I am a British expat living in Spain and planning to send my child to school in the UK. I am aware that an unintended consequence of this may be an undesirable change in my tax residency status. What can you tell me about this?
Annie Bouch, associate in the tax and wealth planning team of the law firm Mishcon de Reya, indicates that UK residence is determined by the Statutory Residence Test (SRT). Basically, if someone is in the UK for 183 days or more in a UK tax year (April 6 to April 5), they will be considered a UK resident. It is important to be aware that an individual may inadvertently become UK tax resident sooner if they have certain “ties” or ties to the UK. A connection is the “family connection”, which generally arises if an individual’s spouse, civil partner or minor child is themselves tax resident in the UK.
A child under 18 living in the UK will only contribute to their parent’s UK family tie for the parent’s residency status if you, the parent, visit your child in the UK for more than 60 days during of the fiscal year. The period is shorter if your child turns 18 during the tax year. The term “child” includes natural or adopted children, but not unadopted stepchildren.
Fortunately, there is an exception for children who are in full-time education. A minor child attending full-time school in the UK will not be considered a family tie for you if they spend less than 21 days in the UK outside of school terms.
School time does not include public holidays or normal holidays such as Christmas, but does include half-terms and other breaks when there is no teaching; for example, insertion days. Therefore, if your child stays in the UK, for example with a guardian in the UK over the Easter holidays, you should be aware of the potential consequences for your own residence status. This is the case even if you yourself are not visiting your child in the UK.
Family ties alone may not get you into the UK tax net, but with other ties that may naturally form when your child goes to school in the UK – say you acquire UK property or work in UK when visiting your child – the necessary ties can build up and trigger UK tax residency for yourself. In short, the more ties to the UK, the less time you can spend in the UK without becoming a UK resident.
Separately, your child is likely to become UK tax resident under the SRT by virtue of having attended school in the UK for at least 183 days in a tax year. This may or may not have immediate tax implications for them, but it could affect their UK tax exposure later in life if they continue to live in the UK and so it is important to stay on the radar.
If you become a UK tax resident, you will also need to consider the application of the UK-Spain double tax treaty to your position of residence. Either way, you are well advised to have an experienced advisor guide you through the process.
How will the proposed online sales tax affect my web portal?
For the past two years I have managed an online portal that allows people with difficult dietary needs to have the food they need delivered to their doorstep. Although this was primarily started to help people struggling due to supply chain issues and Covid-19 restrictions, I still made modest profits. But I was concerned to learn that the government was consulting on how it might design an online sales tax. Could this impact my business and, if so, how?
Paul Falvey, tax partner at accounting and business advisory firm BDOsays it’s great that your new online business is doing well, but you’re right to be actively interested in online sales tax (OST) proposals.
The idea of creating a corporate action arose from a past consultation on corporate pricing reform. Generally speaking, online retailers pay less in business rates than those on the high street, so some companies have suggested that an OST could help level the financial playing field. BDO’s survey of mid-market companies showed that the majority of companies support the idea.
The government suggests earmarking revenue from an OST to subsidize the costs of business fares for some brick-and-mortar retailers. However, he has not yet committed to creating such a tax but to studying the options.
At this point, most OST design issues are actively discussed; for example, what types of taxable sales would be subject to the tax, whether it should also apply to other distance sellers (e.g. mail order) or click-and-collect sales and whether it should cover both goods and services. The government is also asking if there should be any exclusions, such as for food, beverages, drugs and zero-rated products.
The proposal suggests that a corporate action could bring in around £1 billion a year, which is small compared to other taxes. Nevertheless, online retailers that operate with low margins could eventually see an OST have a significant impact on their business model.
Respondents to our survey were divided on how such a new tax should work. Increasing the VAT rate for online/distance sales was the most popular and might be the easiest option, although the government seems to have ruled it out. Just under one in three respondents opted for each of the two most complicated paths proposed in the consultation – a low tax (1-2% on top of other profit taxes) on declining online sales profits , or a fixed rate/fixed fee per transaction.
Of course, even if the new tax is not a direct charge on consumers, any new tax could be passed on to consumers through higher prices. This is clearly a concern for the government and the consultation asks what is the likelihood of this happening.
Given the complexity, chances are an OTS will never materialize. But, if it is and your business has good margins, it probably won’t have a significant impact on you.
The reviews in this column are intended for general informational purposes only and should not be used as a substitute for professional advice. The Financial Times Ltd and the authors are not responsible for any direct or indirect results arising from any reliance placed on the answers, including any losses, and exclude all liability to the fullest extent.
Our next question
I’m buying my first home and my mortgage broker suggested that I get life insurance to cover the cost of my mortgage, so if I die whoever I leave the property to isn’t taken with the loan. However, since I don’t have dependents and I’m not buying with a partner who would be paying the mortgage alone, do I really need this insurance? If I die I guess my parents (my next of kin) will just sell the property (they are around 70 so they won’t want to move to South London from rural Wales) and get the money back that I paid in deposit and in the mortgage?
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