Becoming non-resident: Why it is not quite as simple as the “90-day rule”

It is a universally acknowledged truth (in the world of pub/golf course/gym accountancy) that in order to lose UK tax resident status, all you need to do is to spend less than 90 days in the UK in the tax year.

Whilst in many cases, you may be limited to spending 90 days in the UK if you want to become (and remain) non-resident for tax purposes, the rules are much more nuanced than that. As well as limiting your day count (which might actually be as little as 16 days or as many as 182 days), there are more hoops to jump through. Missing any of those “hoops” could cause you to be treated as resident in the tax year, and potentially negate any planning put into place.

So where does the 90-day myth come from?

Prior to 2013, tax residency rules in the UK were somewhat hazy.  HMRC released a document, IR20, which suggested that spending less than 91 days in the UK could make a person non-resident, or at least that is how many interpreted it (although HMRC dispute that is what they meant).  Being in the UK for 90 or more days in a year also impacted on whether someone was “Ordinary Resident” in the UK.

However, the rules were not clear, and so in a bid to provide clarity, in 2013 the Statutory Residency Test (SRT) was introduced (more detailed information can be found here) which meant that, depending on a combination of factors, including day count, a person’s UK tax residency could definitively be determined. At the same time, the concept of Ordinary Residence was largely scraped for most taxes.

Admittedly, where someone was also tax resident somewhere else, the interaction with the relevant country’s Double Tax Treaty with the UK may provide a different result, but overall, the SRT gives us a much better staring place, and can help those who wish to lose their UK tax resident status to do so with some degree of confidence.

The SRT is broken into three parts, which are looked at in turn. If you meet the conditions set out in a particular part of the test, the test stops, and your status has been determined. In order these are:

• The conditions you would need to meet any one of to become Automatically Non-Resident.
• The conditions that, if you meet any one of them will make you Automatically Resident.
• The combination of factors which will determine your residency if you are not already Automatically Non-Resident or Resident.

And yes, in some cases, when following the SRT the limit on how long you can spend in the UK might still be 90 days, but only if you meet the right conditions.

Can you still spend 90 days here?

It is still possible to spend up to 90 days here, but again, other factors have to be considered.

If you have been resident in the UK in any of the previous three years, you will be treated as a “leaver”. Someone who is a leaver can only spend up to 90 days in the UK if they limit their relevant “ties” to no more than two in the tax year.

There are five potential ties that a leaver may have:

• A UK resident family (spouse, civil partner, common law spouse or children under 18)
• Available accommodation – which may be a fulltime home, or in some cases even a home owned by a close family member which is used regularly can count
• Substantive UK employment/self-employment – broadly 40 working days the UK in the year
• Having spent 90 or more days in the UK in any of the previous two tax years
• Spending as many or more days in the UK as any other country

Most people retain the 90-day tie in the first two years following departure, so that only leaves one more tie you can have if you want to aim for 90 days here, which can be a challenge.

For example, if you decide to keep your UK home available, then that will mean that you have to ensure that your family travel with you when you leave the UK, and you restrict your working days to 39 or fewer, and find a country that you want to spend more time in that the UK (i.e. you cannot travel nomadically and not pick up another tie).

If you have children that remain in the UK to finish their education, that can cause a tie, although there are specific rules that apply when the child is, for example, at boarding school here. However, you could find that you would have three ties, not just two if your family stay here, and you still have a home here.

For many, juggling family circumstances can make it very difficult to limit their ties to just two, and if breached, spending 90 days in the UK would make you tax resident in that year.

What can you do if you have more than two ties and still want to be non-resident?

The obvious answer is that you will need to restrict your day count.  With three ties, you would need to spend no more than 45 days here. With four ties, then you are limited to just 15 days.

However, the good news is that over time, the 90-day tie may fall away if you have been spending less time here, so from year three you may lose a tie.  This gives you the option to increase your day count, or potentially increase how often you work here, for example. But, if you do have just one tie and decide to spend more than 90 days here, this would reinstate the 90-day tie in the following two years, so careful planning is required.

From Year Four, the rules change again because you are treated as an “Arriver”, and you can actually have three ties and still spend up to 90 days here without becoming resident.

The test shifts depending on how long you have been away and your circumstances, so it is important to revisit it each tax year to understand what you may be able to do, which may depend on what you have done in a previous year.

What happens if you inadvertently become resident again?

If you have been living in the UK for at least four of the seven years prior to leaving, a return to the UK within five years will trigger certain anti-avoidance rules, and you will be treated as Temporary Non-Resident.

When that happens, certain income and gains will come back into charge in your year of return and UK tax will become payable, so it is important to ensure that before coming back, you have thought carefully about the implications of that, which could be expensive if you have, for example, sold your UK business whilst overseas, or taken significant dividends.

HMRC understand that things happen, and there are times when under “exceptional circumstances” a day here will not  be counted, but the circumstances are very limited, and either involve you not being able to leave because you have been taken ill or the boarders are closed. Returning to the UK to have treatment or to look after a sick relative are not considered to be exceptional.

The key is, do not rely on the 90-day rule without taking proper advice, and consider not only what you need to do in the year you leave, but what it will mean for the years that follow.

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