How the Covid-19 pandemic may affect an individual’s tax position in the UK

Posted: 25/03/2020

How might Covid-19 affect my tax residence position in the UK?

Tax residence in the UK is determined under the Statutory Residence Test (the SRT) and is, in large part, based on the number of days an individual spends in the UK in a tax year (which runs from 6 April each year to the following 5 April). An individual is considered to have spent a day in the UK if they are in the UK at midnight.

However, some parts of the SRT allow an individual to ignore certain days they have spent in the UK. These include days spent in the UK due to exceptional circumstances beyond an individual's control that prevent them from leaving the UK, provided that the individual intends to leave the UK as soon as those circumstances permit.

This provision is subject to a limit of 60 days. Days spent in the UK in excess of the 60-day limit count as a day of presence for the purposes of the SRT.

Long-standing examples of exceptional circumstances include national or local emergencies such as war, civil unrest, natural disasters or a sudden or life-threatening illness or injury. To date, the use of this in practice has been rare.

HMRC has now updated its guidance in light of the Covid-19 pandemic to make it clear that it would consider the following to be exceptional circumstances:

• 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.
• You find yourself advised by official government advice not to travel from the UK as a result of the virus.
• You are unable to leave the UK as a result of the closure of international borders.
• You are asked by your employer to return to the UK temporarily as a result of the virus.

It is advisable for individuals whose residence status may be affected to keep a detailed record of days (midnights) spent in the UK and the dates on which the above circumstances started and ceased to apply to them. It may also prove necessary to have evidence of how these restrictions applied to them and of their intentions to leave the UK as soon as they are able to do so. If an individual does leave as soon as they are able, this will be taken as evidence that they did always intend to leave.

Given current restrictions on travel, individuals may find themselves exceeding the 60-day limit on days that can count as exceptional. It is possible that this limit will need to be relaxed if the situation continues for an extended period. HMRC may issue further guidance as the situation develops.           

I need to stay in the UK to look after a relative who has Covid-19. Will those days count as days of presence for the purposes of the SRT?

There may be circumstances where an individual, who is not themselves afflicted with Covid-19, needs to stay in the UK to look after a relative with Covid-19 or has to travel to the UK to look after them. The new guidance from HMRC detailed above does not directly deal with such a situation.

However, HMRC’s usual guidance on exceptional circumstances states that there may be limited circumstances where an individual’s days in the UK will be ignored if that person needs to stay in or come to the UK to deal with a sudden or life-threatening illness or injury to a spouse, civil partner, a person they are living with as a spouse or civil partner, or a dependent child. This is again subject to the 60-day limit.

The guidance provides an example of a father who normally lives in Germany but has to come to the UK to see his daughter who is in hospital in the UK. He arranges for her to be transferred to a hospital in Germany and they both return to Germany. In such a case, the days he spends in the UK would be discounted as days were spent in the UK due to exceptional circumstances. The example also states that, if the father had not elected to transfer his daughter to a hospital in Germany and if he were to remain in the UK while his daughter recovers in hospital in the UK, the time spent in the UK would not be considered as due to exceptional circumstances and would count towards his presence in the UK for tax purposes.

In the current situation, it is likely to be impossible to arrange for a patient with Covid-19 to be transferred to a hospital in their home country and so we would hope that HMRC would consider these cases sympathetically and in the context of the unprecedented global restrictions on travel. It is hoped that HMRC will provide further guidance in due course.

My spouse is forced to remain in the UK, how will this affect my tax residence when I come to the UK?

If an individual’s spouse becomes UK resident (notwithstanding the days that can be ignored due to exceptional circumstances), this could affect the individual’s tax residence position if they spend any time in the UK. This is because having a UK resident spouse is considered ‘a tie’ to the UK for the purposes of ‘the sufficient ties test’ within the SRT. This will affect the number of days an individual can spend in the UK while still remaining non-UK resident.

Will I be deemed domiciled in the UK if I cannot leave the UK?

An individual will be deemed domiciled in the UK if they have been UK resident for 15 out of the previous 20 tax years. An individual may therefore be watching their day count in the UK carefully to ensure they are non-UK resident, particularly if they are approaching 15 years’ residence. If that individual is unable to leave the UK due to Covid-19, the additional days spent in the UK may make them UK resident. However, as outlined above, up to 60 days may be ignored if the individual cannot leave the UK due to the outbreak.

An individual who acquires an additional year of residence (notwithstanding the days that can be ignored due to exceptional circumstances) may wish to consider accelerating any planning in advance of becoming deemed domiciled, such as putting in place tax-efficient wills, gifting of non-UK assets and creating excluded property trusts. It is advisable to seek detailed advice, particularly in relation to the capital gains tax and inheritance tax implications of such planning.

Will my domicile be affected if I cannot go home or leave the UK as planned?

An individual who has a domicile outside the UK would acquire a domicile of choice in the UK if they reside in the UK, and they intend to remain in the UK, permanently or indefinitely. For an individual who is in the UK and cannot leave because of Covid-19 restrictions, it is unlikely they would have the necessary intention to stay in the UK permanently or indefinitely. However, domicile is ultimately a question of fact, so an individual who is at first forced to remain in the UK and lacks the necessary intention but later changes his mind and decides to make the UK his home, could acquire a domicile of choice in the UK. The question above applies in relation to the question of deemed domicile.

What do I do if I cannot pay my tax bill?

For the self-employed, income tax self-assessment payments due on 31 July 2020 will be deferred until 31 January 2021. This is an automatic offer from HMRC with no application required. No penalties or interest for late payment will be charged in the deferral period.

HMRC has set up a phone helpline to support businesses and self-employed people who are concerned about not being able to pay their taxes as a result of the impact of the Covid-19 pandemic on their business.

For those who are unable to pay, HMRC says that it will discuss specific circumstances to explore:

• agreeing an instalment arrangement;
• suspending debt collection proceedings; and
• cancelling penalties and interest where an individual has administrative difficulties contacting or paying HMRC immediately.

There are further significant reliefs and assistance which have been announced by the government and which apply, for example, to businesses in relation to VAT and business rates.

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