Residence update
The question of UK residence for tax purposes has been further clarified by the Court of Appeal.
Recent cases heard in the Courts have caused concern for those seeking to show that they are not resident in the UK.
In February 2010, the Court of Appeal gave judgment on a case involving Robert Gaines-Cooper and two other claimants, who contended that HMRC had failed to interpret its published guidance booklet IR20 correctly, unlawfully refused to apply it, and implemented and applied an unannounced change of policy. As a result, the appellants contended, their legitimate expectations in relation to their residence position were frustrated.
HMRC argued that it had not changed its interpretation of IR20 - a booklet which has since been withdrawn and replaced by HMRC6 - but that it now applied the tests contained therein more rigorously in response to the growing number of claims for non-residence.
The Court of Appeal's judgment was balanced. On the one hand, it stated that if HMRC issues public guidance, such as booklet IR20, it is bound to adhere to the terms. On the other, it accepted HMRC's contention that it had neither failed to apply the guidance nor changed its interpretation.
The 91-day rule clarified
The Court's comments on the 91-day rule set out in the HMRC guidance clarified its implications. It is not a test as to whether a taxpayer has achieved non-residence; it is a test as to whether non-resident status has been lost. In other words, keeping visits to the UK below 91 days is not a step towards becoming non-resident. First you must become non-resident. If you then spend more than 90 days in the UK you will lose your non-resident status.
Non-resident status - where are we now?
The current HMRC guidance still refers to obtaining non-resident status in three distinct circumstances:
- leaving the UK for full-time employment abroad
- leaving the UK permanently
- leaving the UK indefinitely (three years or more).
It is now clearly established that there are different criteria to meet as between those going abroad for full-time work and those who are not. Unless you are going abroad for the purposes of full-time paid work, lasting more than a complete tax year, or accompanying a spouse who is working abroad in those circumstances, it is necessary to establish a clear break from former ties with the UK in order to be considered non-resident.
Cutting the ties
If you contend that you have left the UK permanently, HMRC will expect you to have cut your ties with the UK.
Leaving the UK indefinitely anticipates, or at least does not exclude, the possibility of returning at some time in the future. This may not require a complete cutting of ties with the UK but you must still be able to show that you are living abroad and any ties retained with the UK are consistent with this status.
If you retain accommodation for your use in the UK, and your spouse or family live there, you cannot show that you have left the UK either permanently or indefinitely. Retaining ongoing business interests in the UK will also make it difficult for you to show that you have severed your ties with the UK.
Keeping records
Evidence is vital to show that there has been a distinct change in your way of life. HMRC may ask for evidence that you have registered with a local doctor and dentist and moved the location of your financial affairs. It may also want to examine your spending habits and the location of cash withdrawals, so you should keep bank and credit card statements and mobile phone records.
More importantly, HMRC will want to see that you have a home abroad and that you are registered with the overseas tax authority.
Take advice
In due course a statutory residence test may be introduced but, until then, it is essential to take advice before leaving the UK or if you feel your residence status may be affected by the Court of Appeal decision.
If you have any concerns about your residence status, please speak to your normal contact or to Barry Luscombe on 020 7516 2204 or email bluscombe@littlejohnllp.com.
