A crackdown on wealthy tax exiles could be on the cards after a landmark victory for HMRC at the Court of Appeal yesterday over its interpretation of residency laws.
The court decided that HMRC had used the correct interpretation of the UK’s non-resident policy, IR20, meaning that British-born entrepreneur Robert Gaines-Cooper is liable to pay UK tax, despite spending less than 91 days a year in the country. He may now have to pay taxes dating back to 1993, the total of which is estimated at some £30m.
Gaines-Cooper had appealed on the basis that he moved to Seychelles in 1976, but it was ruled that he never qualified for exemption from British taxes as a non-resident since he had not cut ties with the UK.
The businessman owns an estate in Oxford, where his second wife and son had resided for some time. In addition, Gaines-Cooper’s son went to an English school in 2002 and his will was drawn up under English law.
Gaines-Cooper insisted that he had adopted Seychelles as his permanent residence. Acting as a witness in the case, ex-president of the Seychelles James Mancham argued: “I think of Robert as being domiciled in the Seychelles. He belongs here and is regarded by all as Seychellois.”
A new residency test
The case has raised concerns among tax advisers over the issue of UK residency. “Retention of ties to the UK can seriously jeopardise residency status and many individuals, including those who have already left and think they are no longer resident here, need to reassess their lifestyles and take professional advice,” Ronnie Ludwig of accountancy firm Saffery Champness told the Financial Times.
"There's no doubt residency rules as they stand are confused", Richard Murphy, director of Tax Research LLP told AccountingWEB. "IR20 is not now consistent with court decisions and there is some uncertainty in complex cases about whether people are or aren't resident in the UK", he added.
"We need to have something which is based on parliamentary law, not on case law so that the vast majority of people can resolve whether they are a resident or not very straightforwardly. The guidance on what needs to be taken into account needs to be very clear", said Murphy.
According to a report in the Guardian this week, the Treasury is currently in talks with the country's top wealth advisers and accountants to introduce a new law on residency. The report indicated that a working party is soon to conclude its study and the law could be introduced next year if Labour retains power at the next election.
What this case proves, argues Murphy, is that any possible new rules will not be based on the number of days individuals are resident in the UK, although that could play a part.
Despite Gaines-Cooper's high profile case, any new laws will not just affect wealthy citizens. "The majority who come into or leave the UK are doing so for employment and need to know how they will be taxed from day one. High net worth individual cases are actually in the minority. The real clarification is needed for those actually in employment", said Murphy.
An HMRC spokesperson told us the Revenue was "pleased that the Court of Appeal has confirmed that HMRC’s interpretation of its guidance on residency in booklet IR20 was correct and that the Court has agreed with HMRC that there has been no unannounced change of that interpretation".
"It is also useful that the Court of Appeal has acknowledged that HMRC can increase compliance activity in an area so that it can ensure it catches those who may have previously not paid tax that is due".
He added that HMRC remained "committed to ensuring that all those who are resident in the UK pay the tax that is due and this judgement will aid that effort.
"HMRC will study the judgement in detail before making any further comment."
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I've been a journalist for four years, writing on a wide variety of topics from business and finance to travel, culture and celebrities. I began my career as an editorial assistant for Palladian Publications, a B2B publisher specialising in technical magazines for professionals in primary industries. I later moved into consumer magazines as a...