Since the introduction of the Statutory Residence Test (SRT) in 2013, many well advised individuals have been able to spend time in the UK without becoming or resuming their UK residence, thereby mitigating their UK taxation. However, in order to do this, they have had to carefully manage the time spent in the UK and their ties to the UK. This is familiar planning for many individuals who may have sold their business and no longer have many ties to the UK, or for those who, thanks to technology, can work anywhere. This is all well and good when people can travel freely, but what happens when lockdown has cancelled all your foreseeable travel plans?
The result could be unavoidable UK tax residence and a significant tax liability. HMRC allow a “safe harbour” of up to 60 days per tax year where an individual is unable to leave the UK due to “exceptional circumstances”. These days are not counted for the purposes of the SRT. HMRC have historically take a very narrow approach to defining exceptional circumstances, even when clients were unable to leave the UK due to medical treatment. It is therefore positive news that HMRC has released updated guidance in this regard. The following will now be treated as exceptional circumstances for the purposes of the SRT in light of the coronavirus pandemic:
- Where an 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.
- Where an individual is advised by official Government advice not to travel from the UK as a result of the virus
- Where is individual is unable to leave the UK as a result of the closure of international borders, or
- Where an individual is asked by their employer to return to the UK temporarily as a result of the virus.
Whilst this additional guidance is welcome, the 60 days limit has not been extended. Although we are all eager to see the return of full international travel, this may not happen in the short term. As a result we anticipate that many people will find their UK tax position adversely affected, if HMRC does not decide to extend this limit. For individuals not domiciled in the UK and who have not been resident here previously, there will be straightforward steps that can be taken to mitigate their tax exposure. However, a number of people who rely on the SRT to limit their UK tax are successful entrepreneurs who originate from the UK, who could easily find their worldwide income and gains subject to UK tax once more. There are other potential consequences to an extended stay in the UK, including directors of non-UK companies bringing such companies into the scope of UK corporation tax, due to their extended stay in the UK.
We recommend that anyone who has international tax considerations and finds themselves being obliged to remain in the UK longer than expected, seek up to date advice on their UK tax position as soon as possible.