United Kingdom: Revised Guidance on Residence
The U.K. tax authority, Her Majesty’s Revenue & Customs (HMRC), has issued a revised version of its U.K. tax residence guidance “HMRC6 – Residence, Domicile and the Remittance Basis.”1 As this revision contains mainly minor changes to the version last updated in December 2010, the changes have not been described or highlighted as revisions in the booklet. The most noteworthy changes relate to:
• the method of calculating annual averages of visits to the U.K. for the purposes of determining residence;
• guidance for employees of the European Union; and
• minor social security changes.
HMRC has updated the examples contained in the previous versions of HMRC6 to reflect the correct method of calculating the annual average of days spent in the U.K. for the purposes of the 91-day average test.
The examples used now correctly show that the annual average of visits is first calculated after the individual has been out of the U.K. for a period spanning a complete tax year. The previous version of the booklet incorrectly suggested that the calculation is first performed for the period to 5 April following the date of departure from the United Kingdom.
Employees of the European Union
The guidance on residence for employees of the European Union (EU) now makes a distinction between ordinary residence for income tax and capital gains tax.
The guidance has also been updated in respect of social security regulations applying to Individuals going to work in another European Union country, which previously referred to European Economic Area (EEA) countries.
The revised booklet also contains an updated list of the countries that have bilateral social security agreements in force with the United Kingdom.
It may be perplexing for some that the changes have not been highlighted publicly. Individuals who refer to HMRC6 should make sure they have the latest version. Although a statutory residence test is expected to be introduced with effect from 6 April 2012, individuals who do not meet the conclusive nonresident or conclusive resident tests will still need to determine their residence status for the previous three years in order to know which set of connection factors and ‘day count’ criteria to use.
The guidance in HMRC6 will therefore remain relevant for a number of tax years.
Draft legislation on a statutory residence test is expected to be published on 6 December 2011.