International travel restrictions likely to impact tax residency

Alex Foster, partner at RSM tax and consulting firm comments on latest travel restrictions with the unexpected announcement that UAE would lockdown all airports this morning:

‘More British passengers will likely be stranded with the latest close-down on flights in the UAE, a major hub for travel to and from Asia. These further 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 to determine whether an individual is a 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 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).

‘What are the options for those currently unable to leave the UK and who may then exceed the thresholds for UK tax residence? There is the possibility of a claim for ‘exceptional circumstances.’

‘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 COVID-19. HMRC has confirmed that circumstances will be considered as ‘exceptional’ if the individual:

  • is quarantined or advised 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 questions unanswered such as what if you cannot or do not want to return to your usual residence because of the extent of the virus outbreak there, or you could in theory travel out of the UK to a number of other countries, would this 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.’

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