Harder to escape the UK tax net
UK resident individuals have to make a distinct break with the UK if they want the UK tax authorities to treat them as non-residents, the Supreme Court has confirmed. The decision in the long-running appeal by the expatriate businessman Robert Gaines-Cooper could result in HMRC chasing thousands of British tax exiles for backdated tax.
Mr Gaines-Cooper, who spent most of his time in the Seychelles in the years concerned, argued that he was not resident in the UK because he averaged fewer than 91 days a year here. This had been one of the tests described in HMRC’s guidance booklet IR20. In 2007, the Special Commissioners (the former appeal tribunal) upheld HMRC’s decision that Mr Gaines-Cooper was UK resident. Mr Gaines-Cooper applied for judicial review, claiming that HMRC had not followed its own guidance.
Turning down his application, the Supreme Court judges held that the 90-day test only applied to taxpayers who had clearly left the UK, whereas Mr Gaines-Cooper had continued to maintain social and family ties here. They also said that HMRC had not failed to follow its guidance but that, when read as a whole, there was enough information in IR20 for ‘an ordinarily sophisticated taxpayer’ to conclude that a person had to leave the UK permanently or indefinitely and relinquish their usual place of residence in the UK to become non-resident. The 90-day test only applied to taxpayers who had clearly left the UK.
Helpfully, the judgment confirmed that HMRC should be bound by its guidance. Mr Gaines-Cooper lost his appeal because he did not fall within it. The IR20 booklet has now been replaced by new guidance in the form of HMRC6, which explicitly explains the need for a definite break.
In June 2011, the Government proposed a statutory residence test to provide greater clarity, but has now postponed its introduction until April 2013. The consultation document proposed that residence status would be determined by reference to five connection factors with the UK, namely: family links; accommodation; doing substantive work in the UK; spending over 90 days here; and whether more time is spent in the UK than in another country. The present rule that a person going abroad to work full-time is non-resident from the outset would remain.
If you are planning to leave the UK, please ask us for advice about your residence status.