International Assignments: Residency in the UK- where are we now?
In recent weeks, there have been a number of decisions highlighting
the complexities surrounding residence in the UK
All of the decisions, including the well-known Court of Appeal case
involving Robert Gaines-Cooper, have been decided in favour of H M
Revenue & Customs (HMRC). As a result, HMRC is likely to increase
its scrutiny of those situations which concern residency.
A person’s residency status is relevant for UK for tax purposes.
For example, under UK legislation individuals living outside the UK will
be regarded as UK resident if they regularly visit the UK for a period
exceeding 90 days in each tax year, on average, for four consecutive tax
years. Therefore, if an individual’s visits do not exceed 90 days per
tax year, they are generally not regarded, for tax purposes, as being
resident in the UK.
This case involved a British national, Mr Gaines-Cooper, a
businessman with assets in the UK and Seychelles. Mr Gaines-Cooper
claimed that he had been living in the Seychelles since 1976 and
therefore was not, and could not be considered to be, resident in the
UK. Mr Gaines-Cooper was careful not to spend more than 90 days on
average in the UK in each tax year, in order to fall within the
non-resident exemption noted above. Mr Gaines-Cooper’s position was
based on HMRC’s residency guidance booklet IR 20 (although this guidance
has, from 2009, been replaced by booklet HMRC6).
The Court of Appeal ruled that Mr Gaines-Cooper had not severed his
ties with the UK and therefore, irrespective of not spending more than
90 days in the UK on average during each tax year, he should be regarded
as UK resident. The Court ruled that Mr Gaines-Cooper maintained close
ties with the UK and the centre of gravity of his life and interests
remained in the UK. The Court considered that Mr Gaines-Cooper had
never made a ‘distinct break’ with the UK when he moved to the
Seychelles in 1976 and had continued to live his life in the same way in
which he did before he moved.
The Court noted that HMRC had not changed its policy in this area
but was effecting ‘closer and more rigorous scrutiny and policing of the
growing numbers of claims’.
Another recent case involving residency considered the concept of
Individuals may become UK resident but if they are not likely to
stay in the UK for a period of more than 3 years, they will generally be
regarded as not ‘ordinarily resident’. A UK resident who is not also
ordinarily resident can request to be taxed on his UK earnings only and
will only be subject to UK tax on earnings and gains arising outside the
UK where these are remitted to the UK.
Dr Tuczka, an Austrian national working in the UK as an investment
banker, had initially planned to stay in the UK for less than 3 years
but ended up staying longer. The court ruled that Dr Tuczka remained in
the UK for a settled purpose, namely his employment, and had adopted a
pattern of living which continued. However, rather than finding that Dr
Tuczka became ordinarily resident after the third anniversary of his
arrival (which is normal practice as set out in HMRC booklet IR20), the
court considered that Dr Tuczka should be regarded as ordinarily
resident from the earliest year in which his pattern of continuous
living in the UK was established.
HMRC has a period of six tax years in which to review a person’s tax
affairs. Such reviews could include cases where individuals have
claimed to have left the UK but who are still making regular visits back
(as in Gaines-Cooper). Individuals coming to the UK should be aware of
the court’s finding in Tuczka which could result in them becoming
ordinarily resident far earlier than anticipated. The decision in
Tuczka seems to suggest that anyone who expects to be in the UK for a
period of less than 3 years at the outset, but who ends up staying
longer, may be at risk of challenge from HMRC where they have requested
to be subject only to UK tax on a remittance basis. If a pattern of
continuous living can be established, individuals may be considered by
HMRC to be ordinarily resident and hence subjected to more onerous
levels of UK tax far sooner than originally envisaged. Such a finding
by HMRC could also have an impact for their employers.