UK again delays statutory residence test

08 December 2011

The UK government’s draft Finance Bill 2012, published this week, postpones for a further year the implementation of the planned statutory residence test.

In a written ministerial statement, exchequer secretary David Gauke said consultation on the residence rule published in July had raised a number of detailed issues. These, he said, “will require careful consideration to ensure the legislation achieves its important aim of providing certainty for individuals and businesses”.

Gauke stressed that the form of the statutory residence test outlined in the consultation is what the government intends to implement. But he wants to have a second round of consultation, which will delay legislation to implement the statutory test until the 2013 Finance Bill is published. The new test will therefore take effect from April 2013 rather than April 2012, and any reforms to “ordinary residence” will be introduced at the same time.

A further announcement will be made around Budget 2012 (next April). There will be no further substantive changes to the residence rules for the remainder of this parliament.

There is some disappointment at the postponement. Geoffrey Todd of Boodle Hatfield commented that the new test had been generally welcomed by taxpayers and advisers. “It is unfortunate that the current system, which is based on case law and HMRC practice, will continue for another year”, he said.

Sophie Dworetsky of Withers’ wealth planning team also regretted the delay, especially as draft legislation is still not available. But she noted that the Treasury’s promise that a test would be in similar form to the proposals made in the July 2011 consultation document was helpful.

“While not the same thing, the promise of certainty is at least inching towards actual certainty, albeit more slowly than ideal”, said Dworetsky. “For the moment, advisers and their clients will have to try to discern the current law for a little longer.”

STEP’s head of policy George Hodgson noted the society has always advocated a pure day count test. “However we agree that the government’s commitment to the form of test set out in the consultation document would be a great improvement on the current situation in many respects”, he said. “We will continue to positively engage with the Treasury on these matters until they are enacted.”

However, there was better progress with the previously announced reforms to taxation of non-domiciled residents (non-doms). These will be largely included in Finance Bill 2012.

The draft legislation raises the annual charge for non-domiciles from GBP30,000 to GBP50,000 for those who have been resident in the UK for 12 of the preceding 14 years. But it also enables non-doms to remit funds to the UK tax-free for commercial investments in a wide range of unlisted commercial and trading businesses. And it simplifies the remittance basis rules relating to nominated income, foreign currency bank accounts and the taxation of assets sold in the UK.

These will take effect in the 2012-23 tax year. However, legislation of Statement of Practice 1/09 (one of the simplifications to the existing non-domicile rules) will have to wait until publication of the 2013 Finance Bill.

“We welcome these proposals in principle but still feel that they do not go as far as is required to reduce the complexity of the rules”, said STEP’s Hodgson. He noted the new rules would leave non-doms feeling unwelcome, especially those thinking of coming to the UK, while some of those already here may still be driven away.

There was agreement from Ernst & Young’s Carolyn Steppler, who believes the increase in the remittance basis charge could result in a leak of talent overseas.

“Many more non-doms will have to face the full force of the UK tax rules and may leave the UK as a result”, she said. “Non-doms are essential to the UK economy and the cost for some of them of remaining in the UK will nearly double overnight.”

She also suggested that the number of conditions linked to non-doms’ investment relief made it unworkable in many cases.

But Boodle Hatfield’s Geoffrey Todd said the new investment exemption was “potentially quite far reaching, as no minimum or maximum amount of investment is required”.

Withers’ Dworetsky said the new non-dom legislation “should make the UK more of an onshore haven for non-domiciles, and should significantly enhance the attractiveness of the UK as a location for non-doms wishing to commence or continue businesses.’



HM Treasury (Consultation on draft legislation)


Boodle Hatfield


Ernst & Young



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