Thinking of leaving the UK? Be sure to sever all ties

Thursday, April 08, 2010 | Posted by: Sue Knight
Categories: Protecting your wealth | Tags: tax, HMRC, Sue Knight, tax havens, domicile, HMRC6, residence, Gaines-Cooper, residency, IR20, UK residents, non-residency, status

An intolerable uncertainty now exists for UK non-residents following the outcome of the Judicial Review hearings of Davies, James and Gaines-Cooper – as I outlined last month in UK residency status all at sea as HM Revenue & Customs (HMRC) targets tax exiles. But what does this mean if you are intending to leave the UK, other than under the full-time work abroad rule or the full year out rule?

The key point to note is that it is no longer simply a question of counting the number of days you are physically present in the UK during a tax year. Similarly just the act of leaving the UK to go abroad does not mean that you will automatically become non-resident in the UK for tax purposes. Following the Judicial Review, it is clear that the issue of a distinct break with the UK is of utmost importance and social and family ties with the UK need to be severed.

But what does this mean?

The new HMRC 6: Residents and non-residents liability to tax in the United Kingdom, which replaces the old IR20 guidelines, clearly states that if you keep connections in the UK such as property, economic interests, available accommodation, social activities or if you have children in education here, then you could still be considered as UK resident.

Squires, Sanders & Dempsey (which acted for Robert Gaines-Cooper) notes in its February tax bulletin that the degree to which family and social ties have been severed will be crucial.

Can an individual return for a wedding or a funeral? Can they attend a sporting event such as the Lords Test or a Wimbledon Final? While these appear trivial connections, the precise degree of severance needed is far from clear. It will only be with further litigation or specific, clear guidance from HMRC that taxpayers will have the clarity they need to plan their affairs.

In the meantime, however, and amid the backdrop of such intolerable uncertainty, it is clear that a distinct break means completely severing all links to the UK, ensuring that there are no return visits to the UK in the first year of non-residency and that any future visits are kept to an absolute minimum.

This will be hard for many to achieve including those who currently believe that they are non-UK resident, whose non-residence claims will no doubt come under the rigorous scrutiny of HMRC in the coming months.

Image: © Deborah Austin, 2009

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