Business travellers making as few as four overnight visits to Britain a month could find themselves tax-resident under proposals from the UK government, experts warned on Monday.
The UK’s residency test – which can make someone resident after spending as little as 90 days in Britain – will be one of the strictest in the world after planned changes, the Chartered Institute of Taxation warned. The new regime, which will include dates of arrival and departure as days in the UK, is introduced in April.
“This will have a genuine and really serious impact on London and other major UK cities as places to do business,” it said in a strongly-worded submission to the British Treasury.
The Treasury is attempting to change rules that allow people to work in Britain while living in tax havens such as Monaco, the Isle of Man and the Channel Islands. It expects about 17,000 non-residents to be brought into the British tax net, raising an extra £125m ($252m, €175m) over the next three years.
But these measures would damage London’s standing as a place to do business, according to the institute. A business traveller who goes to London for a meeting, stays overnight and leaves the next day will, under the new rules, have spent two days in the UK. “This allows business travellers only 45 visits to the UK a year, fewer than four a month, or even fewer if they also have the odd holiday here as well,” it said.
The risk of inadvertently breaching these rules is compounded by the confusion over the legislation on residence. The rules, broadly speaking, would make a visitor resident if they spend at least 183 days in the UK in any particular year, or an average of more than 90 days over four years.
But there are many areas of uncertainty, including the status of Britons who have emigrated from the UK but return for visits. In practice, individuals rely on practical guidance from Revenue & Customs but this is not binding and can change at any time.
The institute described the law on residence as “a mess”. It called for the introduction of a “comprehensive statutory residence test”. This should include days of arrival and departure, but instead of restricting time in the UK to 90 days, it should allow visitors to spend 120 days in the UK before they became resident.
If the rules are implemented without changes, visitors will be cautious about spending time in the UK, it said.
US citizens’ anger at rule change
US citizens have been particularly angered by the UK government’s proposed changes to the non-dom tax regime.
They fear that the £30,000 charge for some foreign workers in the UK, – to keep foreign income and capital gains out of the British tax net – would not be offset against their US tax bills. Even though some lawyers are convinced that the Treasury could draft the law in a way that avoids this problem, US citizens are frustrated that the issue has not yet been clarified.
Banks will pick up the extra tax bill for some employees sent on temporary assignments to the UK who are on tax equalisation packages. But, with some exceptions, they are unlikely to compensate employees recruited in the UK for their extra tax liabilities.
Other centres, such as Switzerland, only offer preferential tax treatment for expatriate employees for short periods, typically five years, with the availability of lump-sum tax deals limited to foreigners who are not working.
Employers argue that concerns about the public services, such as education and health, may persuade an employee faced with a higher tax bill in Britain to move elsewhere.