Each time the New Year’s or Queen’s Birthday Honours list is announced, there are calls to Knight some of the UK’s biggest sports stars. As with any subjective assessment, calls for others who have missed out soon arrive; and then you can be sure another three-letter word is soon discussed… tax! 

Sir Alastair Cook, Dame Jessica Ennis-Hill, Sir Steve Redgrave, Dame Laura Davies, Sir Bradley Wiggins. 

All magnificent British sportspeople and (some would suggest crucially) all UK tax residents. 

At its very simplest, whether you are UK tax resident or not is determined by the amount of “days” (actually midnights) that you spend here. As such, if you play a sport that requires you to travel the world to perform for much of the year, you are already much closer to the relevant thresholds than those of us with considerably less air miles. 

The three big ‘touring’ sports of the world where this is most relevant are Formula 1, Golf and Tennis. They are truly global sports played across countries with very different tax regimes.

Going overseas

Even for those with immediate family (a spouse and/or dependent children) still living in their home in the UK, breaking UK tax residence during a tax year would likely work as follows:

  1. Buy (or rent) a home overseas
  2. Be present in your overseas home for more than 30 days each year
  3. Spend more time in an overseas country than in the UK
  4. Have less than 40 work-days in the UK
  5. Spend less than 45 days in the UK during tax years 1 & 2
  6. Spend less than 90 days in the UK during tax year 3
  7. Spend less than 120 days in the UK during future tax years

Things become even easier (i.e. you can spend more days here) if you are single with no children or they come overseas with you. 

Why does it matter?

UK domiciled and resident individuals are subject to tax in the UK on their worldwide income.

Whatever the individuals earn anywhere in the world, is taxed in the UK at their marginal tax rate of 45%*. Credit is then given for any tax already suffered overseas, such that they aren’t paying tax twice.

*               assuming they are trading personally. Some players might be trading through a UK company, as they are entitled to (see previous blog), which could mitigate the initial tax rate but might mean leakage of international tax credits, further tax on extraction etc.

As such, if a player wins at Flushing Meadows or Augusta, there is a hefty US tax bill to pay (as you might expect) and therefore limited amounts of tax to ‘top up’ in the UK. i.e. being a UK tax resident isn’t too costly.

However, clearly each country has different tax rates and low tax jurisdictions such as Dubai, Abu Dhabi, Qatar, Saudi Arabia and Monaco won’t be unfamiliar tournament or race locations to any of you.

Therefore, again simplistically, if a UK resident wins the Monte Carlo Masters, Dubai World Tour Championship or Abu Dhabi GP, they have to pay tax at 45% (and national insurance at 2%) on their profit from that tournament in the UK.  For those tournaments, tax won’t have been deducted at source, and therefore the cost of living in the UK is a tax rate of 47%, rather than a tax rate much closer to 0% if the individual is tax resident in a tax haven country.  As such, net earnings from such tournaments can be all but doubled by leaving the UK for tax purposes, and becoming non-UK tax resident.

Additionally, for such top sports people, endorsement income often dwarfs prize money.  If you are UK tax resident and domiciled, all endorsement income is taxable in the UK.  If you live in a tax haven jurisdiction, whilst the UK, US and France might take a bite out for the time you’ve spent there, this income would be largely untouched.

It’s hard to say what one would do without being presented with the opportunity. If you were going to effectively get paid a hefty seven-figure sum to spend some time in Monte Carlo or to take a 3-week holiday in the Maldives, the temptation must be huge.

For those that take that opportunity, I don’t blame them at all (contrary to the keyboard warriors’ “claims to be British and they don’t even pay UK tax”).  Which incidentally they do, usually significant sums based on their income from events in the UK.  The rules are there and clear for all of us; if you don’t meet the tests for UK residence, you are not taxed in the UK on your worldwide income – simple.

For those that choose to remain in Blighty, I take my hat off to you.

Arise, Sir Andy Murray!

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