The current restrictions on international travel could mean that people inadvertently fall foul of residency rules for tax and find themselves in the UK tax net.
In the UK, the statutory residence test which determines whether an individual is UK tax resident is largely dependent on days spent in or outside the UK.
If a person ends up spending either more days or fewer days in the UK than they intended, this could have a major impact on how they are taxed both here and abroad. They could either be treated as resident (if they are required to stay in the UK) or not resident (if they are not able to return).
For those currently unable to leave the UK and who may then exceed the thresholds for UK tax residence, what should they do? There is the possibility of a claim for ‘exceptional circumstances’ where an individual can disregard certain days spent in the UK (up to 60 days) for most aspects of the statutory residence test.
Extended stay in the UK for reasons connected with the coronavirus would seem to be exceptional, but the previous guidance is very broad and offered little indication as to whether a claim would be successful.
We welcome the fact that in the UK, HMRC has been quick to react to this uncertainty and on 19 March 2020, issued guidance on tax residence and coronavirus. HMRC has confirmed that circumstances will be considered as ‘exceptional’ if the individual:
- is quarantined or advised by a health professional or public health guidance to self-isolate in the UK as a result of the virus, or
- finds themselves advised by official government advice not to travel from the UK as a result of the virus, or
- is unable to leave the UK as a result of the closure of international borders, or
- is asked by their employer to return to the UK temporarily as a result of the virus.
This guidance is of course welcome and will provide comfort to some. However, it leaves some questions unanswered, for example:
- What if you cannot (or do not want to) return to the country of your usual residence because of the extent of the virus outbreak there?
- What if you could in theory travel out of the UK to a number of other countries? Does the absence of a reference to all international borders mean that this would still qualify?
We would hope that a sensible interpretation of the individual’s circumstances will prevail in these unprecedented times and HMRC has already indicated that it will look sympathetically on relevant claims.
Trustees should also be particularly vigilant if they have beneficiaries who are usually resident overseas but are now spending time in the UK. If those beneficiaries have become UK tax resident and then receive distributions, they could receive unexpected tax demands.
We recommend that those affected keep records including travel and hotel tickets, doctor prescriptions/appointment details, a diary of their intentions, actual movements and relevant Government announcements and any other information relevant to their position.