The rules are changing!.jpg

The rules are changing!

By Bill Blevins, Financial Correspondent

Blevins Franks

UK tax authority finds yet another way to tax UK non-residents. A decision by the Special Commissioners – the “tax disputes panel” – has sent an ominous signal of the UK authorities’ intent to crack down on wealthy Britons who are resident abroad for tax purposes.

The ruling, by the Special Commissioners upheld an interpretation of tax residency rules by HM Revenue & Customs (HMRC), which runs counter to the tax department’s own guidelines. The UK Chancellor needs to bolster a huge gap in public finance and sees the expatriate as a soft target.

The case in question involves businessman Robert Gaines-Cooper, a British-born multimillionaire based in the Seychelles, who has claimed not to be resident in the UK for tax purposes.

Under UK tax law, a person is treated as non-resident for tax purposes provided that they spend no more than 90 days in the country. This allows wealthy business owners to live in low-tax jurisdictions such as Monaco and Switzerland, but jet into the UK for one day per week to do business.

However, in the eyes of the Revenue, Gaines-Cooper could not be considered non-domiciled because he maintained strong links with the UK, for example, by schooling his son in the country, among other factors.

The HMRC is also now taking a more stringent approach to how it defines time spent in the UK. For example, the common practice of flying into the UK on a Monday, working on a Tuesday and flying out on a Wednesday, was usually assumed to count as one day spent in the country (because days of arrival and departure were not counted). But, according to HMRC’s new position, validated by this Special Commissioners ruling, the individual is effectively spending two days in the UK.

Reports suggest that Gaines-Cooper will appeal the decision to the High Court, although a hearing might not materialise for about a year. This case has been rumbling on since around the year 2000.

If the decision is upheld, this will have a serious impact on wealthy individuals living offshore, but spending time in the UK each year. It is also a reminder of the importance of cutting connections with the UK if you are to claim non-resident or non-domicile status. The case could have other UK inheritance tax implications because of the “17 out of the last 20 years” rule. If, under new rules, the Revenue decides you were resident in the UK for a year where you thought you were non-resident, you may fall into the inheritance tax net.

EU maintains pressure on

Hong Kong over tax agreement

The EU is persisting in its attempts to convince Asian financial centres to co-operate on the issue of information-sharing for tax purposes.

According to a Financial Times report, Thomas Roe, the European Commission’s envoy to Hong Kong and Macau, approached the two governments to discuss the possibility of their inclusion in the EU Savings Tax Directive.

While the EU is very keen to tax the savings and investments that European residents have shifted to Asia, it may have a fight on its hands. The Asian financial hubs are unlikely to want to sign up to anything that would compromise their status as low tax and lightly regulated jurisdictions. However, a few years ago, Switzerland was in the same boat and yet today it co-operates with the Directive.

Even honest mistakes can now be considered fraud – according to the taxman

In the UK, the new Fraud Bill, which may soon be accepted by parliament, could see more taxpayers prosecuted, warns accountants UHY Hacker Young.  

This is because the Bill proposes to change the definition of fraud in dealings with HMRC from “knowingly making false statements” to “deliberately failing to disclose information”.  

A partner at Hacker Young, said: “There is a significant difference between knowingly making a false statement and deliberately not disclosing information. The Revenue’s powers to extract information will be strengthened by this bill.”

Under present rules, if individuals failed to provide information requested by the taxman in the course of its inquiries, they typically just face fines.

Under the new legislation, the omission of information – even as a result of an honest mistake – could be an imprisonable offence.

This is another example of the UK revenue continuing to strengthen its powers to obtain information.

Make sure you do not waste

money on inadequate

inheritance tax planning

New research has shown that, while the standard of IHT planning by Britons has improved compared with last year, they are still expected to waste about 1.3 billion pounds sterling on poor IHT planning this year.

The most widespread cause of IHT tax wastage is the inclusion in personal estates of the proceeds of life assurance policies which, if written in trust, would not be subject to IHT. These errors are estimated to account for 119 million pounds sterling in erroneous tax wastage.

However, far more tax waste results from a simple lack of inheritance tax planning within personal estates. This waste has been quantified at almost 1.2 billion pounds sterling this year alone.

This is a reminder of the importance of seeking expert advice when it comes to tax and estate planning. Many expatriates remain liable for IHT because it is based on domicile and not residence, yet many fail to plan to avoid it because they mistakenly believe that they have escaped this tax by living overseas.  

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