Fears that last month’s UK Supreme Court ruling about the tax affairs of Seychelles-based millionaire pose a widespread threat to 'tax exiles' and British expats have been discounted by financial professionals. However they do acknowledge it has introduced an element of uncertainty as to who is and who is not tax resident in the UK.
The millionaire expat, aged 72, left the UK in 1976 for the Seychelles and argued that as he obeyed the rules which allow him to stay less than 90 days in the UK, he had lost his UK tax residency.
But HMRC argued he had not “made a clean break”. Among evidence cited was that he kept a family home in Henley-on-Thames, a UK-based collection of classic cars and made regular trips to Ascot. After a 13-year legal wrangle, the High Court ruled for HMRC, leaving the millianaire expat liable for back UK taxes.
HMRC is working on a “statutory residence test” to replace guidelines with a clearer definition, and which is planned to be in place in April 2012. A consultation process ended recently, and some announcement is expected this year .
Greg Jones, a partner of KPMG Isle of Man, said: “I don’t think the Gaines-Cooper decision creates further uncertainty as it was an extreme case. I didn’t think the HMRC arguments were at all unreasonable.”
But he said uncertainty has been created by the withdrawal of the old IR20 guidelines and its more recent replacement by new ones, HMRC 6.
“In particular we have had the removal of the 90-day safety threshold. HMRC no longer indicates that if you keep within 90 days a year you’ll normally be treated as non-resident. That’s made it very difficult to advise a frequent visitor who has some sort of ongoing connection that he can probably stay for up to 90 days.” He said the proposed statutory test, which uses “connecting factors” criteria, will provide more clarity.
Neil Chadwick, technical director of Royal London 360 degrees, believes the case is unusual, as Gaines-Cooper’s circumstances were different from those of the average UK expatriate who would be living with a family overseas and let out a UK home.
“The proposed new tests of statutory residence will be welcome as they clarify the issues. I think some people will be put off from moving to the UK because of uncertainty in the meantime,” he adds.
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