Creaseys: UK Tax Residence Decision Sends Shock Waves Through Tax Profession

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A recent decision by the UK Supreme Court on October 19 has sent shock waves through the tax world.

A recent decision by the UK Supreme Court on October 19 has sent shock waves through the tax world, reports Richard Holme, a Tax Partner with Creaseys LLP, a firm with several hundred non-dom and non-resident clients. It concerned the Seychelles-based entrepreneur, Robert Gaines-Cooper and declared that he did remain resident in the UK throughout the period 1992 to 2004 and hence was liable to full UK tax on his worldwide income and gains. He claimed he merely followed UK tax authority published practise, as set out in Booklet IR20, and hence was not resident.

This decision throws the door open to the UK tax authorities to target a large number of mobile executives, as well as high net wealth individuals.

“Now it is clearer than ever that someone leaving the UK for long periods needs to make a ‘clean break’ in order to cease being tax resident,” says Richard Holme.

Gaines-Cooper, like many entrepreneurs, was highly mobile and in a typical year might spend as much as 150 days on flights. The Lords heard how he lived 'an international existence' from 1976 to 2004. His days in the UK were well within the 90 day average prescribed in the (much maligned) Revenue booklet IR20. The Court however agreed with the Revenue that Gaines-Cooper had never actually left the UK and cited continuing connections with the UK such as a substantial UK house, race horses, car collection and his son being at school, wife living here, etc. This meant that the UK continued to be the 'centre of gravity of his life and interests'.

“Thankfully, proposals have been published for a statutory definition of tax residence for individuals and it is likely these will take effect from 6 April 2012,” says Richard. “For the time being, however, and for periods to April 2012, advising on tax residence has become a high risk area for advisers (and their clients!) with large amounts of tax often at stake.”

Richard continues: “Tax law in this area has not kept up to date with modern technology, travel and working practises and has created a huge degree of uncertainty for international business. Wealthy individuals may be wary of visiting the UK frequently or having UK connections as this may trigger substantial tax bills. We are advising a number of clients in this area at present, but sometimes with a large degree of caution.”

Creaseys is a member of IGAF Polaris, a substantial international association of accountants and tax advisers with 843 offices in 89 countries, and has several hundred non-dom and non resident clients.

“We welcome the new statutory definition of tax residence, but it will not take effect for another six months or so,” adds Richard. “We very much hope that the legislation to be published on December 6 will be clear and unambiguous. Massive tax planning opportunities continue for those arriving in the UK and being able to claim not ordinarily resident or non-dom status.”

http://www.creaseys.co.uk

Notes to editors:

  •     Kent-based Creaseys has eight partners and a team of approximately 80. The practice has been established for more than 150 years and works with forward thinking businesses and individuals in the Tunbridge Wells area as well as further afield.
  •     The practice has two specialist divisions: Corporate & Business and Private Clients.
  •     Within Corporate & Business, Creaseys has developed particular expertise in a number of sectors including property; IT and telecoms; charities and education; agriculture; private equity; and professional practices.
  •     In its Private Clients division, Creaseys has strong skills and experience in high net worth individuals, trusts and estates; and non-domiciles (particularly providing tax advice to non-domiciled taxpayers).
  •     Creaseys is a founding member of the Kent Corporate Finance Alliance (KCFA) and is also a member firm of IGAF Polaris, an association of independent firms that shares ideas and expertise across the globe.
  •     Creaseys trains young accountants in both tax and accounting disciplines and enjoys enviable success, with a number of prize winners over the last three years.
  •     The firm has a very strong CSR programme and currently supports local Tunbridge Wells-based charity Yippee!, which provides a social network for young people with acquired brain injury.

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