The long arm of the UK
A recent case has made it clear that if you have maintained connections with Britain
For many British expats who have been banking abroad and assuming that their savings are safe from the long arm of Her Majesty’s Revenue, things have just become very much more complicated.
A recent tax case has made it clear that if you are a
This case involved British businessman Robert Gaines-Cooper. He argued that he did not owe taxes in the
He pointed to the rule in HMRC’s own leaflet IR20 that defines a non-resident as one who spends less than 91 days per year in the
The Court of Appeal rejected this claim, on the basis that taxpayers must show a “distinct break” from social and family ties to the home country, and that spending all but 91 days outside the country is necessary, but not sufficient to establish non-resident status. It then handed him a £30million tax bill for the years 1993 to 2004 for his trouble.
Frighteningly, this was not down to a change in the rules. All that has happened is that the rules have been widely misinterpreted for some time, a flight of wishful thinking that the court has forced back down to earth.
There never has been a rule which says that the number of days spent in the
The decision could affect thousands of British expats who have lived abroad for many years, but who still spend time in the
All may be at risk from an increasingly aggressive HMRC, whipped into a frenzy by a government desperate for more tax to cut an increasing national deficit.
Most countries operate similar systems. If you spend a certain number of days in the country, you must necessarily be resident, even if already tax resident elsewhere as well.
But even if you don’t spend the requisite number of days, you may still be resident if the country in question is at the centre of your economic or social life, or is the place of closest connection. It’s this latter point which has often been missed.
The court confirmed that HMRC was bound by the terms of IR20, but there was an implied condition – that to be treated as non-resident, there must be a distinct break with the
Mr Gaines-Cooper had a house in
In the court’s view, therefore, he could correctly be treated as resident in the
The court deemed that the correct interpretation of tax residency status turned on whether
In other words, if you spend more than 91 days in the
Mr Gaines-Cooper has been granted leave to appeal to the Supreme Court.
His counsel told the BBC that HMRC was “playing games” with his client, and mischievously reinterpreting its own guidance, turning it “from a sensible, practical, guide into something meaningless and, which is worse, a devious trap”.
HMRC may (for that read “will”) now look to crack down on more
Last year, a new HMRC team was established, known as the high-net-worth unit, to investigate the lifestyles of some of the
HMRC said: “We are looking at residency and domicile more carefully…HMRC is committed to ensuring that all those who are resident in the UK pay the tax that is due, and this judgment will aid that effort.”
The IR20 guidance on residency was replaced last year with a new booklet called HMRC6.
This emphasises the importance of pattern of lifestyle in determining
So what to do? If you think that you may be affected, then you can change your lifestyle to remove the tax danger. But for many that will neither be either feasible or desirable: selling your
The alternative is to plan, so that if you are caught out, your exposure to
Without proper planning you may have to pay
At the very least, you should thoroughly review your arrangements. They have probably been made on the assumption that you are not
Howard Bilton is a barrister called in both
This is the first in a series of four articles that Howard will be writing for over the coming month. Why not visit our online discussion group, and post an offshore-finance related question for Howard and other members of the Sovereign Group team to answer?
