Successful athletes need well-considered tax planning. This is especially so for athletes who compete internationally, as doing so can add layers of complexity to their tax liabilities. This article offers a high level examination of the UK’s approach to taxing sports stars. It looks at the position of both athletes who are “resident” in the UK, and those that are just visiting temporarily to compete.
The UK’s approach to taxing sports stars
The UK tax system is based on the principles of “residence” and “source”. In simple terms, if you are “resident” in the UK then you are subject to tax in the UK; however if you are not resident in the UK then you can still be taxed in the UK if you have a “source” of income that is generated within the UK which isn’t relieved by the terms of an applicable double tax treaty. This means that you can still be subject to UK taxes even if you don’t usually live in the UK; a point that is particular relevant for internationally mobile athletes.
Whether an athlete is resident in the UK for tax purposes can be determined as a matter of fact. Since April 2013, UK’s approach to taxing sports stars has been clarified by enacting a “Statutory Residence Test” (the “SRT”) to determine an individual’s residence status. The SRT is applied on a year-by-year basis based on an individual’s specific facts and circumstances. A person can be “automatically UK resident” if they spend more than 183 days in the UK in any one tax year, but they may also be UK resident if they have a home in the UK and no home overseas or if they work sufficient time in the UK without significant breaks .
Conversely a person can be considered to be “automatically non resident” by application of the SRT. Generally this will be the case if the individual has either been non-resident for the past three tax years and spend less than 16 days in the UK in the tax year, or if they have been resident in the UK for one of the previous three tax years but spend less than 46 days in the UK in the year . In addition, they will be automatically non resident if a person works sufficient time outside of the UK in the year .
However, there are often circumstances where internationally mobile individuals, such as international athletes, will not be considered to be either “automatically UK resident” or “automatically non resident” when applying the SRT. These individuals will need to carefully examine the number of days they spend in the UK during the tax year and the number of connections or “ties” that they have to the UK.
Applying the legislation is not always straightforward and often the SRT can only be applied after the relevant tax year has already ended. This can create uncertainties as to whether an athlete should be considered to be resident or non resident in the UK for any particular year; however, the onus is on individual athletes to ensure that their UK tax affairs are correctly assessed.
For example, a British athlete may have lived in the UK all of his life before being offered an opportunity to train and compete overseas. The athlete may have a young family who stay in the UK for most of the year and will continue to use their home to retain some continuity. In this situation, the athlete could have 3 ties to UK, meaning they could only spend up to 45 days in the UK before they are considered to be UK tax resident.
It is sensible for athletes to plan their timetables in order to ensure that they know their likely residence position for the year in advance; however if, for example, the athlete is injured in March and travels home to be with their family, then the extra days in the UK could man they exceed 45 for the year and become UK tax resident as a consequence. This would result in the athlete being taxed as a UK resident, rather than as a non-resident. The different taxing regimes for these two categories are outlined below.