Beware of the Tax Residency Trap! Risk of becoming a tax resident because of Coronavirus

Insights 19.03.2020 Author: Michaela Lamb

These are very difficult times, and the last thing any of us wants to think of right now is how various governments' decisions will affect our tax position.

However, it is possible that as a result of the travel restrictions implemented by various governments around the globe in response to the Coronavirus outbreak, or simply because you need to be somewhere to look after your business or a loved one, you may find yourself spending longer in a particular country that you had expected. As most countries determine tax residence with reference to the number of days that you are physically present, there is a real risk that you may find yourself being found tax resident in a country under their domestic legislation.

In the UK, whether you are tax resident is determined by the Statutory Residence Test (SRT). Our guide on how this operates can be found here.

The SRT works by first considering whether you are automatically not tax resident in the UK. If you fail to meet one of these three tests, you can be found to be tax resident in the UK if you either meet one of the automatic resident tests or, if you do not, your combinations of days spent in the UK and the number of ties you have, determine you to be resident in the UK.

Depending on your circumstances, it is possible for you to be found to be tax resident in the UK if you spend as little as 16 days.

If you become UK tax resident, you could be liable to UK taxes on your worldwide income and gains during that tax year.

Exceptional Circumstances

While the SRT was designed to provide certainty, even HMRC realises that best made plans can be disrupted for reasons beyond your control, and so there are provisions which may allow you to spend as many as an extra 60 days in the UK where the circumstances are deemed to be ‘exceptional’.

Usually, this would cover sudden or life-threatening illness, during which time you are unable to leave the UK, or a national or local emergency, such as the outbreak of war.

HMRC have now provided their guidance in respect of whether having to spend additional days in the UK because of Coronavirus will count as exceptional, stating:

Whether days spent in the UK can be disregarded due to exceptional circumstances will always depend on the facts and circumstances of each individual case.

However, if you:

  • are quarantined or advised by a health professional or public health guidance to self-isolate in the UK as a result of the virus
  • find yourself advised by official Government advice not to travel from the UK as a result of the virus
  • are unable to leave the UK as a result of the closure of international borders, or
  • are asked by your employer to return to the UK temporarily as a result of the virus

the circumstances are considered as exceptional.

How can we help?

If you believe that you may have to spend longer in the UK than planned because of the Coronavirus, or for any other reason, there may be steps you can take to limit your exposure to UK taxes, even if your circumstances are not deemed to be exceptional.  Please give one of our tax team a call to discuss you circumstances so that we can provide further advice about your options and the potential tax consequences.