Personal tax residence
How has tax residence in the UK been impacted by COVID-19?
UK tax residence
An individual’s personal residence position for UK tax purposes in a given tax year is generally determined by a combination of the number of days they spend in the UK and their links with the UK.
A key tax risk area that individuals are facing due to the current global COVID-19 pandemic is that international travel has been heavily restricted and individuals could end up spending longer in the UK than they had anticipated. Visitors are therefore at risk of becoming unexpectedly UK tax resident, and hence taxable in the UK, through no fault of their own and without having made appropriate plans ahead of time.
There are a number of areas of difficulty that individuals currently in lockdown in the UK are facing when determining their residence position and we highlight the key considerations here.
Remember that where a person spends 183 or more days in the UK in a tax year they will always be a UK tax resident, but if an individual has other significant ties to the UK (e.g. family, accommodation, work), they can also be resident whilst spending considerably less time in the UK.
“Exceptional circumstances” and new guidance on COVID-19
The UK Statutory Residence Test allows for up to 60 days spent in the UK to be ignored when counting days of presence in the UK in a tax year, provided that the reasons for remaining in the UK are treated as ‘exceptional’. Whether the reasons can be considered as exceptional are treated on a case-by-case basis, taking into account all the facts and the choices available to the individual.
Historically, HMRC’s view is that circumstances only count as exceptional where the ability to leave the UK is no longer in the individual’s control, such as where there has been a serious accident or illness in which the individual is hospitalised. Where an individual has the ability to leave the UK, to wherever in the world that may be, HMRC have been reluctant to grant approval for exceptional circumstances in the past.
In light of the current global situation, HMRC has published additional guidance for those whose number of UK days has been impacted by COVID-19.
The new guidance does not replace the existing guidance and the individual’s circumstances are still assessed on a case-by-case basis. There are, however, circumstances specific to the COVID-19 pandemic that HMRC will consider as exceptional. These circumstances are where:
- the 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
- the individual has been advised by official government advice not to travel from the UK as a result of the virus
- the individual is unable to leave the UK as a result of the closure of international borders, or
- the individual has been asked by their employer to return to the UK temporarily as a result of the virus.
Whilst these clarifications from HMRC are welcome, they do not cover a number of scenarios that individuals are currently facing. Specific details in each case are likely to be important, and a number of factors will need to be considered, such as:
- why was the trip made to the UK?
- were return flights purchased when initially travelling to the UK?
- what was the travel advice from the Government in the individual’s home country at the time of travel to the UK?
- what was the UK Government's advice on measures to counter the outbreak of Covid-19 on the date of the journey to the UK?
It is hoped that HMRC will issue further guidance in this area to help give further clarity and comfort for individuals.
Full time work overseas
Certain individuals are automatically considered as non-UK residents when they satisfy the conditions for ‘full-time work overseas’. To meet the conditions, the individual needs to work an average of 35 hours per week overseas across the entire tax year with no ‘significant breaks’ from employment (defined as 31 or more days). They also need to spend no more than 30 days working in the UK and fewer than 91 days in the UK overall in the given tax year. A workday for these purposes is any day on which an individual works for more than three hours.
Due to the travel restrictions, individuals who were in the UK at the point that lockdown measures were introduced by the UK Government face the distinct possibility that they will exceed the allowable 30 working days in the UK or find that they will have a ‘significant break’ from overseas work. This is because they are not able to undertake a day of non-UK work in a 31-day period.
Unfortunately, the ‘exceptional circumstances’ rules noted above do not apply to the UK working days criteria. This could leave individuals in a situation where they can no longer meet the conditions to be treated as working full-time overseas, with the result that affected individuals could become UK resident.
It may be possible for individuals to remain non-UK resident if they can satisfy the conditions laid out by the ‘sufficient ties test’, but that will depend on each individual’s specific circumstances.
One of the ‘ties’ under the sufficient ties test asks whether an individual has a family member (broadly, spouse, partner or minor child) resident in the UK. Importantly, UK resident children can be disregarded for these purposes if they are in the UK only for the purposes of full-time education and do not spend significant time in the UK outside term-time, as laid down in the Statutory Residence Test legislation. This is typically relevant to parents who choose international schooling for their children and who periodically visit the UK themselves. The question arises, in the current environment, as to whether UK-based children will be still able to satisfy the full-time education tests due to the UK-wide closures of schools and a move to remote schooling. In addition, the introduction of travel restrictions may have impacted children’s ability to limit their UK days’ presence outside of core term times, particularly over the Easter holidays. Again, this is an area in which we hope HMRC will issue further guidance.
There are also other issues connected with individuals’ continued presence in the UK, some of which are connected to their personal tax position and some of which have broader implications. A selection of these issues are:
- personal tax position under double tax treaties for individuals who become UK resident as well as being resident in another jurisdiction, and the impact on any relevant “tie-breaker” tests;
- potential PAYE/social security issues for employers if an individual has to work in the UK for longer than anticipated;
- corporate residence considerations for non-UK resident companies where directors are unable to leave the UK (an area on which HMRC have given some guidance);
- trustee residence considerations where trustees of non-UK resident trusts are unable to leave the UK;
- potential visa issues for individuals still in the UK, or who have not yet travelled to the UK but who have been granted visas that may now expire before they are able to do so.
How can PwC help?
We have a wealth of experience in dealing with personal tax residence matters and can advise individuals on their specific circumstances, taking into account all relevant factors.
In addition, we have a range of experts within PwC dealing with other tax and legal issues that may be impacted by individuals being locked down in the UK.
Please do get in touch with your normal PwC contact if you have any issues connected with your personal position that you would like to discuss, or discuss with our PwC experts below: