COVID-19 and tax residence

Since the start of the COVID-19 outbreak, many countries advise against non-essential travel in and out of their international borders and recommend anyone showing symptoms of the virus to self-isolate. This may result in certain individuals ‘over-staying’ in the UK beyond their intended stay and at risk of becoming tax resident in the UK for this tax year. 

What does it mean to become a tax resident in the UK?

Broadly, if you are a resident in the UK for tax purposes, you are liable to pay tax in the UK on your worldwide income and gains. In contrast, non-residents are subject to UK tax on UK source income only along with gains arising from disposals of UK property or land only. 

Tax residency is different from the concept of residency for immigration purposes and the Statutory Residence Test (SRT) is the key test used to determine the tax residence status of individuals who have connections to the UK.

What is the SRT?

Broadly speaking, you will normally be treated as a UK tax resident in any tax year if you are physically present at midnight in the UK for 183 or more days in that tax year. However, the ‘183 days’ rule is not a conclusive test to determine your tax residence status and, depending on individual circumstances, you can stay as little as 16 days to find yourself becoming tax resident in the UK. This is because the SRT consists of the following three tests: 

• Automatically non-UK resident test
• Automatically UK resident test
• Sufficient ties test

Automatically non-resident

You are considered ‘automatically non-resident’ if:

• you spent fewer than 16 days in the UK during the tax year;
• you have not been UK resident for the previous 3 tax years and spent fewer than 46 days in the UK during the tax year; or
• you have left the UK for full-time work abroad. 

Automatically UK resident

You will be an automatically UK tax resident for a tax year if:

• you spent 183 or more days in the UK during the tax year;
• your only home was in the UK; or
• you work full-time in the UK for a continuous 12-month period with no significant break during this time

Sufficient ties test

If you do not meet any of the automatic tests, you need to consider a series of further tests known as the ‘sufficient ties test’, under which your tax residence status is determined by the number of your connections (‘ties’) with the UK and the days spent in the UK, taken together. 

For example, if you have been a UK tax resident in any of the three previous years and you have at least four ‘ties’, you can be considered UK tax resident if you stayed 16 days or more in the UK. The number of needed ties goes down depending on the number of days (midnights) you stay in the UK during a tax year.

‘Sufficient ties’ are anything that forms a significant association between you and the UK as below: 

• available accommodation in the UK;
• family (a spouse or minor children) who are resident in the UK;
• working more than 40 days in the UK during the tax year;
• spending more than 90 days in the UK in either or both of the previous two tax years; and
• (if you have been resident in one of the previous 3 years) spending more time in the UK than in any other single country in the tax year.

Relief for exceptional circumstances

One of the relevant exceptions to the UK day counting rules for the SRT purposes would be the relief for “exceptional circumstances”. The relief could allow up to an additional 60 days in a tax year where an individual overstays in the UK due to “exceptional circumstances” for reasons beyond their control. These usually include a national or local disaster or serious illness.

Whether an individual can claim an “exceptional circumstance” relief to disregard the days spent in the UK due to Coronavirus will depend on the facts and circumstances of each individual case. However, the new HMRC guidance released on 23 March 2020 confirms that the circumstances are considered as exceptional 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 guidance also states that events resulting from the impact of the virus are changing rapidly and the guidance may change at short notice as situations change. 

How we can help

If your tax residence is likely to have been affected by the COVID-19 outbreak, we can help you claim the exceptional circumstances relief so some of the days spent in the UK can be disregarded for the SRT. In the meantime, we would advise you to keep records of your stays where you can and try to avoid staying over the 60-day timeframe.