UK tax issues for individuals affected by conflict in the Middle East

In recent weeks, military exchanges between the US-Israel coalition and Iran have intensified significantly, causing significant damage to infrastructure and disruption to travel.  

Whilst the priority should be on following the latest travel advice and staying safe, there can be unexpected tax consequences should the conflict mean that individuals return to the UK unexpectedly. The below is a headline guide on points to consider.  

Where the individual returns to the UK, dependent on how long they remain in the UK, their tax residence status could change. This could result in a liability to UK tax on their worldwide income and capital gains. This could also have unexpected tax consequences where they have been non-resident in the UK for less than 5 years.  

Set out below are the key tax considerations to be aware of in these circumstances:

Residence status: Statutory Residence Test (“SRT”)

The SRT determines whether someone is a UK tax resident. Factors include days spent in the UK, work patterns abroad, and ties like family or accommodation in the UK.  

The key point here is that where an individual returns to the UK, they will inevitably spend more days in the UK than originally anticipated. Spending more days in the UK during a tax year will increase the likelihood that in individual is UK tax resident under the SRT.  

Further information on this can be found in our SRT Factsheet which can be accessed here.

Exceptional circumstances: When UK days may be disregarded  

As outlined in the SRT factsheet, in limited cases, up to 60 days in a tax year may be disregarded where an individual is unable to leave the UK due to exceptional circumstances beyond their control.  

Exceptional circumstances are narrowly defined but HMRC guidance cites situations where the Foreign, Commonwealth and Development Office (FCDO) have advised to avoid travel to a region due to civil unrest or natural disaster.  

There is currently no specific guidance relating to the Middle East currently and the FCDO advises against all but essential travel to the UAE. As a comparison, for the Ukraine/Russia war, HMRC guidance stated that days spent in the UK by individuals returning for their safety could be treated as exceptional subject to the day cap referred to above. However, please note that here, the FCDO advised against all travel to affected regions.

Therefore, at the moment it would be debatable as to whether exceptional circumstances would apply where Brits do return to the UK due to the current situation as the FCDO guidance is not at the same level. However, the FCDO guidance may be updated at any time and can be checked here: Foreign Office travel advice updates - GOV.UK.  

Even if the FCDO advice changes, there is no guarantee that HMRC will accept the additional days in the UK would be considered exceptional for the purposes of the SRT unless the individual is being prevented from leaving the UK. Advice should be taken here.    

Reacquiring UK tax residence

If the additional time spent by an individual in the UK due to the conflict results in a position where they are UK resident under the SRT, they will in the first instance be liable to UK on their worldwide income and capital gains.  

In addition, where an individual left the UK and spent less than five tax years abroad before returning, the “temporary non-residence” rules may apply: upon return, certain income and capital gains (e.g. close company dividends) may be taxable in the UK upon their return.

However, there are rules which may, in some circumstances, reduce the scope of the individual’s liability to UK tax.  This could include the following:

• Where an individual has been non-resident for at least ten tax years before returning to the UK, the new foreign income and gains (FIG) regime offers relief on foreign income and gains during the first four years of UK tax residence.  Where a claim is made, most foreign income and capital gains will be exempt from UK tax.  
• If the individual remains tax resident in the country they have returned from, they would be dual tax resident.  In this case, the provisions of the double taxation treaty between the two countries would determine which country has the primary taxing rights  

How Bishop Fleming can help

If you are affected by the conflict in the Middle East and are looking to return to the UK as a result, it is important that you take appropriate advice to understand the UK tax implications.    

Bishop Fleming is here to provide advice to any individuals affected, and we can provide tailored advice and support to ensure you remain compliant while optimising your UK tax position.  Please contact our International Personal Tax team should you wish to discuss this further.