UK resident status

news: UK resident status

Make sure you check the detail

TO ENSURE that one is not UK resident for tax purposes, it is usual to follow Revenue guidance and limit return visits to less than 90 days per year. However, a recent Commissioners’ case shows that reliance on this rule is not always enough.

The problem stems from the fact that the 9O-day rule is not set down in statute, nor has it in fact been the subject of much case law either. The real test as to whether someone has broken UK residence or not is a definite break from one’s normal mode of living.

So, for example, if a pilot only spends 60 days a year in the UK because he is either flying planes or on holiday abroad, it does not necessarily mean he will be non-UK resident. If, when he is in the UK, he always stays at the family home with his UK-resident wife and children, then he will be treated as temporarily abroad, therefore remaining a UK-resident.

A pilot was at the centre of the recent case, Shepherd vs IRC, where the taxpayer was held to be a UK-resident in spite of being present in the UK for less than 90 days a year. Central to the taxpayer’s argument was that he had set up home in October 1998 in Cyprus, intending to retire there in April 2000. He ensured that from October 1998 onwards he spent less than 90 days a year in the UK.

When in the UK, he mostly stayed at the family home with his wife and son. The Commissioner spent quite some time analysing the case law on residence, to come to the conclusion that Shepherd had left the UK only for “occasional residence abroad”. This caused him to fall within s334 of ICTA 1988, which states that a Commonwealth citizen whose ordinary residence is in the UK will remain taxable in the UK if they have left for occasional residence abroad. Several factors were important to lead to this conclusion, mainly (i) he returned to the UK to carry out employment duties, (ii) he already had a residence in the UK, which he continued to use and (iii) he returned to the UK to attend the Boat Show and to celebrate the Millennium, which the Commissioner ruled were not temporary purposes.

The consequences of this case show that, once again, the residence rules in the UK are far from black and white. It is not enough to merely count days in and days out – one must go further and genuinely go abroad for a settled and permanent purpose. The case also suggests that the Revenue is getting a bit tougher on those who claim to be nonresident, even those who are following its own guidance in IR2O.

Other points made by the Commissioner are worth noting:

• A reduced presence in the UK of a person whose absences are caused by their employment, and are therefore temporary absences, does not necessarily mean that the person is not residing in the UK.

• The availability of living accommodation in the UK is a factor to be borne in mind in deciding if a person is resident there.

• The fact an individual had a home elsewhere is of no consequence.

• There is a difference between the case where a British subject has established a residence in the UK and then has absences from it, and where a person has never had a residence in the UK at all.

• Where there is evidence that a move abroad is a distinct break, it could be a relevant factor in treating an individual as non-resident.

• A person could become non-resident even if their intention was to mitigate tax.

The present stance being taken by the UK Revenue suggests that individuals who in recent years became nonresident from the UK do still need to take extra care when planning their residency status. Clearly the UK Revenue are getting tougher on expatriates where there is a hint of a case where it could be proved, that true nonresidency can be argued.

The stance is a new tactic by the UK Revenue but of course could have severe financial consequences to individuals who have planned their affairs in the belief they were in fact UK nonresident.

The moral here is spend time clearly defining your tax position.