The Statutory Residence Test (SRT) is a UK tax law designed to determine whether an individual is considered a UK tax resident – and your residency status obviously significantly impacts your tax obligations. If you’re a UK tax resident, you’re generally liable for UK income tax and capital gains tax on your worldwide income and gains.
So what do you need to know? To start with, the SRT consists of three tests:
- Automatic UK Residence Test: This test automatically makes you a UK tax resident if you meet any of the following criteria:
- You spend 183 days or more in the UK during the tax year.
- You have a UK home and spend more than 90 days in the UK during the tax year.
- Your habitual residence is in the UK.
- Sufficient Ties Test: If you don’t meet the Automatic UK Residence Test, you’ll still be considered a UK tax resident if you have:
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- A UK home.
- A UK spouse or civil partner.
- A UK dependent child.
- A UK business or employment.
- Days Present Test: If you don’t meet the Automatic UK Residence Test or the Sufficient Ties Test, you’ll be considered a UK tax resident if you spend 183 days or more in the UK during the tax year.
If you are found to be a UK tax resident, that has significant tax implications:
- Worldwide Income and Gains: You’re generally liable for UK income tax and capital gains tax on your worldwide income and gains, regardless of where they were earned or realised.
- Double Taxation Relief: If you pay tax on the same income or gains in another country, you may be eligible for double taxation relief to prevent you from being taxed twice.
- UK Tax Rates: Your UK tax liability will be calculated based on the UK tax rates and allowances applicable to your income level.
- National Insurance Contributions (NICs): If you’re employed or self-employed in the UK, you’ll generally be required to pay NICs.
Your UK tax residency status can also have implications for your financial affairs:
- Investment Income: The tax treatment of your investment income, such as dividends and interest, will depend on your UK tax residency status.
- Pension Schemes: Your eligibility to contribute to and benefit from UK pension schemes is influenced by your residency status.
- Inheritance Tax (IHT): Your UK tax residency status can affect your IHT liability, particularly if you have assets located in the UK or if you have a UK domicile.
If you’re planning to spend time in the UK or have UK connections, it’s essential to consider the SRT and its potential tax implications. So keep a record of the days you spend in the UK to determine whether you meet the Automatic UK Residence Test or the Days Present Test. And understand your ties to the UK and assess whether you have sufficient ties to the UK to trigger the Sufficient Ties Test.
The best thing is (yes, obviously) to chat to us so that we can understand your specific circumstances and explore potential tax planning strategies and help you make informed decisions about your UK tax affairs and minimise your tax liability. So get in touch, and let’s work it out together.
