US–Iran conflict: tax risks for returning UK expats

The past 18 months have seen a remarkable exodus of wealthy individuals from the UK. Some estimates suggest the country lost a net 16,500 millionaires in 2025 alone, many motivated by the sweeping changes to the taxation of non-domiciliaries announced in the 2024 Budget.

A considerable number of those departing the UK relocated to the Middle East, often attracted by more benign tax regimes. However, with the US–Iran conflict spreading across the region and the UK government arranging repatriation flights, some expats will have found themselves back on UK soil.

While tax is unlikely to be at the forefront of their minds, this article explains how the UK’s tax residence rules could catch returning expats off guard and what they can do about it.

The Statutory Residence Test and exceptional circumstances

The UK uses a formulaic approach to determine tax residence, based primarily on the number of days (technically, midnights) you spend in the country, combined with your other UK connections.

Expats typically plan their UK visits carefully to stay below the thresholds that would trigger tax residence. An unexpected return, especially this late in the tax year, could push them over their permitted day count and create unwelcome tax complications.

The ‘exceptional circumstances’ rule in the Statutory Residence Test offers some relief for those who find themselves in the UK due to circumstances beyond their control. This rule allows up to 60 days of UK presence per tax year to be ignored. The legislation includes war as an exceptional circumstance so, at first glance, it appears that returning expats have nothing to worry about – at least initially.

However, the test is more complex than it appears. There are three requirements:

1. Exceptional circumstances must exist that prevent you from leaving the UK
2. The circumstances must be beyond your control
3. You must intend to leave the UK as soon as those circumstances permit.

While the outbreak of war is clearly beyond anyone’s control, the first and third conditions could prove problematic for some returning expats.

First, the circumstances must actually prevent you from leaving the UK, not merely prevent you from returning to the country you left. For example, consider a dual US/UK national who has returned from the Middle East. HMRC could argue that since they have the option to relocate to the US (or temporarily to another jurisdiction), their continued presence in the UK is a choice rather than a necessity. In other words, they’re here because they want to be, not because they have to be.

The third condition is equally tricky. You must intend to leave the UK as soon as circumstances allow. If you have the right to reside in another country, HMRC may argue that you could leave at any time, undermining your claim to exceptional circumstances. In addition, if you form an intention to remain in the UK, any days spent in the country after that decision will be counted when assessing residence.

Other residence traps

Even if you satisfy the exceptional circumstance conditions, days spent in the UK while those circumstances are ongoing will still count for other parts of the Statutory Residence Test. For example, a day spent working in the UK will still be counted, even during exceptional circumstances. You could therefore end up UK tax resident under a different part of the Statutory Residence Test.

Temporary non-residence

Taxpayers who become UK resident after a period of absence will re-enter the scope of UK income tax and capital gains tax on their worldwide income and gains. However, the additional sting in the tail for those who have been non-resident for five years or fewer is the temporary non-residence rules.

These rules can reach back and tax certain income and gains that arose during your period abroad. For example, if you sold a business during your time overseas, an unexpected return to UK residence could trigger a substantial and unwelcome tax bill.

What should you do?

If you find yourself in this situation, we recommend a three-step approach:

1. Review your residence position for the current tax year. If you would remain non-resident even counting every remaining day of the tax year, you don’t have an immediate problem
2. If those additional days would tip you into UK residence, carefully assess whether the exceptional circumstances rules could apply to your situation
3. If there’s any doubt about the availability of the exceptional circumstances provisions, consider spending time in another country outside the UK.

Finally, if you’re a returning expat, you should also plan ahead for the 2026/27 tax year. Exceptional circumstances are capped at 60 days per year and there’s no indication of how long the current conflict will last.

These issues are rarely straightforward, and the stakes can be high. Our private client team can help you navigate the complexities and protect your position.