There is an old maxim that people should be careful what they wish for. That has never been so true as when looking at tax legislation. For over 200 years the UK did without a statutory residence test. For sure, if someone spent over 182 days in a tax year in the UK, they became resident in the UK. Below this threshold, it became a question of interpretation. This lack of legal certainty was deliberate because it was felt by the Inland Revenue as it then was, that definitive rules would make it easier for individuals to avoid tax. The courts had to look at the pattern of life and in some cases, such as Read v Clarke, this worked in the taxpayer’s favour and in other cases such as Gaines-Cooper it worked in HMRC’s favour.
As a result of some activities of individuals in the public eye, it was decided to introduce a Statutory Residence Test (SRT) in 2013 for the first time. The effect of this test which is a combination of day count and connecting factors has actually been to make it easier for taxpayers to plan their affairs to escape UK residence and be confident that the “quality” of their residence in the UK, if short, cannot be used to maintain their UK residence status.
The SRT has undoubtedly brought more certainty but that certainty has allowed individuals to escape UK tax more easily. Whilst almost everyone was agreed that a residence test based on statute and specified criteria would make tax law clearer, it has also made tax planning easier to succeed. I am not sure that this was the idea when the change in law came into effect in April 2013.
Primondell runs a number of courses on residence and domicile for professional advisers.
