Uk Overseas Tax Ruling

[MJP]

`The Court of Appeal ruled that Robert Gaines-Cooper was liable to pay UK tax despite spending less than 91 days a year in the country because England had remained "the centre of gravity of his life and interests`

http://business.timesonline.co.uk/tol/busi...et=0&page=1

[Artamus]

A strange ruling, and having read the short article am non the wiser. I suspect there's more to it than reported.

[wordchild]

not a surprise this really. The revenue has been tightening up the residency rules/guidelines recently (refer HMRC6) and this ruling is inline with that. The key point is that to be treated as a non-resident for tax ,you need to demonstrate that you have broken ties with the UK to a significant degree; it is not just a matter of days spent in the country its about how much of your life is based in the UK eg where is your wife? do your kids still go to school there? are you on any corporate boards? are you still a member of your local golf club? The revenue is really going after those who abuse the residency tax concession,eg those who jet in from Monaco or Jersey for a couple of days every week (watch out Philip Green!).

The best advice now, to avoid problems,is to cut right back on ties to the UK. Dont keep any property there;dont send your kids to school there,(both of these were key to this case); resign from club memberships;move all banking offshore;dont keep a car there; keep your visits to a minimum,and keep total time spent well under ninety days etc etc.

Edited February 17, 2010 by wordchild

[chiang mai]

This comes as absolutely no surprise and is just the tip of the ice berg for many ex pats. Brierly, if you read this, this is exactly the scenario I suggested that HMRC was moving towards when we discussed the subject about a week ago.

[MJP]

More from the BBC . . .

http://news.bbc.co.uk/2/hi/business/8519803.stm

[12DrinkMore]

Nothing strange here.

He was obviously trying to avoid paying tax by using the 91 day rule, but otherwise he had substantial assets in the UK.

30,000,000 will certainly help out Darling, who is desperate for income. And 70+ year old Gaines-Cooper will not miss the money in his coffin anyway.

Pity the Greeks are not so fastidious about collecting taxes from their own countrymen. Doubtless it will come.

Nothing is more and even more certain in these times of massive government budgets than the tax bill. And the sooner the lying Greeks, the cheating Italians, the sponging Spanish and the takin' the piss Portuguese realise that they cannot carry on the better for the global and my personal finances.

[PattayaParent]

Some of what is written in that article is plain wrong.

[chiang mai]

Some of what is written in that article is plain wrong.

Can you expand on that?

[PattayaParent]

^

1. "Non-domiciled individuals, or “non-doms”, are people whose family originate from overseas and typically retain affiliations with that country."

You can be a Bitish citizen, resident in UK and be non-domiciled for UK tax purposes.

2. "Until 2008 those residents not domiciled in Britain paid tax on foreign income and gains only when these were remitted to Britain. In short, non-doms avoided tax on money earned outside Britain unless they brought it back into the country. They can still do so if they pay the Government £30,000 each year."

Non Domiciled residents only have to pay the 30k Quids after they have been resident in UK for 7 years. Prior to 7 years they can still remit tax free.

3. "Non-residents are not generally liable for income or capital gains tax, except on income arising in Britain. They usually pay national insurance contributions on work they do in Britain for a British employer."

I'm not totally sure about this one but it doesn't sound right. However if you work for a British employer overseas you have to pay NI contributions for the first year that you are employed and can then opt out.

4. "The best way to give up your British residence status is to move abroad permanently or take a full-time contract overseas. You should be non-resident for at least three tax years."

I beleive he's probably referring to non-domicile status, not residence.

[caf]

The rules of being resident, ordinarily resident and domiciled have not changed; they are being more rigorously applied.

How one fits into all three rules is important.

caf

[tmd5855]

The best and in my view the only way to stay legit is to follow the tax man advise.

Do the 90 day rule, have done so for 6-7 years while living in thailand the past 6.

Advised by the tax man that to obtain my NT coding had to satisfy him on a number of issuses. This I complied with.

Work offshore in Asia doing 4 weeks on/off and in live Pattaya.

Return to the UK for 5 nights during my 4 weeks off. Maintain a property 48miles from Heathrow. which is shared ownership (UK wife, but seperated).

Have salary deposited in a bank outside the UK, demonstrate own accomodation outside the UK along with normal domestic expenses.

Show work visa's for asian countries and the proverbial type "O" visa for Thailand.

Would imagine that the majority of ex-pats would be similar? Only those that do not do full disclosure or trying to lie low (scam) would need to worry.

Edited February 18, 2010 by tmd5855

[chiang mai]

^

1. "Non-domiciled individuals, or “non-doms”, are people whose family originate from overseas and typically retain affiliations with that country."

You can be a Bitish citizen, resident in UK and be non-domiciled for UK tax purposes.

2. "Until 2008 those residents not domiciled in Britain paid tax on foreign income and gains only when these were remitted to Britain. In short, non-doms avoided tax on money earned outside Britain unless they brought it back into the country. They can still do so if they pay the Government £30,000 each year."

Non Domiciled residents only have to pay the 30k Quids after they have been resident in UK for 7 years. Prior to 7 years they can still remit tax free.

3. "Non-residents are not generally liable for income or capital gains tax, except on income arising in Britain. They usually pay national insurance contributions on work they do in Britain for a British employer."

I'm not totally sure about this one but it doesn't sound right. However if you work for a British employer overseas you have to pay NI contributions for the first year that you are employed and can then opt out.

4. "The best way to give up your British residence status is to move abroad permanently or take a full-time contract overseas. You should be non-resident for at least three tax years."

I beleive he's probably referring to non-domicile status, not residence.

Yes indeed, I just wanted to see if you picked up on something I had missed but we agree, it's an issue of non-dom status.

[chiang mai]

The rules of being resident, ordinarily resident and domiciled have not changed; they are being more rigorously applied.

How one fits into all three rules is important.

caf

I think that with the arrival of HMRC6 the rules have changed, the categories still remain but the rules for fitting into a particular category have now moved on, case in point is the 91 day rule which now is no longer sufficient by itself to qualify a person for non-residency. Also, HMRC6 describes a five year rule which is something that's brand new, remain as an expat for less than five years and the previous years earnings become liable to tax.

[Naam]

This comes as absolutely no surprise and is just the tip of the ice berg for many ex pats. Brierly, if you read this, this is exactly the scenario I suggested that HMRC was moving towards when we discussed the subject about a week ago.

it's the usual practice in Germany since a long time. i got skrued in 1989 and had to pay income tax for 5½ years because i kept my house in Germany and did not rent it out. we used to spend less than 60 days p.a. in our house; 2 weeks in winter (Christmas and New Year) and 3-4 weeks in summer. in the process i learned that even without spending a single day in Germany i would have been liable to pay

[chiang mai]

Some more detail on this here:

http://www.timesonline.co.uk/tol/money/tax...icle6936341.ece

[dabhand]

Looks like Mr Darling has hit upon an ideal way to raise more taxes - remove NT tax codes 'at a stroke'!

Having had an NT code for 30 years, working on an offshore contract for a UK based company, I was rather shocked to receive tax code notices for 2009/10 + 2010/11 indicating a change from NT to 647L!!

These were dated 02Feb10 but, being addresssed to me via my UK companyand sent through to my overseas location by company courier, hence late receipt by me.

Worse part being that the notices clearly indicated that my company had been separately notified and that I could expect tax to be deducted with immediate effect. Not pleasant reading!!

Anyway, after contact from me, the payroll department reversed their Tax Code adjustment and HMRC have indicated that a corrected notice is being sent/faxed to my company. Interestingly, the two people I spoke with at HMRC showed absolutely no surprise about my complaint and readily admitted that an error had been made. Scant comfort indeed!!

If I had been travelling, etc I would have had a nasty shock of tax being deducted and, if this had not been sorted by end of tax year, the lengthy process of obtaining a tax refund.

Reading the online UK press, this has been a major story recently. Not just NT codes, but the whole Tax Code system.

So, those of you working for large UK based companies (small companies would probably be more likely to get in touch with the employee, understanding that an error had probably occurred), don't be too surprised if the monthly pay credit to your bank account suddenly takes a drop!!

[chiang mai]

Looks like Mr Darling has hit upon an ideal way to raise more taxes - remove NT tax codes 'at a stroke'!

Having had an NT code for 30 years, working on an offshore contract for a UK based company, I was rather shocked to receive tax code notices for 2009/10 + 2010/11 indicating a change from NT to 647L!!

These were dated 02Feb10 but, being addresssed to me via my UK companyand sent through to my overseas location by company courier, hence late receipt by me.

Worse part being that the notices clearly indicated that my company had been separately notified and that I could expect tax to be deducted with immediate effect. Not pleasant reading!!

Anyway, after contact from me, the payroll department reversed their Tax Code adjustment and HMRC have indicated that a corrected notice is being sent/faxed to my company. Interestingly, the two people I spoke with at HMRC showed absolutely no surprise about my complaint and readily admitted that an error had been made. Scant comfort indeed!!

If I had been travelling, etc I would have had a nasty shock of tax being deducted and, if this had not been sorted by end of tax year, the lengthy process of obtaining a tax refund.

Reading the online UK press, this has been a major story recently. Not just NT codes, but the whole Tax Code system.

So, those of you working for large UK based companies (small companies would probably be more likely to get in touch with the employee, understanding that an error had probably occurred), don't be too surprised if the monthly pay credit to your bank account suddenly takes a drop!!

Sympathies, but this seems to have been a national (computer systems) problem that affected many people, including onshore pensioners as well, so I wouldn't read too much into it as in the case of it being an attack against offshore workers specifically.

[wordchild]

The rules of being resident, ordinarily resident and domiciled have not changed; they are being more rigorously applied.

How one fits into all three rules is important.

caf

I think that with the arrival of HMRC6 the rules have changed, the categories still remain but the rules for fitting into a particular category have now moved on, case in point is the 91 day rule which now is no longer sufficient by itself to qualify a person for non-residency. Also, HMRC6 describes a five year rule which is something that's brand new, remain as an expat for less than five years and the previous years earnings become liable to tax.

CM I am not sure what 5 year rule you are talking about, do you have a reference? As far as I am aware the rules on time out of the UK in order to be regarded as non-resident (for the period you have been away) have not changed.One complete tax year , if you leave to work or three if you leave for any other reason. There is a 5 year rule which relates to those UK residents who choose to be taxed on a remittance basis( ie non-doms). If they leave the UK and then return to the UK within 5 years they can be classed as having been temporarily non-resident and can be subject to tax on earnings REMITTED to the UK during the period they were away. Is that the one you are referring too?

Edited February 19, 2010 by wordchild

[chiang mai]

The rules of being resident, ordinarily resident and domiciled have not changed; they are being more rigorously applied.

How one fits into all three rules is important.

caf

I think that with the arrival of HMRC6 the rules have changed, the categories still remain but the rules for fitting into a particular category have now moved on, case in point is the 91 day rule which now is no longer sufficient by itself to qualify a person for non-residency. Also, HMRC6 describes a five year rule which is something that's brand new, remain as an expat for less than five years and the previous years earnings become liable to tax.

CM I am not sure what 5 year rule you are talking about, do you have a reference? As far as I am aware the rules on time out of the UK in order to be regarded as non-resident (for the period you have been away) have not changed.One complete tax year , if you leave to work or three if you leave for any other reason. There is a 5 year rule which relates to those UK residents who choose to be taxed on a remittance basis( ie non-doms). If they leave the UK and then return to the UK within 5 years they can be classed as having been temporarily non-resident and can be subject to tax on earnings REMITTED to the UK during the period they were away. Is that the one you are referring too?

Yes I'm referencing the Remittance Basis rule however this rule applies not only to non-doms but also to those who are not-ordinarily resident. The reference in HMRC6 is Section 5.0:

The remittance basis is an alternative tax treatment available to some people

who are resident in the UK and who are either:

• not domiciled in the UK or

• not ordinarily resident in the UK.

The remittance basis is relevant only if you have foreign income and/or

gains. If you do not have foreign income and/or gains then the remittance

basis is not relevant to you.

My understanding of this rule is that a person can be declared "Resident" but "not ordinarily resident", if they earn money overseas, remit that money to the UK and return to live in the UK within five years (having been resident for seven years prior to their initial departure).

[wordchild]

The rules of being resident, ordinarily resident and domiciled have not changed; they are being more rigorously applied.

How one fits into all three rules is important.

caf

I think that with the arrival of HMRC6 the rules have changed, the categories still remain but the rules for fitting into a particular category have now moved on, case in point is the 91 day rule which now is no longer sufficient by itself to qualify a person for non-residency. Also, HMRC6 describes a five year rule which is something that's brand new, remain as an expat for less than five years and the previous years earnings become liable to tax.

CM I am not sure what 5 year rule you are talking about, do you have a reference? As far as I am aware the rules on time out of the UK in order to be regarded as non-resident (for the period you have been away) have not changed.One complete tax year , if you leave to work or three if you leave for any other reason. There is a 5 year rule which relates to those UK residents who choose to be taxed on a remittance basis( ie non-doms). If they leave the UK and then return to the UK within 5 years they can be classed as having been temporarily non-resident and can be subject to tax on earnings REMITTED to the UK during the period they were away. Is that the one you are referring too?

Yes I'm referencing the Remittance Basis rule however this rule applies not only to non-doms but also to those who are not-ordinarily resident. The reference in HMRC6 is Section 5.0:

The remittance basis is an alternative tax treatment available to some people

who are resident in the UK and who are either:

• not domiciled in the UK or

• not ordinarily resident in the UK.

The remittance basis is relevant only if you have foreign income and/or

gains. If you do not have foreign income and/or gains then the remittance

basis is not relevant to you.

My understanding of this rule is that a person can be declared "Resident" but "not ordinarily resident", if they earn money overseas, remit that money to the UK and return to live in the UK within five years (having been resident for seven years prior to their initial departure).

ok got you thanks for that. My understanding is that this rule applys only in special circumstances to those ,whether non-dom or not ord resident , who had previously been resident the UK and taxed on a remittance basis . I do not believe it covers the vast majority of people who have been ordinarily resident and domiciled in the UK (and taxed in the normal way) who then leave to live abroad and establish themselves as non-resident for the relevant period (one or three years ). But I may be wrong and I am going to check it out.

Edited February 19, 2010 by wordchild

[chiang mai]

I'll be keen to understand what you find out from more knowledgeable sources.

[Soutpeel]

My opinion.....just waiting for Flash Gordon and Darling to impose a US type system....British Citizen...you have to do a tax return irrepsective where you live or how long you have been out the country...

[manjara]

Hmmm, have to be careful. I have a house in the UK and some friends are living there. They keep my stuff in some of the cupboards and I sometimes stay whenever I go back to the UK, usually about 1 week a year.

But..... most of the bills are still in my name, I still have a bank account that has statements delivered to that address, and pays the mortgage.

Dangerous times.

[Soutpeel]

Hmmm, have to be careful. I have a house in the UK and some friends are living there. They keep my stuff in some of the cupboards and I sometimes stay whenever I go back to the UK, usually about 1 week a year.

But..... most of the bills are still in my name, I still have a bank account that has statements delivered to that address, and pays the mortgage.

Dangerous times.

Actually there was rumours a year or two ago that any British citizen who owned a house in the UK were going to be taxed in UK irrepective where they spent most of their time and were they worked...it caused a few guys I know who work outside the UK and visit less than 90 days per year to sell up and set up in Cyprus, just in case it happened...

I suppose a lot of this is to do with the "clause" about "cutting ties" with the UK.....if you have a house in the UK, the ties are deemed to be still there, in your case, a house, bank account, bills etc

[wordchild]

I think if Labour is re-elected you will see a move toward the US system in the UK ie a requirement (if you are a citizen)to file a return and some sort of tax obligation on your global income whether or not you are resident in the country. I had it on reasonable authority they looked hard at doing something along these lines last year but backed off because of complexity but mainly because of the coming election.

[chiang mai]

I also can see that coming into being at some stage. Whilst it's possible for older people to get rid of most links with the UK, property, bank accounts and even domicile, we remain at the mercy of the government by having a UK passport and that's something I have no desire to get rid of. As I recall the US has some kind of system whereby if citizens tax returns are not filed and/or payments not made, the US government will not renew their passport, even if that person has been an ex pat for many years. That all seems very unfair and unreasonable to me but there again it's easy money for Treasury and it doesn't upset the masses so I look forward (not) to Gordo and Co introducing similar.

[Soutpeel]

I think if Labour is re-elected

Somehow dont think Flash Gordon and his band of merry men will be re-elected...

[wordchild]

I'll be keen to understand what you find out from more knowledgeable sources.

I have not had a response yet (from a UK tax specialist I know),but will let you know when I get one.

In any event it prompted me to re-read the relevant section of HMRC6. I think its pretty clear that this "5 year rule" only applys to those indeviduals who were either formerly 1)resident but not ordinarily resident or 2) resident but not domiciled AND who used the remittance basis to calculate their tax obligation (not something a UK citizen and normal resident would ever be allowed to do).

The only reference to this rule was in the section that dealt with remittance taxation for these types of indeviduals.

The whole basis of the rule is to capture taxation on only that portion of foreign income that is remitted to the UK,again this could not be relevant to a "normal" UK citizen as if the Revenue regards you as resident your tax obligation is on all your income worldwide whether or not it is remitted.

As was said above HMRC6 did not introduce new rules but was intended to reflect the current situation and the revenues intention to take a more aggressive stance against those it believes flout the existing rules.I dont think there is anything new to worry about here but the direction of travel is clear and thats what worries me!

[wordchild]

Got a response from the UK , can report (with some relief) it is as i said above; the 5 year rule is only relevant to those indeviduals who have either been non -dom or non-ord res in the Uk for a period of time who then leave and sometime later return to the UK.

It is not relevant to those (the vast majority of expats) who have been ordinarily resident in the UK who move abroad and establish themselves as non-resident either because of work or because they have permanantly left the Uk. i hope that helps to clear that up.

Edited March 1, 2010 by wordchild

[PattayaParent]

E-Bulletin 108 – Residence Rules - A Considered Opinion

We recently reported on a ruling regarding Mr Gaines-Cooper and UK residence rules. Whilst there has been tremendous interest in this story, many press reports could be seen to be ‘scare-mongering’, causing unnecessary concern for British expats.

In fact, the latest Gaines-Cooper judgment should reassure British expatriates. The ruling found, unanimously, that UK residence rules provide accurate, reliable and (in certain circumstances) binding guidance. The Revenue has not changed the residence rules or covertly changed approach. As we have reported before, the taxman has certainly increased the level of scrutiny on non-resident taxpayers, but the approach has been consistent with the published guidance and the precedent set over many years.

However, a couple of important points have been highlighted by these recent events.

Firstly, the ruling confirmed that if a taxpayer leaves the UK for full-time overseas employment, which lasts for one complete tax year, and remains within the standard visiting limitations, that person will be non-resident. Do remember that any work duties performed in the UK must be merely incidental to those performed abroad. It is also clear that having a home, family and regular return visits to the UK (within the guidelines) will not impact non-resident status. This is very good news and a welcome clarification which will set many people's minds at rest.

Secondly, the ruling confirmed that if a taxpayer leaves the UK for any other reason, the ‘non-resident bar’ is set at a much higher level. Those who fall into this category need to demonstrate that they have clear break from the UK. This would normally involve giving up a home and breaking links to clubs, financial, social and family ties. Clearly it is not enough to move abroad purportedly for permanent residence without a full time overseas employment and yet leave close family (spouse and dependent children) in the UK, or to keep a property in Britain that is used regularly.

This is bad news – many expatriates are retired or work part time but have maintained active ties to the UK - such as a property or regular visits to immediate family. The ruling is explicit in saying that unless a clean break from the UK can be demonstrated, there is a presumption that UK resident status will have continued. Emboldened by this, it may be that the taxman increases scrutiny of non-residents in this category, especially those who are very wealthy.

In short, anyone who is not in full-time overseas employment and who maintains ties to the UK needs to think carefully about their position and what modifications may be in their best interests. Every case needs to be reviewed on its own merits.