Not a holiday home?

20 November 2020

With only around two months to go until the end of the EU withdrawal transition period, pressure is mounting on both sides to reach a deal on how the relationship between the UK and the EU will operate from 1 January 2021, but a no deal scenario remains a real possibility.

Tax and travel to the EU

While the main focus is on trade relations, there are tens of thousands of UK residents who own holiday homes in the EU and who are wondering how they will be affected. Current government guidance notes that after 1 January 2021, tourists will not need a visa for short trips to most EU countries - broadly those within the current Schengen free travel zone. Stays within the zone of up to 90 days in any 180-day period will not require a visa, with additional visits to other EU countries not in the zone also possible.

Visa requirements are one thing and relatively easy to understand, but for those wanting to spend more time in foreign climes, tax residency can be easy to overlook. Many of the popular European holiday destinations operate tax residency based on time spent in the country exceeding 183 days in their calendar tax year. With the UK tax year operating from 6 April to the following 5 April, keeping track of days in the relevant tax year is essential.

And should you find yourself being treated as tax resident in another country, or even spending less than 183 days in the UK, that doesn’t mean you will automatically cease to be UK tax resident. Retaining a UK home and strong connections could result in dual tax residency. Reference to the relevant UK double tax agreement will be needed to sort out which jurisdictions have which taxing rights over income and gains, and returns will need to be filed in both jurisdictions.

Scottish taxpayers

For those considering Scottish taxpayer status, the first qualification is that to be treated as a Scottish taxpayer, you must be UK tax resident. Therefore, any Scottish taxpayer who becomes dual resident in a foreign country, if they remain a UK tax resident Scottish taxpayer under UK law, will still be treated as a Scottish taxpayer.

Remote working abroad

Even if you don’t become resident abroad, if the Covid induced boom in remote working is providing an opportunity for you to spend time working from a second home abroad, there can also be implications for your employer. It is possible that by working in another country you can create a taxable presence there for your employer with all the reporting requirements, tax liabilities and potential VAT registration that brings. The same is also true if you are self-employed, either alone or in partnership.

So, when you are considering spending your working from home time in a holiday cottage in France (and if you can, why wouldn’t you), some tax advice may be worthwhile.

For more information please get in touch with Shirley McIntosh.