For most of us, lockdown and restrictions on travel are just boring – and we look forward to the time when we will all be jabbed and allowed to move more freely.
However, for a few not being able to travel, working from home, furlough or being made to quarantine for anything up to 21 days – could be phenomenally expensive.
In the UK, like the US and many other countries being a resident for tax purposes is all about counting the days where you spend your time and work.
With working from home, furlough, covid 19 illness of yourself and loved ones, quarantine and restriction on travel –has just got a whole lot worse.
A UK resident pays tax on his or her world-wide income, unless they are domiciled abroad, which I won’t go into now.
The UK tax-year runs from 6th April to 5th April, whereas in the US it is the calendar year.
Whether you are UK resident usually depends on how many days you spend in the UK during the tax year.
If you spend 183 days or more in the UK in the tax year you will be automatically considered by HMRC as tax resident in the UK for income tax purposes.
However before going any further I need to say that days spent in the UK are not included as days spent in the UK if those days spent in the UK were beyond your control – but personally I would prefer not to have to argue the case with HMRC, IRS or any other tax jurisdiction!
So these are the rules – hold tight!
You will also be considered UK tax resident if your only home was in the UK – and you rented it or lived in it for at least 91 days in total – and you spent at least 30 days there in the tax year.
It gets trickier – HMRC will automatically treat you as non-UK tax resident if either you spent 16 days in the UK (or 46 if you have not been UK resident for the past 3 tax years) or you work full time abroad (averaging at least 35 days a week) and spent fewer than 91 days in the UK, of which no more than 30 were spent working.
It does not stop there
You will also be treated as non-UK tax resident if you were resident in the UK for none of the previous 3 tax years before the year in question and spend fewer than 46 days in the UK in the current tax year.
This includes people who normally live abroad, but have had to come to the UK in this current year, and quarantine has taken them over the 46 days, they then face the uphill task of convincing HMRC that they remained non – UK tax resident
The third situation in which a person will be treated as non-UK resident is if that person is in full time work over the tax year and spent fewer than 91 days in the UK in the tax year, the number of days on which you work for more than 3 hours in the UK is less than 31 – and there is no significant break from your overseas work – - try working this out when most people are working from home and others are on furlough!
Then there are others for whom UK tax residence is a status they want to have maybe without being a UK resident they will not qualify under a double tax treaty tie breaker.
These are the rules which if satisfied you are automatically treated as UK tax resident
These are
· If you are in the UK for 183 days
· You have a home in the UK and spend a period of 91 consecutive days in the UK, and at least 30 of those days fall in the tax year in question and you have been present in that home for at least 30 days at any time during the year, and you did not have a home abroad.
· You work full-time in the UK for any period of 365 days and more than 75% of the total number of days in the 365 day period when you do more than 3 hours work are days when you do more than 3 hours work in the UK, and at least one day has to be both in the 365 day period and a day when you spend more than 3 hours work in the UK!
So, what is the situation if you are not automatically UK tax resident or non – UK tax resident?
If you thought that the above rules were tricky – it is now going to get much tougher!
If you were not UK resident in the past three years whether you are UK resident or not will depend on how many connecting factors you have with the UK
· A family tie
· An accommodation tie
· A work tie and/or
· A 90 day tie
And if you were resident in the UK in one or more of the 3 tax years before the one you are considering you will also have to check whether you have a country tie as well.
The more ties you have the fewer days you can spend in the UK before you become UK resident.
For capital gains the same rules apply, but non-UK residents only pay capital gains tax on UK property or land, or if they return to the UK.
Add to this mix quarantine, travel restrictions, cross border issues, furlough, home working and covid 19 illness not only for you but loved ones – and the cost – not only in tax, but in getting to the right decision is monumentally expensive!!!
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