Beware of this statutory residence test trap if you retain a UK home

The Statutory Residence Test (SRT) rules determine whether an individual is UK tax resident in a given year and hence within the scope of UK tax.

The issue

In a nutshell, you will generally be UK resident at all times in the tax year (subject to some fiddly split year treatment rules), if you do not meet any of the ‘automatic overseas tests’ (such as going to work abroad full-time) AND:

• you meet one of three ‘automatic UK tests’ (being present in the UK for 183 days, having a UK home, or working in the UK); OR

• the ‘sufficient ties test’ (which determines the maximum number of days that you can be present in the UK without becoming UK tax resident, based on the number of UK connection factors that you have).

The second automatic UK test – having a UK home for all or part of the tax year

Where an individual has a home in the UK for the whole or part a tax year, they will (automatically) be UK resident if:

• the home is a place where they spend at least 30 days in total during the tax year; AND

• while they have that home, there is at least one consecutive 91-day period (at least 30 of which must fall within the tax year), during which either:

• they have no home(s) overseas; OR
• they have a home overseas but spend less than 30 days in it during the relevant tax year.

These rules can lead to unfortunate scenarios where individuals accidentally fall into the trap of becoming UK tax resident.

Example

Amy wishes to semi-retire and emigrate to Dubai. She will then take a £2m dividend from her UK company out of retained profits, once she has shed her UK tax residence. This will be done with the expectation that there will be no UK tax on the dividend.

The key points of her timeline are as follows:

1. She moves to Dubai on 6 April 2024 and retains her UK home as a base for when she visits.
2. She travels for 30 days in Dubai between 6 April 2024 and 6 May 2024 while looking for a Dubai home to rent (staying in a hotel during this search).
3. Once she finds a property she moves into it on 7 May 2024.
4. She receives a £2m dividend on 31 May 2024.
5. Her maximum permitted UK day count is 90 days under the SRT for 2024/25. She is so busy in Dubai that she only visits the UK for five weeks following her move to Dubai (i.e. 35 days, which is well within her permitted maximum UK day count of 90 days).

Unfortunately, Amy is nevertheless deemed UK tax resident under the second automatic test for the entire 2024/25 tax year. This means her £2m dividend is subject to UK income tax at 39.35%, along with any other worldwide income.

Her UK residence came about because there was a continuous period of 91 days (at least 30 of which fall in the tax year), where she had a UK home, but did not have a Dubai home. The period in question is the 91 day period ending on 6 May 2024.

The month long holiday roaming around Dubai cost Amy the non-resident status that she was seeking.

Hamilton Rose's view

This is a really nasty trap, which many emigrating individuals can fall into. If identified early then the issue can easily be remedied by ensuring that less than 30 days are spent in the UK home during the tax year. This shows the importance of individuals taking detailed bespoke advice which considers all of their personal circumstances.

It is perhaps unfair that the consecutive 91 day period can include 61 days of an earlier tax year when the individual was UK resident, but Amy can expect little sympathy from HMRC here. This is such a big issue that, as a rule of thumb, individuals should seek tax advice whenever they intend to stay in a UK home for 30 days or more in a year where they hope to be non-resident.

Alternatively, they could simply leave the UK home and sell it!