COVID-19 and the global response to it by governments have meant that some previously internationally mobile individuals are now unable to move freely between countries, with many now ‘trapped’ in the UK, or spending longer in the UK than they intended in order to be close to family members.
For individuals who carefully plan their days in the UK to ensure they can retain their non-UK resident status, the restrictions on travel could give rise to unintended UK tax consequences. This may be unavoidable, but the proximity to the end of the tax year on 5 April will be extremely unhelpful in some cases.
In this article I have outlined some of the key implications for those that find themselves in this position. I also review the new guidance available from HMRC and will continue to stay close to this topic. The article will be updated as new information becomes available, so please subscribe using the links above.
The impact of COVID-19 on your residence status
The UK has a statutory residence test which determines whether an individual is resident in the UK in a particular tax year. Unless certain automatic tests are met, broadly an individual needs to look at the numbers of days they spend in the UK, and the number of ties they have to the UK, to ascertain their residence status.
There are various reasons why an individual’s residence status is important, including:
- If an individual becomes UK resident, their worldwide income and gains are taxable in the UK, unless they are non-UK domiciled and can claim the remittance basis to shield their offshore income and gains from UK tax
- Individuals may be tempted to bring ‘offshore’ funds to the UK to take advantage of the weak value of sterling or depressed asset values and may inadvertently trigger a liability to UK tax
- The availability of the remittance basis and associated annual charges which can arise – £30,000 after 7 years of continuous residence and £60,000 after 12 years residence
- The “deemed domicile rules” whereby an individual becomes domiciled for all tax purposes (including inheritance tax) after 15 years of continuous residence
- The taxation of income or gains which may have arisen in previous years when the individual was non-UK resident under the temporary non-resident rules
- For an individual who is non-UK resident, their day count may affect how many days they can spend in the UK in subsequent tax years.
HMRC guidance on COVID-19 and exceptional circumstances
Under the statutory residence test, there is a relief which can be applied to exclude any day from an individual’s UK day-count that is incurred as a result of ‘exceptional circumstances beyond the control of the individual which prevents them from leaving the UK.’ The number of ‘exceptional’ days is limited to 60 days in the tax year.
On 19 March 2020, HMRC released a statement confirming that the circumstances are considered as exceptional if you
- are quarantined or advised by a health professional or public health guidance to self-isolate in the UK as a result of the virus,
- find yourself advised by official Government advice not to travel from the UK as a result of the virus,
- are unable to leave the UK as a result of the closure of international borders, or,
- are asked by your employer to return to the UK temporarily as a result of the virus.
Clearly the guidance is welcome, however there are still a number of practical issues which could arise:
- The current crisis will span two tax years (2019/20 and 2020/2021) and so individuals will need to consider their residence status and the specific government guidance for both tax years
- How HMRC’s guidance is applied in the context of the current ‘lockdown’ – it is hoped further guidance will follow, particularly if the 60 day limit appears to be insufficient
- For individuals working remotely in the UK for an overseas employer, their presence here may trigger PAYE/income tax issues for the employer
- Directors of non-UK companies may inadvertently cause a non-UK company to become UK tax resident, if it can be considered that central management and control of that company is being carried out in the UK
- Taxable remittances may occur if individuals who usually rely on UK income to fund their lifestyle in the UK start to use offshore funds instead.
At this stage, we recommend individuals who may be affected should:
- Ascertain their day count to date for the current tax year (broadly the number of midnights spent in the UK from 6 April 2019 to date)
- Consider how they may deal with the situation practically if these exceptional circumstances are likely to last beyond 60 days (this is more likely to be an issue for the 2020/21 tax year which starts on 5 April 2020)
- If it is likely the individual will become UK resident in the next tax year, it may still be possible to carry out certain pre-immigration planning now.
The situation is complex, and currently we have no point of reference as to how these issues might play out. If you’re affected by any of these issues, Price Bailey can support you with practical advice on the number of days individuals can spend in the UK based on their specific circumstances to ensure that unwanted tax liabilities do not arise.
If you need more information on the wider implications of the COVID-19 pandemic and how it might impact your business operations please read our summary article.
This post was written by Chris Williamson, a Tax Partner at Price Bailey. If you have any questions regarding where you stand with regards to this, or you would like some further support or advice, you can contact Chris on the form below.
We always recommend that you seek advice from a suitably qualified adviser before taking any action. The information in this article only serves as a guide and no responsibility for loss occasioned by any person acting or refraining from action as a result of this material can be accepted by the authors or the firm.