UK expatriates are likely to face increased scrutiny from the tax office after a British entrepreneur based in the Seychelles lost a landmark court ruling this month. He faces a tax bill estimated at £30m, after losing a High Court appeal over his tax status. The court ruled he could not be excused from the tax bill despite spending fewer than 91 days per year in the UK because the country had remained “the centre of gravity of his life and interests”. Decisions in recent UK court cases highlight the requirements for a previously UK-resident individual to become non-UK resident.
According to Michelle Kotze, International Tax Services, Ernst & Young Middle East, “For residents of the Gulf region, the decision in this case would seem only relevant for those previously UK tax resident. However, although the case deals with individuals seeking to lose UK residency and is not directly applicable to those who are non-UK resident and are trying to avoid becoming so, it is perhaps illustrative of an increasingly aggressive approach by HMRC in enforcing the UK’s residency rules."
The court emphasizes the importance of “pattern of lifestyle” in determining UK residency and dispels the myth that simply spending less than 91 days in the UK is sufficient for an individual to be treated as non-resident there. Last year, Her Majesty’s Revenue and Customs (HMRC) replaced previous guidance on this issue (IR20) with HMRC6, a booklet containing guidance on residence, domicile and exposure to tax in the UK. This states that “just because you leave the UK to live or work abroad, it does not necessarily prove that you are no longer resident here.” The Court in the above case stressed that the guidance must be construed as a whole, by reference to all its provisions.
A person is not entitled to non-resident status for tax purposes unless he leaves for and remains in full time employment throughout the relevant tax year and he meets the 183 day or 91 day average tests. In order to show that a taxpayer has left the UK permanently, there must be a severance of that “which previously bound the taxpayer to the UK.” The maintenance of family or social ties in the UK is likely to damage an individual’s case that they have broken UK residence.
“The court ruling is a definite eye-opener. It clearly demonstrates the implications that one needs to consider when dealing with taxation and residency issues. As much as Britons across the world may seek exemptions, it is clear that the facts surrounding an individual’s lifestyle will be considered on a case by case basis and one should not ignore the possibility of similar judgments in situations where an individual makes few visits to the UK. Clearly, one needs to navigate this with sensible tax counsel and make no assumptions whatsoever,” concluded Michelle.
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