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Non-residents offered legal safe harbour

17 June 2011
Issue: 4309 / Categories: News , Gaines-Cooper , residence test , Residence & domicile
Condoc proposes 45 days as clearest timescale so far

A safe harbour for non-resident taxpayers looks set to be enshrined in law for the first time, following the release of the government’s highly anticipated plan for a statutory residence test.

Individuals not previously resident who spend fewer than 45 days a year in the UK will be considered to be non-resident, according to a document published today, Statutory Definition of Tax Residence: a Consultation, which also proposes 183 days per annum as the definitive amount of time that a taxpayer will spend in the country to be considered to be always resident.

Periods in between will be judged on a number of factors that include the residence of the individual’s spouse or civil partner and the location of their main home, and the amount of time the individual spends in other countries.

‘There will be no change to the definition of what is meant by a “day” or “presence in the UK”,’ states the document. ‘A person will be treated as being in the UK on any day [in which] they are in the UK at midnight at the end of that day.’

The consultation – which was released alongside a document covering the reform of laws of the taxation of non-domiciled individuals – was widely welcomed by prominent tax experts.

‘In an increasingly globalised world, it is essential that all can have certainty as to their tax position,’ said Francesca Lagerberg, head of tax at Grant Thornton. ‘The recent, high-profile Gaines-Cooper case highlighted how the absence of clear rules in the UK can lead to years of uncertainty for taxpayers. A statutory residence test could provide the clarity that taxpayers have wanted.’

The national tax director at Smith & Williamson, Richard Mannion, highlighted the archaic nature of current regulations covering residency.

‘Much of the law regarding an individual’s tax residence status in UK is based on case law that was laid down nearly 100 years ago, at a time when Indian civil servants retired to live in hotels in Europe and sea captains embarked on circumnavigations that took a whole year,’ he said.

‘There was no concept then of airline pilots or businessmen with business interests in different countries throughout the world who flew in and out of the country on a regular basis.’

The clearer system for gauging residence status was praised by Andrew Robins, tax director of RBC Wealth Management, who said the test would ‘make it much easier for people to plan their movements with confidence’, while Baker Tilly’s senior tax partner, George Bull, insisted the mooted provisos must be ‘robust enough to provide fairness and reliability for all taxpayers’.

The other Treasury condoc contains details of the reform the taxation of non-domiciled individuals by: increasing the existing £30,000 annual charge to £50,000 for non-domiciles who claim the remittance basis in a tax year and who have been UK resident for 12 or more of the 14 years prior to the year of claim;

  • enabling non-domiciles to remit overseas income and capital gains tax-free to the UK for the purpose of commercial investment in UK businesses; and
  • making technical simplifications to some aspects of the current remittance basis rules to remove undue administrative burdens.

Non-domiciles getting to grips with the more arcane intricacies of the UK's last big review in 2008, ‘will be relieved that at least a few of these will be tidied up’, said Andrew Tailby-Faulkes, private client tax services partner at Ernst & Young.

‘They might well be a bit disappointed about some of the restrictions on what kind of businesses they can use overseas money to invest in without getting a tax charge for the privilege,’ remarked Mr Tailby-Faulkes, adding that he hoped the government will be flexible.

‘It is vital to get the balance right to promote the UK’s global competitiveness’.

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