Proposed new statutory residence test – some reflections
The consultation period relating to the proposed introduction of a statutory residence (and ordinary residence) test in the UK closed on the 9th September 2011. We are now awaiting the publication by the Government of a summary of responses. This will be followed by the publication of draft legislation for further consultation before the 2012 UK Budget in March next year.
When the proposals were first published in June of this year, the reaction from tax practitioners was mixed. On the one hand, there was general agreement that the current rules do not provide certainty in all cases and suffer from too great a level of subjectivity. On the other hand, some of the proposed tests are quite complex which somewhat undermines the Government’s claims that individuals with a more complicated fact pattern will be able to determine their residence status with ease and without the need for specialist advice.
It will be interesting to see to what extent, if any, the draft legislation addresses these concerns about complexity. Our own view is that the Government’s priority is to achieve greater certainty in relation to determining UK residence and ordinary residence and that this can only be achieved by introducing tests along the lines of those set out in the consultation document. Consequently, it is likely that the draft legislation will largely reflect the proposals set out in June.
We envisage that the introduction of the statutory tests that are largely unaltered from the consultation document will increase the number of people who are resident in the UK and another country at the same time. This can only be resolved by reference to the “tie break” clause of the relevant tax treaty which will require specialist advice. Employers of internationally mobile employees who subsequently become dual residents as a result of the new rules may well feel obliged to facilitate that specialist advice since the dual residence arises as a result of the employment.
(See Resources below for our commentary on the proposed new rules.)