I am a British expat living in Spain considering sending my child to school in the UK. I’m aware that an unintended consequence of this can be an unwanted change in my tax residence status. What can you tell me about this?
Annie Bouch, associate in the tax and wealth planning team at law firm Mishcon de Reya, says UK residence is determined by the statutory residence test (SRT). Broadly, if someone is in the UK for 183 days or more in a UK tax year (April 6 to April 5), they will be deemed to be UK resident. It is important to know that an individual, inadvertently, can become UK tax resident sooner if they have certain “ties” or links to the UK. One tie is the “family tie”, which will generally arise if an individual’s spouse, civil partner or minor child is tax resident in the UK themselves.
A child under 18 living in the UK will only contribute to their parent’s UK family tie for the parent’s own residence status if you, the parent, visit your child in the UK on more than 60 days during the tax year. The period is shorter if your child turns 18 during the tax year. The term “child” includes natural or adopted children but not un-adopted stepchildren.
Helpfully, there is an exception for children in full-time education. A minor child in full-time education in the UK will not count as a family tie for you if the child spends fewer than 21 days in the UK outside school term-time.
Term-time does not include public holidays or normal holidays such as Christmas, but does include half-term and other breaks when there is no teaching; for example, inset days. Therefore, if your child remains in the UK, say with a guardian in the UK during the Easter holiday, then you should be aware of the potential consequences on your own residence status. This is the case even if you yourself are not visiting your child in the UK.
The family tie alone may not bring you into the UK tax net, but together with other ties that can naturally form when your child goes to school in the UK — say you acquire a UK property or work in the UK during visits to your child — the necessary ties can accumulate and trigger UK tax residence for yourself. In short, the more ties to the UK, the less time you can spend in the UK without becoming UK resident.
Separately, your child is likely to become UK tax resident under the SRT by virtue of being in school in the UK for at least 183 days per tax year. This may or may not have immediate tax implications for them but it could affect their UK tax exposure later in life should they continue to live in the UK and therefore it is important to keep on the radar.
If you become UK tax resident, you would also need to consider the application of the double tax treaty between the UK and Spain to your residence position. In all circumstances, you are well advised to seek the support of an experienced adviser to guide you through the process.
How will proposed online sales levy affect my web portal?
During the past two years, I have been running an online portal that enables individuals with challenging dietary requirements to get the food they need delivered to their door. While this was mainly launched to help individuals struggling due to supply chain issues and Covid-19 restrictions, I have consistently made modest profits. But I’ve been concerned to hear that the government is consulting on how it could design an online sales tax. Could this impact my business and, if so, how?
Paul Falvey, tax partner at accountancy and business advisory firm BDO, says it’s great that your new online business is doing well but you are right to take an active interest in the proposals for an online sales tax (OST).
The idea of creating an OST arose from a past consultation on business rates reform. Broadly, online retailers pay less in business rates than those on the high street, so some businesses suggested an OST could help level the financial playing field. BDO’s survey of mid-market businesses has shown that the majority of businesses support the idea.
The government suggests ringfencing revenue from an OST to subsidise business rate costs for some bricks-and-mortar retailers. However, it is not yet committed to creating such a tax but investigating options.
At this stage, most of the OST design issues are being actively discussed; for example, which types of taxable sales would fall within the tax, whether it should also apply to other remote sellers (for example, mail order) or click and collect sales and whether it should cover both goods and services. The government also asks whether there should be any exclusions, such as for food, drink, medicines and VAT zero-rated goods.
The proposal suggests an OST could raise around £1bn a year — small compared with other taxes. Nevertheless, online retailers that operate on low margins could eventually see an OST have a significant impact on their business model.
Respondents to our survey were split on how such a new tax should work. Increasing the rate of VAT for online/remote sales was most popular and could be the simplest option, although the government seems to have ruled it out. Just under one in three respondents opted for each of the two more complicated routes that are proposed in the consultation — a low tax (1-2 per cent on top of other profit taxes) on the profits of online sales falling, or a flat/fixed charge 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 how likely this is to occur.
Given the complexities, there is a fair chance that an OTS will never materialise. But, if it does and your business has good margins, it probably will not have a significantly damaging impact on you.
The opinions in this column are intended for general information 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 result arising from any reliance placed on replies, including any loss, and exclude liability to the full extent.
Our next question
I’m in the process of buying my first home and it’s been suggested to me by my mortgage broker that I should take out life insurance to cover the cost of my mortgage, so if I should die, whoever I leave the property to is not saddled with the loan. However, as I have no dependants and am not buying with a partner who’d be left to pay off the mortgage alone, do I really need this insurance? If I die, I assume my parents (my next of kin) will just sell the property (they’re in their mid-70s, so no way they’d want to move to south London from rural Wales) and reclaim whatever money I put down as a deposit and into the mortgage?
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