New legislation to clarify issues around residency.
As we know from case law, UK residence and domicile status is important in order to determine an individual’s liability to UK taxes. Surprisingly, residence has not been defined in the legislation but has been based on practice, supported by small pieces of statute. Much of the practice was contained in booklet IR20, which provided guidelines as to residence, but was superseded by the much bulkier HMRC6.
The problems with relying upon guidance inadequately supported by statute were brought into sharp focus by a series of cases brought by Mr Gaines-Cooper. Mr Gaines-Cooper was born in England in 1937. He bought a property in the Seychelles in 1975 and moved to Canada in 1976. In 1979 he married and moved to California; the marriage was dissolved in 1986. In 1988 a Panamanian company controlled by Mr Gaines-Cooper bought a large house in Berkshire, where he lived when he visited the UK.
In 1993 he married a woman who had been born in the Seychelles, but had lived in the UK since 1977. In 1998 their son was born in the UK where he continued to live with his mother. His father visited each year for a limited time and contended that he was not resident in the UK, in line with the published guidance, then in IR20. The case went through the court system to the Supreme Court; at each stage establishing that he was UK resident, ordinarily resident and domiciled. This case is reported here.
It has become obvious that some certainty is necessary and the Finance Bill has attempted to do that by listing a series of tests as to residence. There are four ‘automatic UK residence’ tests, five automatic ‘overseas residence’ tests and split year tests for employees coming to the UK or leaving during the year and for transportation workers. Ordinary residence is to be abolished, but will remain relevant for some purposes.
Non-UK domiciled individuals have long been able to be taxed on the remittance basis, but the Finance Act 2008 introduced financial penalties to deter long term residents from claiming this basis.
Further guidance is being prepared on the new £50,000 levy effective from 6 April 2012-13 examining what constitutes a remittance and the extent to which relief can be obtained under double tax agreements.
You can find out more about this suite of guidance materials and when they will be available on ACCA UK’s Technical Advisory webpages.