Greg Jones considers the tax position for those left stranded in the UK by COVID-19...
One of the consequences of the global turmoil caused by the coronavirus pandemic has been that travel – especially international travel – has suddenly become very difficult. Just as the world had seemed to be getting smaller, border closures, stay-at-home edicts and mass flight cancellations have stopped both business folk and holidaymakers in their tracks. Many have been "stranded" somewhere they had no intention of staying.
(The Isle of Man, of course, has become a Hotel California in reverse: you can leave but you can't check-in just yet....)
For those unfortunate enough to be in this situation, tax is probably the furthest thing from their minds. But it is a fact that remaining in a country for longer than you should can actually make you a resident in tax terms, meaning you may be exposed to local income tax and filing obligations – possibly with severe penalties for non-compliance. Talk about adding insult to injury!
Since 2013, the UK has had in place a statutory residence test which makes determining whether or not you are a UK resident for tax purposes a fairly mechanical process (although the rules are complex, they are clear and generally unambiguous). Everyone is permitted to spend a certain amount of time in the UK each year without becoming resident. However, if you exceed your permitted number of days (which will depend on your precise circumstances and recent history) in the UK in any given tax year (ending 5 April), you will be treated as UK resident for that year – and remember UK residents pay a top rate of income tax of 45%, plus tax on capital gains (unlike in the Isle of Man) at 20%.
The UK's statutory rules allow you to disregard from the "days count" any day on which "exceptional circumstances" beyond your control prevent you leaving the UK, provided your intention is to leave as soon as those circumstances permit. The legislation gives as examples of exceptional circumstances "national or local emergencies or war, civil unrest or natural disasters, or sudden or life-threatening illness or injury". HMRC's published guidance elaborates further on these and makes it clear that routine events – however much they affect your plans – do not count as "exceptional". So staying in the UK for elective medical treatment or cosmetic surgery, missed or cancelled flights, getting married (or divorced) or hanging around to celebrate the birth of your first grandchild – none of these counts as "exceptional circumstances" and the days spent will be counted, working out whether you have stayed long enough to become resident.
The unprecedented state of affairs into which the world has been plunged by COVID-19 has prompted HMRC to reissue its guidance as to what circumstances they will agree to be exceptional for these purposes. Gratifyingly, they acknowledge that if you are in the UK for self-isolation or because you've been advised not to travel, OR you're unable to leave the UK as a result of the closure of international borders, or you have been asked by your employer to return to the UK as a result of the virus, then these will be considered exceptional circumstances.
Yet there is a sting in the tail. The statutory rules limit the number of days disregarded due to "exceptional circumstances" to 60 in any one tax year. There is no power for HMRC to increase this eg by concession. So anyone trapped in the UK after 5 April 2020 must hope that the travel restrictions will have been lifted by 5 June: each day spent in the UK thereafter will count in determining whether they will be treated as UK resident – with all that entails – for the year.
This dreadful pandemic has already ravaged families, communities and the global economy, in a relatively short timescale. For some, it may also prove painful in tax terms.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.