TT147: Tax Residency

March 22, 2010

February 2010 has seen the latest decision in the battle between Robert Gaines-Cooper and HMRC.

Twenty or so years ago Mr Gaines-Cooper contends that when he purchased a home in the Seychelles and also married a “local girl” that he became non UK tax resident and in due course non UK domiciled.

Although Mr Gaines- Cooper, a very successful businessman, maintained considerable business and social ties with the UK he considered that he played the non residence “game” correctly, by establishing genuine and considerable personal and business ties in the Seychelles and retuning to UK for less than 90 days per annum.

HMRC argued that by not severing connections with the UK Mr Gaines-Cooper remained UK resident, ordinarily resident and Domiciled and hit him with tax assessments covering twenty or so years. The case went to the Court of Appeal with HMRC winning on all counts in 2008. But that is not the end of the story.

Mr Gaines-Cooper considered that he had followed the HMRC guidance in their booklet IR20 which had been regarded as authoritative guidance on residence matters. He asserted that HMRC in pursuing him had acted contrary to their published guidance and had effectively changed their interpretation of the law on residence so he applied for a judicial review. The Court of Appeal has now ruled that the guidance in IR20 was not binding and that in any event the Revenue had acted in accordance with the law and had not changed their interpretation of the law.

Not many of us were surprised that Mr Gaines-Cooper was held UK domiciled, but there seems little doubt that the Revenue have changed their attitude to individuals becoming non UK resident and the requirements for establishing such status particularly where the individual is claiming residence in tax havens such as the Channel Islands and Monaco.

HMRC have issued an updated version of their guidance in HMRC6 which we are all now supposed to follow but can we rely on the written words? Although we have a new way of counting days for residence purposes (counting nights of presence with a limited exception for transit) it is clear that the “90 day rule” is not a prime determining factor in looking at residence. It is clear that there is now a very nebulous test with each case now turning on its own facts. Whereas it is fairly easy to spot circumstances which are going to be a problem it is harder to decide upon which side of the line marginal cases will fall. HMRC will be buoyed that the decisions are going in their favour and already we are seeing them take a more aggressive attitude in tax residency cases.

Where an individual becomes resident in a country with a tax treaty with the UK, the treaty may provide some protection against HMRC attack and we are seeing this as a growing area of opportunity for clients. This is an area overall where the law is changing and all who claim non UK resident status would be well advised to assess their status a fresh.


Barnes Roffe Topical Tips:

  • If you consider yourself non-resident, or intend to become non-resident, review your plans immediately to check compliance under the new rules.
  • Ensure you keep detailed records to support any challenge by HMRC.
  • Remember, without records it would be very difficult to resist an argument from HMRC that you are resident.
  • The more visits you plan to make, the greater the care you need to take as each visit will add one day on to the total.
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