Another footballer makes split decision on transfer

Introduction

A year ago, I found myself doing an impromptu tax class on a whiteboard in the offices of a football agency.

The topic was UK tax residence and the example I was using was Jordan Henderson (not my client nor, to my knowledge, one of the agents)

Of course, Henderson had gone to the Saudi Pro League on big money.

Reportedly, he was earning £700k per week…tax free.

But, as I told those unwittingly finding themselves in my tax masterclass found out, there was a catch.

Like the true stopped clock, my portent of potential doom seemed to come true in the January 2024 transfer window when Henderson was looking to leave Saudi and return to Europe.

It also seems that the same problem has stymied a move for Wilfried Zaha back to the UK. He had left for Turkey in July 2023.

So, what’s the problem?

The Statutory residence Test (“SRT”)

One assumes that the starting point for cases like JH or WZ is that they would hope to be classed as non-UK resident under the overseas work test (test 3) of the Automatic Non-UK stage.

This is the first stage of the waterfall of steps in the SRT. Meeting this means you do not have to look at the other tests – including sufficient ties.

Broadly, this applies where one goes to work full time overseas for a non UK employer and spend no more than 90 days (broadly pro-rated of considering a shorter period) in the UK.

However, the starting point is that one is either tax resident or non-resident for a full year.

I don’t know the details of JH or WZ but it is assumed that, for 2023/24 they would not be non-UK resident if one looks at the year as a whole. I don’t know – but its realistic so let’s pretend.

But something called split years come to the rescue.

As it says on the tin, if one meets certain conditions, a tax can be split in two – a period or UK residency and then a period of non-residency.

Sliced and diced, if you will.

 

Split decisions

Broadly, to be non-UK resident for the period after that line in the sand, it would have been necessary for JH or WZ to have:

• left the UK under a full time contract abroad;
• kept their visits to the UK to 90 days (or essentially the pro-rated equivalent) or less
•  ensure that they are non-resident for the complete 2024/25 tax year

If so, both would be non-resident from the time he leaves the UK to the time he comes back.

If they do this, they would likely have no exposure to UK tax on their earnings. Not a loophole. Just how the system is supposed to work.

Of course, it doesn’t just apply to footballers.

In JH’s case, this would have been attractive as no local taxes to speak of on his foreign income.

In the case of ZH, Turkey appears to levy material taxes on the earnings of employees. So, it might be that the position is much less beneficial.

They say never go back

However, the treatment outlined above is precipitous.

It requires JH and WZ to remain outside of the UK (with no more than 90 days of visits to UK) until at least 6 April 2025.

So, if Mr Henderson and / or Mr Zaha return to the UK before 6 April 2025, the UK tax man would be particularly interested.

In the case of Henderson, returning to the UK would have had a seismic impact on his overall financial position. He would suddenly have UK taxes to pay on his Saudi earnings.

Zaha would also suffer UK taxes on his earnings. However, the impact would have been less, on the basis he has likely paid taxed under the Turkish system. There would unlikely be double tax to the extent he has paid Turk.

Making sense of the Statutory Residence Test

Since 2013, the UK has had a statutory residence test. This can still be incredibly complex. However, if you feed in the right information, you usually get results that are certain.

However, that does not take account that best laid plans of mice, men and footballers can go awry.

It is therefore essential that anyone looking to use residence as a tax planning tool, even if not the main driver, gets advice at the beginning and throughout the exercise.

Otherwise, you might find you putting one in the back of your own net.

If you have any queries on this article, then please get in touch.