Caroline Garnham on why complicated new rules from the Treasury may be making checking whether you’re a UK resident much simpler
LONDON HOUSE PRICES are soaring, whereas the prices of country homes are on the decline . Is this, in part, due to the attractiveness for foreigners of London as a place in which to have a home? It is estimated that 60 per cent of all purchases of London homes in excess of £10 million are made by foreigners.
Many of the prestigious apartments in central London are empty for most of the year. The owners of many of these apartments visit, but not for long enough to become a resident. It is for these people that the recent consultation paper on residence announced in this year’s Budget is of significant interest. A statutory test for residence is to be introduced as from April 2012. The Treasury’s proposals say that you will be resident in the UK if you are present in the UK for 183 days or more in any tax year (6 April–5 April), all your homes are in the UK, or you carry out full-time work in the UK.
You will not be resident if you are an ‘arriver’, which means you have not been resident in the UK at any time during the last three tax years and are present in the UK for fewer than 45 days in the current tax year. Nor will you be resident if you are a ‘leaver’, which means you have been resident in the UK for one or more of the previous three tax years but spend fewer than ten days in the UK in the current tax year, or if you leave the UK to carry out full-time work abroad and are present in the UK for fewer than 90 days in the tax year and no more than twenty days are spent working in the UK in the tax year.
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Days in the UK are measured as the number of days you are in the UK at midnight at the end of that day. There is an exception for days spent in transit.
Then there are the rules in between being resident or non-resident. These are based on ‘connection factors’. The more connection factors you have with the UK, the less time you are permitted to stay before becoming resident. The connection factors are: is your family resident in the UK; do you have ‘accessible’ accommodation in the UK; do you have substantive work in the UK; have you spent 90 days or more in the UK in either of the previous two tax years; and do you spend more time in the UK than in any other single place? Again, a distinction is made as to whether you are an ‘arriver’ or a ‘leaver’.
As an arriver, if you satisfy all the first four connection factors, you will be resident if you spend more than 44 days in the UK; satisfying three of the first four factors makes you resident past 89 days; two of the first four factors make you resident if you spend more than 119 days here.
If, however, you are a leaver, if you satisfy four or more of the five connection factors, you will be resident in the UK if you spend more than nine days a year in the UK; if you satisfy three factors you will be resident if you spend more than 44 days here; if you satisfy two factors you will be resident after more than 89 days; and if you satisfy one connection factor you will be resident if you spend 120 days or more in the UK.
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As I said previously, these are proposals and I suspect there will be a lot of discussion between now and 9 September, which is the cut-off day for responses, about what is proposed. For example, what is meant by ‘substantive work’ in the UK? We all spend time using mobile applications and it is now possible to work wherever you are.
The test is whether you have spent more than three hours a day for 40 days or more in a tax year working in the UK, but does this include answering emails or phone calls? I am also interested to see whether the definition of ‘family’ is tightened. At present, family is defined as your spouse, civil partner or ‘common law equivalent’ or minor children. Exactly when does a close friend become a ‘common law’ partner? Equally, at what time does the use of an apartment of a friend become ‘accessible’ accommodation?
I SUSPECT THAT the definition of these connection factors will be refined, but in whatever way they are refined I can envisage some interesting investigations. Take Joseph, for example. A director of a company which has no office in the UK, Joseph is married and lives with his children in Zurich. In London he has a mistress, with whom he has a lovechild and whom he likes to visit as often as he can. While in London, he works remotely but it is hard to determine how much.
He does not stay with his mistress but has the use of his friend Tom’s apartment in Knightsbridge, where he spends time with her. He spends, on average, just under 90 days in the UK, some years more, some years less. Given his circumstances, under these rules, is he UK-resident or not? He may need to adapt his life if he wishes to remain non-UK-resident, which could be a headache for Joseph and interesting work for his lawyers.
In the next issue, I will go through the changes introduced to the remittance rules for non-UK domiciliaries.
Caroline Garnham is a private client partner at Lawrence Graham and the founder of Family Bhive
