24 April 2020

COVID-19: Relaxation of the Statutory Residence Test for individuals carrying out coronavirus related activities

In an effort to attract and retain those with expertise in fields that may help in fighting COVID-19 in the UK, the Chancellor has announced that the statutory residence test (SRT) will be relaxed for certain individuals for the period 1 March to 1 June (although the duration of the concessionary period will be kept under review).

What is the SRT?

The basis upon which individuals pay tax in the UK is complex and depends on a number of factors, including their residence and their domicile. Individuals who are not UK tax resident pay UK income tax only on certain types of income from UK sources; and capital gains tax only on gains arising (directly or indirectly) from land in the UK.

Whether an individual is resident in the UK in a particular tax year is determined by applying the SRT. Broadly, the SRT combines a day-counting test and (in many, but not all cases) reference to the number of "ties" that the individual has with the UK in that year.

The ties that are relevant relate to work, family, accommodation, days spent in the UK in earlier tax years, and (in the case of individuals who have been resident in the UK in one of the three preceding tax years) the number of days spent in the UK in the tax year that is being assessed compared with days spent in other countries.

The number of days that an individual can spend in the UK in a tax year without being UK resident (counted as the number of days in which the individual is present in the UK at midnight) increases as the number of ties decreases. There is a maximum limit of 182 days, beyond which an individual will be resident regardless of ties.

What are the implication of the Chancellor's proposals?

The Chancellor's announcement states that details of the proposed changes will be provided in due course, and will be legislated in the Finance Bill that is currently before Parliament. We will therefore need to wait for further clarity.

However, the intention would seem to be that any day that an individual spends in the UK in the period 1 March to 1 June (or such longer period as the Chancellor subsequently decides) will not be considered a day of presence in the UK for the purposes of the SRT. One would assume that any such day will also be disregarded in assessing whether the individual has a tie with the UK (where that tie takes into account days spent here).

The concessionary period straddles two tax years: the period from 1 March 2020 to 5 April 2020 falls within the tax year 2019/20, and the period from 6 April onwards within the tax year 2020/21. If our assumptions are correct, an individual who has been working on COVID-19 related matters since 1 March 2020 will see their day count for 2019/20 reduced by 36 days, which may be sufficient to lift them out of UK tax residence for that year.

In the tax year 2020/21, a minimum of 57 days (6 April to 1 June, assuming this period is intended to be inclusive) will not count as days of presence for SRT purposes. The Chancellor has indicated that this may be extended if circumstances are such that the continued presence of individuals with relevant expertise is considered beneficial.

I think I may qualify. What should I do?

Until the detail of the Chancellor's proposals is clear, there is very little to do. If you are working in a relevant field, you may take some reassurance from the Chancellor's indication that you are likely to be able to remain in the UK longer than you might otherwise have been able to without being UK resident. Similarly, if you intend to come to the UK to undertake COVID-19 related work, but are concerned that doing so may affect your tax status, the announcement is likely to be welcome.

We will report further once we have more information. In the meantime, if you have questions prompted by this note, please get in touch with your usual contact at Forsters.

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