A statutory residence test?
27th May 2008
The Liberal Democrats have tabled a statutory residence test, to be inserted into the Finance Bill, for the purposes of income tax and capital gains tax.
The text of the amendment is as follows:
‘(1) An individual is resident in the United Kingdom for income tax purposes if—
(a) during the tax year in question the individual spends (in total) more than 31 days in the United Kingdom; and
(b) during the three-year period that includes the tax year in question and the two tax years immediately preceding it the individual has spent (in total)
183 or more days in the United Kingdom, including—
(i) the total number of days spent in the United Kingdom in the tax year in question,
(ii) one-third of the days in the tax year immediately preceding the tax year referred to in sub-paragraph (i), and
(iii) one-sixth of the days in the tax year immediately preceding the tax year referred to in sub-paragraph (ii).
(2) An individual found to be resident under subsection (1) shall be liable for income tax on both their UK income and capital gains and any foreign income and capital gains remitted to the United Kingdom.
(3) In determining whether an individual fulfils the definition of residence under subsection (1) treat each day the individual is physically present in the United Kingdom as a day spent by the individual in the United Kingdom.
(4) But in determining that issue do not treat as a day spent by the individual in the United Kingdom any day on which the individual—
(a) arrives in and departs from the United Kingdom on the same day;
(b) is present in the United Kingdom for less than 24 hours for transit only;
(c) is present in the United Kingdom by virtue of being employed as a crew member of a foreign vessel;
(d) is unable to leave the United Kingdom on the same day owing to a medical condition;
(e) is enrolled in full-time higher education in the United Kingdom;
(f) is an exempt individual.
(5) The Treasury shall, by regulations, define an exempt individual.
(6) Regulations under subsection (5) shall be made by statutory instrument.
(7) A statutory instrument containing regulations under subsection (5) may not be made unless a draft of it has been laid before and approved by resolution of the House of Commons.
(8) On the coming into force of this section, Chapter 2 of ITA 2007 shall cease to have effect.’.
It can be found here.
The Chartered Institute of Taxation (CIOT) has been calling for a comprehensive statutory residence test for some time as a way of bringing certainty into the current residence situation, particularly in the light of recent cases. It intends to discuss the issue with other relevant professional bodies in order to develop a consensual view on the appropriate test to adopt which does not adversely affect yield, with a view to a sensible comprehensive test in next year’s Finance Bill.
John Barnett, Chairman of the CIOT’s Capital Gains Tax & Investment Income Sub-Committee, says:
“We welcome the Liberal Democrats’ contribution to this debate as it is a very important issue that needs to be discussed. While the Government has stated that it does not wish to make any more changes to the non-domicile rules, the CIOT feels that a statutory residence test would bring certainty to this complex area. If done with sufficient consultation it need not result in unexpected or adverse consequences. And it will be popular with the business community because it will avoid the current ambiguities that are not helpful either to HM Revenue & Customs or to taxpayers.”
The CIOT news release can be found here.
