In response, Iran launched a series of counter-strikes against its Gulf neighbours and others. What has followed has been labelled the Iran War.
For those ex-pats living in the Gulf states, it is no doubt a worrying time and it is reported that some may be trying to return to the UK to avoid the conflict.
Unfortunately, for many, this could give rise to a UK tax problem. The Gulf states are nil or low tax jurisdictions and returning to the UK could bring income and taxable gains into the UK tax net should these individuals become resident in the UK under the UK Statutory Residence Test (SRT).
Whilst an individual’s safety and that of their loved ones is paramount, any resulting UK tax implications should not be ignored.
What steps should be taken?
An individual’s tax residence status is fundamental to determine how they will be taxed in the UK. The UK’s SRT therefore should be revisited as a priority to ensure a full understanding of the time that may be spent in the UK without triggering UK tax residence (and a potential UK tax liability).
Under the SRT, an individual is automatically tax resident in the UK if they spend 183 days here. Some expats would have been working to this and, having now returned to the UK to escape the conflict, this day count may now be exceeded.
The number of days allowed in the UK before triggering UK residence under the SRT could be much lower than 183 depending on individual circumstances. There are day limits linked to split year claims made in respect of years of departure, the other automatic tests for tax residence, and the number of ties an individual has to the UK (such as a family, an accommodation or a work tie). The impact of returning for the last few days and weeks of the year could therefore be extremely significant.
Exceptional circumstances?
The legislation allows for 60 days spent in the UK to be excluded from an individual’s UK day count where there are ‘exceptional circumstances’. Whether days in the UK can be disregarded due to exceptional circumstances will always depend on the facts and circumstances of each individual case.
While HMRC’s guidance acknowledges that the outbreak of war can qualify as an exceptional circumstance when considering the SRT, there is no guarantee that this can be applied to all circumstances as HMRC will examine every claim on its individual merits. HMRC will expect records and documents to be retained to support the reasons why an individual had to come to the UK and could not remain in the Gulf state in which they normally live
Are there any wider considerations?
It is important not to overlook UK anti-avoidance legislation which may bring back into the scope of UK tax, capital gains crystallised and dividend income received whilst not resident in the UK. A historic disposal of assets, or even dividends being received from an individual’s personal company when non-UK tax resident, may crystalise for tax purposes in the year of return to the UK if the individual has not been out of the UK for the required duration.
This again could be a costly knock-on effect of returning to the UK and becoming UK tax resident.
With this impact in mind careful day counting and record keeping should be maintained to ensure you are safe guarded in the event of an enquiry by HMRC.
If you would like to discuss further, then please speak to Diane Nettleton at diane.nettleton@kilsbywiliams.com or your usual Kilsby Williams contact.
