Tax implications when working from a holiday home

Published by Stephen Metcalf on 22 July 2020

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Question

I work for one of the big banks and like my colleagues have been working from home since March. Now that travel restrictions are being lifted, I was planning on working from our holiday home in France for the summer, but have been warned not to by our HR team saying that it could have an adverse impact on the tax I pay. I do not remember receiving any guidance like this in previous years, and I have since been told that colleagues at other banks, law and accountancy firms have been issued with the same guidance. What has changed?

Answer

After months of lockdown and enforced working from home the need for a change of scenery is understandable. But working from another country can if you’re not careful change the tax landscape too.

Generally speaking, employment income is taxed in the country where you are working, whilst at the same time the worldwide income of an individual, including their employment income, is taxed in the country of residence.  If you are heading to your French holiday home for the summer only, it is likely that you will remain UK resident. But, depending on the length of your stay, and given that many of us are unlikely to be returning to the office anytime soon, there is a possibility you may be considered a French resident for tax too. The UK, for example, can consider a visitor UK tax resident if staying for as little as 46 days. You would be wise to check French tax residency rules.

In normal times and for many people, where you perform employment duties and where you are resident are one and the same. When this isn’t the case, the prospect of being taxed twice arises.

There is a Double Tax Treaty between France and the UK, which resolves which country has taxing rights and directs how relief against double taxation might be given. This will provide some comfort but is complicated and, in some circumstances, the timing of tax payments and relief can still cause significant cash flow issues.

Social security also needs to be considered. These contributions are due in the country in which you perform duties, however it is possible in the case of temporary workplaces for your employer to apply to keep paying the social security in the country of residence.

A further complication for your employer is that your activities may lead to implications for the taxation of the business. If your function involves significant management decisions, such as the agreeing of important contracts, the French authorities may decide that business profits should be taxed locally arguing that a permanent establishment has been created. In the case of banks, this is likely to present a considerable administrative burden.

All in all, it is no surprise that your employer cautions against this as it can cause headaches for both you as the employee and them as employer.

If you would like to discuss the topics explored in this article, contact Stephen Metcalf.

This content of this article was featured in the Financial Times. 

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