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UK Taxman successfully takes on British Expats over Non Dom & 90 day rule

Since our last edition, quite a few clients have been asking us regarding the Non Dom and 90 day rule for UK Expats. The reason for this is because the taxman has been on the offensive against people who use non-resident and non-dom status to reduce their tax bills, as two recent cases about these issues show. In both cases, the individuals concerned thought that they were playing by the rules and in both cases HMRC seem to have moved the goalposts.

When Robert Gaines-Cooper fell in love with the Seychelles 30 years ago, he decided that he would restore a luxury villa there and make it his home. Always careful to abide by HMRC’s rules and remain outside the UK for all but 90 days of each year, Mr Gaines-Cooper was convinced that his tax status as a non-resident was safe.

Non-residence typically guarantees exemption from UK income tax, even if the taxpayer has some property there.

The case was argued all the way up to the Court of Appeal, where the judges held that although Mr Gaines-Cooper was physically in another country for most of the year, the United Kingdom remained his “centre of gravity”. Factors the court took into account included his decision to educate his son in the UK, keeping his collection of valuable antiques there and his wife living in their luxury mansion in the UK.

The decision serves as a warning shot for every Brit who has left the UK and considers themselves to have shaken off residency. Rather than leaving us with a set of criteria for non-residency that is set in stone, the Gaines-Cooper case has given HMRC the green light to pick over all of a taxpayer’s circumstances to come to a decision about whether they have made a “clean break” with the UK.

The consequences of getting it wrong can have a fatal effect on your tax planning, as Mr Gaines-Cooper discovered to his cost. He now faces a tax bill of £30million.

The other big tax case to hit the headlines recently involved a corporate financier who worked in the City but hailed originally from Austria. Andreas Tuczka assumed that as he intended to return home before the third anniversary of his arrival to work in the UK, only his UK earnings were within the reach of the UK Treasury. This was the rule that non-doms widely believed was safe to live by: that such workers were not “ordinarily resident” in the UK and therefore did not pay tax there on their worldwide income.

But HMRC decided that Tuczka’s intention to return home soon was irrelevant. He was ordinarily resident here, so he must pay them tax on his worldwide earnings.

With the public finances being so poor, it is widely expected that HMRC will become more and more aggressive in their pursuit of people who make the most of their non-dom or non-resident status to mitigate their tax liability.

Accordingly, anyone who has left the UK or plans to do so with a view to becoming a non-resident needs to speak to one of our advisors urgently regarding their affairs. It’s not enough to go by the old HMRC guidance. Every expats needs to have their financial arrangements examined in detail to check that their tax status is truly protected.

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