12th April 2022Tax Implications of the Covid Pandemic

While international travel has now started to open up, the various travel restrictions put in place during the COVID pandemic mean that some individuals found themselves stranded either in or outside the UK. This has a number of potential implications for tax.

In this article, we outline the importance of UK residence for tax purposes – what this means for income tax, property and trusts.

The importance of UK residence for tax purposes

• UK tax residents are taxed with regard to their worldwide income and gains unless the remittance basis is available and successfully claimed.
• It can have a detrimental effect on an individual’s domicile status which impacts an individual’s inheritance tax status but also the availability of the remittance basis.
• An individual may become of deemed UK domicile earlier than anticipated.
• If a UK property is sold by a UK resident individual, the whole gain is taxable (unless Principal Private Residence Relief is due). If a UK property is sold by a non-resident individual the taxable element of the gain is restricted so the tax exposure is greater in a year of UK tax residence.
• If a Trustee is treated as being UK tax resident, that can affect the residence status and hence the tax position of the trust.
• If an individual had left the UK intending to remain outside the UK for at least 5 years, being inadvertently UK tax resident in a year may trigger the “temporary non-residence” rules for capital gains tax purposes.
• There may be implications for the Statutory Residence Test.

Statutory Residence Test (SRT)

The SRT looks at a combination of days spent in the UK in a particular tax year and the number of “ties” to the UK an individual has (accommodation, family, working days etc) in order to determine the maximum number of days that individual can spend in the UK without triggering UK residence.   Finding oneself inadvertently present in the UK might mean that the maximum number of days is exceeded, or it could turn an “arrive” into a “leaver” when applying the “sufficient ties” test.

In some cases, a day can be considered as “exceptional” and therefore disregarded from the day count and HMRC did issue some guidance as to when days spent in the UK due to COVID can be considered “exceptional” for these purposes. These include situations where an individual:

• Is unable to travel due to closure of UK or international borders
• Follows UK Government guidance and does not travel from the UK
• Is self-isolating in line with Government advice
• Is in the UK to support a family member who is self-isolating or shielding

In all cases, the individual must show that their presence in the UK is beyond their control and that they have made every effort to leave the UK once restrictions permit.

The sting in the tail

While the guidance is welcome, the sting in the tail is that, with the exception of some care, health and scientific professionals,  the limit for “exceptional circumstances” remains capped at 60 days irrespective of the number of days which were spent in the UK that were completely outside the control of the taxpayer!

For more information or if you would like to discuss your specific circumstances, please get in touch.