UK tax residence demystified in 3 charts

Introduction

The UK tax system isn’t always easy, to put it mildly. The rules around tax residence are a good example of that. But before we dive into it: check out this post if you want to know more about the basics of tax residence (and myths surrounding it). So how is UK tax residence triggered? As in many other countries, time is an important factor. But it’s certainly not the only one. Work, family, having a (permanent) home and your tax residence history (may) also play a role. Let’s try to get a clearer picture by examining them in turn.

Tax residence based on days

People often think that tax residence is triggered by staying in a country for more than 183 days (six months). Unfortunately, this rule of thumb is (way) too simplistic. And the situation in the UK is a good illustration of that. In fact, under British tax law there are at least 5(!) duration thresholds to consider in relation to tax residence.

The shortest thresholds: 16 days or 46 days

Let’s start with the shortest (and easiest) ones: a stay of 16 days or 46 days during the tax year. (Note that the UK tax year runs from 6 April to the following 5 April and does not coincide with the calendar year). If you stayed less than 16 days in the UK, you don’t trigger tax residence for that tax year. Other circumstances are irrelevant. This is called the “(first) automatic overseas test”, since you’re automatically “overseas” / “non-resident” when the criterion is met. You don’t have to go on to the next residency test. If you stayed less than 46 days, the picture is largely the same. However, there’s one important exception: if you were a UK tax resident during one of the previous 3 tax years, then you can’t take this shortcut to non-residence (also known as the “second automatic overseas test”). In that case, you’ll have to move on to the next test. And yes, you’re right, that one is called the “third automatic overseas test”.

91 days: determining tax residence gets trickier

If you keep your stay under 91 days, then there’s still a route to automatic non-residence if you work abroad. However, this should be full-time overseas work. So, what does that mean in practice? First of all, this means that you worked at least 35 hours a week. Second, that you had less than 31 working days in the UK – any day with more than 3 working hours is considered a working day. And third, that there was no “significant break” in your full-time work overseas. A significant break is defined as a period of 31 days without working – again: working doesn’t count if it’s less than 3 hours per day. (Annual leave, sick leave and parenting leave are excused.) Does all of this apply to you? Then you’re automatically a non-resident for tax purposes.

183 days or more: you’re a UK tax resident

If you spent 183 days or more in the UK, then you can safely assume that you’ve become a tax resident. This is called the “first automatic UK test”.

Inconclusive? Then go to the 30-day threshold

What if all these automatic tests don’t give a result, either in the form of automatic non-residence or automatic residence? Then there’s another automatic test to consider, called (you guessed it) the “second automatic UK test”. This one is very tricky as it’s a hotchpotch of calendar years and tax years, days in a row and days not in a row, and homes within the UK and outside the UK. It’s best explained with an example. In 2022, Alessandra has a UK home where she stayed from 24 March until 1 May, and then again from 20 October until 31 October. On that date she left her UK home because it was sold. She also has an apartment in Milan, Italy, but she doesn’t go there often. She spent a few weeks in it during spring 2023, from 10 March until 24 April.  

So this is what her situation looks like in a visual:

The first question is: did Alessandra have a UK home for 91 days in a row, with (at least) a 30-day overlap with a tax year? The answer is simple: yes, she had a UK home with a 208-day overlap with tax year 2022/2023. So, that’s the first step towards UK tax residence. Next, did she spend 30 days in her UK home during the tax year? The answer is yes again: since the start of the tax year on 6 April she’s been there 35 days: 25 in April/May and 10 in October. Consecutive or not doesn’t matter here. If the three automatic overseas tests and the two automatic UK tests have not yet led to a conclusion (of residence or of non-residence) then there is a third automatic UK test, based on work. Briefly put, if you work full-time in the UK for 365 days, then you first have to look at the tax years with which there’s overlap.

Let’s assume you worked 365 days in the UK, partially overlapping tax year 2022/2023. As a default rule, you’re then a UK tax resident for 2022/2023. But again there are two exceptions.

• First exception: if less than 75% of the working days were in the UK. Important: the relevant period is the calendar year, not the tax year. Also, working days only count if you worked 3 hours or more.
• Second exception: if there was not one working day within this 365-days period that also fell in the tax year. For instance, your full-time job formally ended 10 April 2022, but you didn’t work anymore since 2 April. As a result, there was not a single working day in tax year 2022/2023, which started on 6 April 2022.  

If either of those exceptions applied, then you do not qualify as a UK tax resident…yet.

But after three automatic overseas tests and three automatic UK tests there is still another test to consider. Remember: you only move on to the next test if the previous one didn’t lead to an affirmative outcome (tax residence) or a negative outcome (no tax residence). This means that the next test is reserved only for people who had an inconclusive outcome in all 6 previous tests. So what’s this last, and decisive, test about? It’s called the “ties test” and it’s basically a combination of:

• time spent in the UK, and
• social and economic ties with the UK.

Both “ties” and “days in the UK” contribute to a conclusion of tax residence, but they are always considered together. The principle behind this test is that “more days” can compensate for “fewer ties”. This means that someone who stayed in the UK for several months, can only escape tax residence if they hardly have any ties with the UK.  

To apply this combined test, you should first ask yourself:

• Family: do I have a partner (spouse or civil partner) or underage child living in the UK? If so, +1 tie;
• Accommodation: did I spend 1 or more nights in a UK home that’s available to me for at least 91 days during the tax year? Or 16 or more nights in a UK home of a close relative? If so, +1 tie;
• Work: did I have at least 40 work days in the UK during the tax year (in a row or not)? If so, +1 tie.
• 90 days: did I spend at least 90 days in the UK in one, or both, of the previous two tax years? If so, +1 tie.
• Country: considering all countries where you stayed during the UK tax year, was the UK the country where you spent most time? A day is counted if you were present at midnight. If so, +1 tie if you were a UK tax resident in one or more of the 3 previous tax years - if not, you should disregard this tie.

Once you’ve done the counting, combine the number of ties with the number of days spent in the UK.

If you were not a prior UK tax resident during the 3 previous tax years, these are the combinations:

• 46-90 days + all 4 ties: UK tax resident;
• 91-120 days + 3 ties: UK tax resident;
• > 120 days + 2 ties: UK tax resident.

If you were a prior UK tax resident during the 3 previous tax years, the combinations are as follows:

• 16-45 days + 4 ties: UK tax resident;
• 46-90 days + 3 ties: UK tax resident;
• 91-120 days + 2 ties: UK tax resident;
• > 120 days + 1 tie: UK tax resident.

Take-aways

The UK has a very complicated approach towards tax residence. As has become clear, there are many more factors than “183 days”. Sure, spending 183 days in the UK will automatically make you a tax resident for that year, but this can also happen if your stay is much shorter than that. If you have enough social or economic ties with the UK, a presence of 16 days can already be enough to trigger tax liability on your worldwide income. Therefore, it’s important to go through all tests described above, and only stop when a test leads to a result, either affirmative or negative. And of course, seek assistance when things are unclear. After all, mistakes are easily made and hard to fix.