Press Releases
When is a resident not a resident? That is the question
The taxman is taking a much tougher line in cases concerning residence and domicile issues, with clear implications for anyone leaving the UK to set up a home abroad.
The stance is linked to the high profile appeal by millionaire Robert Gaines-Cooper, against HM Revenue & Customs (HMRC) tax assessments covering 1992-2004, during which time he claimed he was not domiciled, UK resident (usually defined as spending 183 days in a UK tax year here) or ordinarily resident (usually defined as spending an average of more than 90 days in the UK, over a four-year rolling period) in the UK.
Mr Gaines-Cooper, who was born to British parents, had claimed that for many years he had been domiciled – that is, had made his permanent home – in the Seychelles and not in the UK, although he visited the UK regularly and had many links here. His interests included annual visits for pheasant shooting and Royal Ascot, while his second wife lived in their house here, along with their son.
The Special Commissioners, who rule in tax disputes, found in HMRC’s favour in October 2006 and Mr Gaines-Cooper’s subsequent appeal to the High Court, in November 2007, also failed.
Key issues arising from the case included HMRC’s decision to count every night spent in the UK by Mr Gaines-Cooper, turning, for example, a Monday-to-Wednesday visit from one day in the UK to two days. This is confirmed in the latest version of IR20, HMRC’s guidance on residents and non-residents’ liability to tax, published in July 2008.
More significantly, it appears that even if someone leaves the UK, establishes a home overseas and spends less than 90 days in the UK, HMRC will not necessarily accept that they are non-resident. Rather, it seems that the taxman requires evidence of a clean break with the UK and a change in the pattern of the individual’s life that indicates they are no longer resident.
The IR20 booklet also makes it clear that the terms resident and ordinarily resident are not defined in the Taxes Acts but that their meanings are largely based on rulings in the courts. It adds that while IR20 “sets out the main factors that are taken into account…we can only make a decision on your residence status on the facts in your particular case.”
HMRC admits in the preface that the guidelines need updating and that full replacement guidance will be published “soon”, so all may become clearer in due course.
Meanwhile, the safest conclusion we can draw from all this appears to be that when it comes to domicile and residence, assume nothing and proceed with caution, armed with the advice of a good accountant.
For more information, contact Watson Buckle on 01274 516700.