For the many expats who share their time between the UK and overseas, the extensive global travel restrictions in place due to lockdown legislation presents a unique challenge.
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Not all travel is prohibited, but with quarantine procedures in place across the globe and very limited travel availability, there are expats around the world who have found themselves unable to return to their country of origin. Many countries are advising against any ‘non-essential’ travel movements, and it may be that some expats are unable to travel to their nearest airport, or secure a flight to their destination from that airport due to flight operators grounding aircraft.
Some national borders are closed entirely, making it impossible to leave or enter. This applies to:
- Expats who had been visiting their country of origin when travel restrictions were imposed.
- Expats living abroad who are unable to return to their country of origin.
- Non-residents who are unable to return home.
These circumstances have wider implications than the stress of being unable to move, and our team are working closely to understand the best strategies to combat those implications, and how to be proactive in seeking exemptions in this unforeseeable circumstance.
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What are the Tax Implications of Covid-19 for Expats?
The challenge in this scenario is that there is no way of knowing when exactly these travel restrictions will change. This makes it impossible for expats to plan travel accordingly, particularly because most countries intend on easing restrictions in a staggered process.
This impacts tax in a variety of ways:
- Changes to residency status
- Exceeding maximum stay requirements
- Being classified as a tax resident
- Inability to return to the country of origin in line with visa requirements
- Exposure to rising tax rates
Any of these situations could arise where expats are prevented from travel due to lockdown measures. The specific scenario will vary between countries, as each has different regulations and requirements that impact the tax status and residency category of expats.
HMRC has also launched a ‘crackdown’ on undeclared expat tax liabilities, as the drive to ramp up income increases in urgency as the true cost of the pandemic becomes clearer.
Government Advice for UK Expats
For UK expats, the government is publishing advice and updates about how to manage the situation. The priority is to secure your safety and wellbeing, and so this guidance suggests measures such as:
- Checking your travel insurance – if this is due to expire, or has clauses about maximum stays contact your insurance provider quickly. The pandemic is a new and uncertain scenario, and thus most service providers are offering emergency services and extensions to ensure that you are covered.
- Secure accommodation – for expats using temporary housing, rented accommodation or a timeshare, this may present the challenge of needing to find somewhere else to stay until you can move forward with travel plans. If you are stuck abroad and struggling with accommodation, you can contact your local embassy or consulate for support.
- Financial support – there are various systems in place to provide financial assistance in these unusual times. This includes mortgage holidays and interest holidays, which might help avoid ramping up additional expenses whilst incurring extra costs to remain abroad.
Other countries have their own emergency support systems and legislations being put into place that will vary from those available in the UK.
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The Statutory Residency Test and Expat Taxes
British expats living abroad, expats unable to return to their new home overseas, and non-residents who are unable to leave the UK are all subject to the Statutory Residency Test (SRT). This test determines how many days are spent in each respective country per annum, and therefore which tax obligations the expat falls under.
- British expats pay UK income tax only against the income they earn in the UK as long as they are abroad for at least one year and spend no more than 183 days in the UK.
An expat visiting their country of origin before lockdown may now find themselves unable to return to their new home country. This could mean extending a stay in the UK over 183 days and therefore becoming liable to pay UK income tax against their overseas earnings. This is because if a UK citizen meets the SRT, they will then be considered a UK resident and be taxable for their worldwide income under UK income tax legislation.
Remember that different residency tests apply to different jurisdictions, and we advise seeking professional support with understanding how lockdown travel restrictions may impact your tax and residency status.
Exceptions to the Statutory Residency Test
The challenge of a global pandemic is something new that the world of tax regulations is adapting to cope with. This presents a unique situation where legislation is being regularly updated to mitigate the impacts of lockdown.
HMRC has published updates to define ‘exceptional circumstances’ whereby additional days over and above 183 days will be disregarded, although this exemption is only applicable to extensions of up to 60 further days. These exceptions include:
- Days spent in the UK due to exceptional circumstances beyond the individuals’ control
- Events that occur which prevent an individual leaving the UK
Typically, the types of events that fall within these exceptions are natural disasters, civil unrest, an outbreak of war or a serious illness or injury. HMRC has clarified that this exception will be claimable by anybody advised not to travel and those in quarantine or self-isolating in line with public health guidance.
However, the guidance also states that this exception will depend on the circumstances involved in each application, and may not be applied to every scenario.
How to Claim Tax Exemptions During Lockdown
The most crucial strategy in these times of uncertainty is to remain up to date and proactive with regards to your tax position. Some exemptions may be available only on application, and others will require independent verification to support such an exception request.
Working with an expert wealth management consultant means:
- Claiming exemptions promptly and in accordance with legislation
- Keeping track of communications and correspondence to support any future exception claims
- Being aware of the changing international tax landscape, and where there are opportunities to avoid any additional obligations
- Understanding how CGT rules may be impacted by your residency status
Chase Buchanan is a highly regulated wealth management company, specialising in providing global finance solutions for those with a global lifestyle. Contact our team today for tailored support and guidance to ensure that your tax position is protected during this challenging period.