Statutory residence test

Stephen Hignett, Tax Partner, CMS

In the last Budget the Government announced its intention to introduce a statutory residence test for individuals with effect from April 2012. However, in December 2011, following a public consultation over the summer of 2011, the Government announced that the statutory residence test would instead be enacted in Finance Bill 2013 and take effect in April 2013, so as to allow further time to finalise the detail of the test. This postponement of the introduction of a statutory residence test for individuals is regrettable, not least because the Supreme Court’s decision in the case of Gaines-Cooper in October 2011 failed materially to clarify the case law tests of residence. The Government today announced that a summary of responses and draft legislation for consultation will be published after Budget 2012.

The Government is also progressing its plans to abolish the concept of “ordinary residence” for tax purposes. It had previously been announced that the introduction of any such reform would be postponed until April 2013. Today, it was confirmed that legislation will be introduced in Finance Bill 2013 (to take effect from 6 April 2013) in which ordinary residence will be abolished, subject to the following proviso.

The scenario where individuals who are UK-resident, but not ordinarily UK-resident, are exempt from tax on their employment income from non-UK duties to the extent that it is not remitted to the UK, is commonly known as “Overseas Workday Relief”. The Government today confirmed that, notwithstanding the abolition of ordinary residence for tax purposes (from 6 April 2013), Overseas Workday Relief will be retained and placed on a statutory footing.

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