Considering the geopolitical instability and possible military escalation across the Middle East, clients have contacted us to discuss the possibility of returning to the UK.
UK Tax Exposure
An individual’s UK tax exposure is determined by their residency status in the current and preceding tax years. Residency is determined using the Statutory Residence Test (“SRT”), which considers both days spent in the UK and connections to the UK. As such a short-term visit in the UK, with UK accommodation and UK workdays could significantly impact the outcome of the SRT.
The tax implications can be far reaching if the taxpayer becomes UK tax resident and given that we are close to the tax year end, the impact could be felt in either or both the 2025/2026 and 2026/2027 UK tax years.
By default, a UK tax resident taxpayer is subject to UK tax on their worldwide income and gains. Furthermore, if the return to the UK is within six tax years of ceasing UK tax residency, certain income, gains and remittances to the UK could all become taxable in the year of return under the temporary non-residence rules.
A taxpayer is tax resident for a full tax year; however, there are circumstances where the year could be split for tax purposes such that part of the year the taxpayer is treated as non-resident for tax purposes (this does not apply to all sources of income and gains). This is known as split year treatment and the conditions are onerous.
Exceptional Days
Days spent in the UK for “exceptional circumstances” can be ignored for the purposes of determining an individual’s UK tax residence status under the SRT.
Circumstances compelling individuals to spend time in the UK are considered “exceptional” if they occur beyond the individual’s control.
Please note that HMRC tend to take a strict view on the situations that may be considered “exceptional” and that the maximum number of days that may be discounted per tax year is 60.
HMRC is likely to contend that returning to the UK is only exceptional where the event occurs in the UK requiring the taxpayer to be physically present in the UK. As such, departing another country affected by war, is unlikely to qualify as it could be contended that the taxpayer could choose where to reside on departure.
Impact and Planning
For individuals that have been non-UK tax resident for at least ten tax years, there may be tax advantages available to them in the UK if they were to become UK tax resident, under the new Foreign Income and Gains regime.
Finally, even where the taxpayer is not UK tax resident, if the taxpayer is required to undertake duties of employment while in the UK, the remuneration of those duties could become chargeable to UK tax if the taxpayer is a director or the duties are more than ‘merely incidental’. Further consideration will need to be given to the impact to the business such as whether the business now has a permanent establishment in the UK or whether significant management and control decisions are being made from the UK. These could give the business a Corporation Tax exposure in the UK.
If you wish to discuss any particular items in more depth, or would like us to conduct an evaluation of your business’s or your UK tax exposure, please get in touch.
Sian Armitage, MSci (Hons), ATT, CTA
Tax Director
Email: jelphick@mdaviesassociates.com
Telephone: + 44 (0) 208 138 5560