How might the global lockdown affect UK tax residency?

Door with key; how will coronavirus lockdown affect UK tax residence?

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Expatriates in the UK through coronavirus lockdown may trigger UK tax residence, but HMRC’s ‘exceptional circumstances’ can prevent a UK tax bill.

Expatriates stuck in the UK due to the current health pandemic may unintentionally trigger UK tax residence – but HMRC’s ‘exceptional circumstances’ rule can prevent an unexpected UK tax bill. 

With the introduction of quarantine measures and travel restrictions across the world, the ability to move freely between countries has been greatly reduced. While some people have been able to choose where they self-isolate, others have been forced to stay wherever they were at the time restrictions took effect. 

For some expatriates, this means battening down the hatches in their adopted country, voluntarily or otherwise. Others may have decided to return to the UK to ride out the storm close to their family, or got stuck there accidentally when the rules changed. 

While tax may not be your priority during these unprecedented times, it does need consideration. If you are spending unexpected time in the UK, this could have significant implications for your residence status and potentially invite an unexpected tax bill. 

The UK Statutory Residence Test

Expatriates forced to stay in the UK as a result of the current global health emergency may find their UK tax residence position is compromised under the Statutory Residence Test (SRT).

The SRT is made up of a series of three tests: the automatic overseas tests, the automatic residence tests, and the sufficient ties tests. These determine whether an individual is either resident or non-resident in the UK for tax purposes during a tax year (6 April to the following 5 April).

The SRT considers various factors but there is a strong focus on day counting. Broadly, if you are present in the UK at midnight on a particular day, that constitutes a day of residence. 

Depending on circumstances and ties, the number of days you can spend in the UK before becoming resident for tax purposes can vary widely from as little as 16 days to 183 days. Spending 183 days or more there in a particular tax year will therefore make you UK resident – and subject to UK taxes on worldwide income and gains.

See more about the UK residence rules

UK expatriates who have become non-UK tax resident may be used to limiting the number of days spent in the UK each year to avoid confusing their residence status. 

However, these careful plans risk being disrupted by the unforeseen public health lockdown. If this affects you, you could unexpectedly come into range for full UK taxation. 

Exceptional circumstances under the Statutory Residence Test

Those affected by illness, self-isolation or travel restrictions may be able to benefit from relief in the form of the ‘exceptional circumstances’ rule in the SRT.

The term ‘exceptional circumstances’ is defined in the Finance Act 2013 as including “national or local emergencies such as war, civil unrest or natural disasters” and “a sudden or life-threatening illness or injury”. So, if a person has no choice but to remain in the UK, it may be possible to ignore days spent in the UK which are beyond the individual’s control. 

Under current rules, the maximum number of days that may count as exceptional circumstances in any tax year is 60 days per taxpayer.

Does the COVID-19 pandemic constitute exceptional circumstances?

On 19 March, Her Majesty’s Revenue and Customs (HMRC) specified four circumstances which would be considered ‘exceptional’ for the purposes of obtaining the relief here. The circumstances can be treated as exceptional if you are:

  1. Quarantined or advised by a health professional or public health guidance to self-isolate in the UK as a result of the virus; or
  2. Advised by official government advice not to travel from the UK as a result of the virus; or
  3. Unable to leave the UK as a result of the closure of international borders; or
  4. Asked by your employer to return to the UK temporarily as a result of the virus. 

HMRC has made it clear that decisions will be made on a case-by-case basis, depending on the facts and circumstances. It has indicated that they will look sympathetically at any individual cases where the virus has caused specific issues of difficulties.

While this guidance is welcome, it does not yet address all the scenarios that may arise in these unusual times, so could leave many people still feeling uncertain. HMRC has admitted that their guidance “may change at short notice as situations change” so we expect that additional, more detailed guidance will follow in due course.

At this stage, you will likely have much more immediate concerns than your tax position. But when you are ready to focus on other issues, taking specialist, personalised advice can help establish where you stand and adapt accordingly in these rapidly changing, highly challenging times.

Contact a locally-based adviser

Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; individuals should seek personalised advice.

Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; individuals should seek personalised advice.