STEP Propose Statutory Test for UK Residence

Stephen Harris

26 November 2007

The uncertainty that surrounds the concept of residence for taxation purposes makes it difficult for advisors to give clear-cut advice, particularly to those who may intend to come to the UK, according to STEP, the Society of Trust and Estate Practitioners. STEP says that this is a factor that may dissuade people from coming to the UK. And in the light of the proposals in the Pre-Budget Report concerning the taxation of non-domiciliaries after seven years residence, this uncertainty is all the more unsatisfactory, says the society. STEP supports residence is the primary connecting factor governing liability to UK taxation on worldwide income and gains, subject to the various exceptions made for persons domiciled outside the UK because it is capable of being a simple and objective test; and because it is widely used by other countries. But the current definition of residence does not fulfill the requirement of being simple and easy to apply. The society points out that the law relating to residence derives from a number of decisions of the courts going back many years but does not, viewed as a whole, contain a clear or uniformly applicable test. This uncertainty was compounded in 1993 when the abolition of the available accommodation rule did not achieve its intention. And in the Gaines-Cooper case the taxpayer, who had relied on the day count test set out in IR 20, was nonetheless deemed to be resident in the UK. The test that STEP favours is that which has been adopted by the US for people who are neither citizens nor green card holders. Under this test an individual would be allowed 180 days per year in the UK before becoming resident, but this 180 days would be made up of all the days in the current year, one third of the days in the preceding year and one sixth of the days in the year before that. Days of arrival and departure are treated as days of presence. If a statutory test of residence is adopted the question of whether the concept of ordinary residence should be retained arises and STEP proposes that a statutory test of ordinary residence be adopted as well. Following the example of the Republic of Ireland, a person could be treated as ordinarily resident in the UK after three years residence, applying the statutory test of residence.