Many British expats in Belgium have found themselves spending much more time in the UK in the last year than originally planned. As a result of the pandemic some were either trapped in the UK due to lockdowns or needing to stay longer for family reasons. Peter Webb, our Head of Tax Advisory, explains how being caught in the UK could impact your tax bill.
“Don’t panic” are the words written on the front cover of the galaxy’s favourite guide to hitchhiking. Along with “I can’t hear you; you are muted”. It’s just possible these phrases are the most common ones I’ve said to clients this year!
One of the most significant worries for many of our clients right now is the length of unplanned time they have spent in the UK. Most are concerned that in doing so they may have accidentally become UK tax resident. But why does this matter?
Ultimately your UK tax residence status determines how much UK tax you pay. It’s generally calculated by the number of nights you spend in the UK and the number of connections you have to the UK during the tax year. A long-term non-UK tax resident is generally taxed in the UK on UK sources of income and the disposal of UK land and property only. Any other sources of income and gains (for example your overseas earnings for overseas employment) are not taxed in the UK.
However, if you’re UK tax resident you could well be subject to UK tax on your worldwide income and gains as they arise. Becoming UK tax resident can have a longer-term effect on your liability to UK Inheritance Tax too.
You may be living and working in a country with a benign tax system where you pay little or no tax on your income. Accidently becoming UK tax resident could cause, for example, your earnings for the year to be taxed in the UK at rates as high as 45%.
So how many days can you spend in the UK in a tax year and be non-UK tax resident? That is a complex question with answers ranging from an extraordinarily low 15 nights to amazingly high 182 nights. It will depend on your individual circumstances such as:
- The number of years you have been non-UK tax resident
- The number or nights spent in the UK in previous tax years
- Whether or not you have accommodation in the UK
- If you have family living in the UK
- The number of UK workdays undertaken and the number of hours worked overseas in the year
Our starting point is calculating the number of nights you can spend in the UK without becoming UK tax resident. Having established that number we then need to think about what happens if you exceed your limit; does it automatically make you UK tax resident and fully liable to UK tax on your worldwide income and gains for the year? The answer is ‘not necessarily’. There are three possibilities that may help you.
- Firstly, the UK tax authorities have published guidance on being stuck in the UK due to exceptional circumstances. Provided you come within their guidance you may be allowed up to an extra 60 nights in the UK over and above your limit without impacting your non-resident tax status.
- Secondly, if you are non-UK domiciled (expert advice will be needed to determine that) and have become UK tax resident it may be possible to exclude overseas income and gains from UK tax provided certain conditions have been met.
- Thirdly, if you are UK tax resident but have remained tax resident in a country that has a double taxation agreement with the UK it may be possible to avoid UK tax on overseas sources of income and gains.
Any claims along these lines all need to be made on your UK Tax Return. For the current tax year, 2020/21, your Return needs to be submitted by 31 January 2022.
Find out more about the Statutory Residence Test (SRT)
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Finally, it’s worth mentioning UK workdays. If you’re stuck in the UK and are working, then those UK workdays may be subject to UK tax even if you are able to stay within your limits to remain non-UK tax resident. There may be relief available from UK tax for those workdays under the terms of an applicable double tax treaty or, exceptionally, if those workdays meet the very strict definition of being incidental to the normal duties of your employment.
A discussion with a specialist UK tax adviser is the right starting point to understand your situation, any limits which might apply and what reliefs you may be able to claim.
Please get in touch with your nearest office for help and guidance.