no averaging between tax years. Previously, it was possible to stay in the UK for, say, five months in one tax year, and balance this out with much shorter stays in other years.

With the statutory residence test people will have to be very careful that a few extra days in the UK does not change their residence status. It will be necessary to keep detailed records, not just of days in the UK, but also of time spent working.