In February 2010, there was substantial media interest in a tax case concerning residence status. The main advantage of claiming non-resident tax status in the UK is that non-UK income and worldwide gains may be protected from the UK taxman. Therefore, a person working and being paid abroad may not have to pay UK tax.
 
Recent news headlines exclaimed ‘Tax exiles may have to pay back taxes after ruling’ and created a tremendous amount of interest in the UK residence rules. Scaremongering has resulted in fear amongst the British expat community.
 
However, after a full digest it seems that this recent judgement should, in fact, reassure many who claim to be non-resident for UK tax purposes.
 
The case concerned Robert Gaines-Cooper, a British man who had lived abroad for many years and claimed he was non-resident for tax purposes. The courts and the taxman found otherwise, despite Gaines-Cooper’s various appeals. The businessman did not have a strong case: he spent 150 nights in the UK in one year, owned a substantial UK property where his wife and child lived and maintained significant business interests in Britain. The tax bill he now faces paying is GBP 30 million – reason enough for the taxman to pursue this case to the end.
 
This latest Gaines-Cooper ruling, in February 2010, found unanimously that the published UK residence rules provide accurate, reliable and (in certain circumstances) binding guidance. It also found that HM Revenue & Customs have not, in fact, changed the rules or (covertly) their approach. The taxman has certainly increased the level of scrutiny on non-resident taxpayers, but the approach has been consistent with the published guidance and the precedent set over many years.
 
Nevertheless, a couple of important points have been highlighted by these recent events.
 
Firstly, the ruling confirmed that if a taxpayer leaves the UK for full-time overseas employment, which lasts for one complete tax year, and remains within the standard visiting limitations, that person will be non-resident. Do remember that any work duties performed in the UK must be ‘merely incidental’ to those performed abroad. It is also clear that having a home, family and regular return visits to the UK (provided they are within the limitations) will not impact non-resident status. This is good news and a welcome clarification which will set many people's minds at rest.
 
Secondly, the ruling confirmed that if a taxpayer leaves the UK for any other reason, the bar is set much higher. Those who fall into this category need to demonstrate that they have made a clear break from the UK. This would normally involve giving up a home and breaking links to clubs as well as financial, social and family ties. Clearly it is not enough to move abroad purportedly for permanent residence without full-time overseas employment and yet leave close family (spouse and dependent children) in the UK, or to keep a property in Britain that is used regularly.
 
For some, this is bad news: many expatriates are retired or work part-time abroad but have maintained active ties to the UK, such as a property or regular visits to immediate family. The ruling is explicit that unless a clean break from the UK can be demonstrated, there is a presumption that UK resident status will have continued. Emboldened by this, it may be the case that the taxman increases scrutiny of non-residents in this category, especially those who are very wealthy.
 
In short, anyone who is not in full-time overseas employment and who maintains ties to the UK needs to think carefully about their position and what steps need to be taken to protect their non-resident status. Every case is reviewed on its own merits, and it may be worth investing in professional advice. The Fry Group provides 'Residence Reviews' that look at all relevant matters to identify and minimise risks, and provide expats with peace of mind that their financial position is as secure as possible.

Martin Rimmer, International Tax Manager, The Fry Group

www.thefrygroup.co.uk

Got questions? Contact Martin via our Ask the Expert channel (in the Tax category).