A legal appeal against an interpretation of the 91-day tax residence test by
the UK tax authorities got underway in London last week, in a case that is being
keenly watched by wealthy British expats and their advisors.
The case in question involves businessman Robert Gaines-Cooper, a British-born
multi-millionaire businessman based in the Seychelles, who has claimed not to
be resident in the UK for tax purposes, but who HM Revenue and Customs believes
maintains strong ties in the UK, and therefore remains effectively tax resident
there.
Under UK tax law, a person is treated as non-resident for tax purposes provided
that they spend no more than 90 days in the country. This allows wealthy business
owners to live in low-tax jurisdictions such as Monaco and Switzerland, but jet
into the UK for one day per week to do business.
However, in the eyes of the Revenue, despite the fact that Gaines-Cooper said
he spent less than 90 days in the UK, he could not be considered non-domiciled
because he maintained strong links with the UK, for example, by schooling his
son in the country, and by pursuing many other interests there.
"He never did wholly reject England nor, indeed, that small part of it
located in Berkshire and Oxfordshire, where he had so many ties and connections.
On the contrary, he felt its pull upon his affections and interests all his
days," the Commissioners ruled in a tax dispute panel last year.
This ruling caught many expats and tax advisors by surprise, and led to the
belief that the residence test had been reinterpreted because HMRC had included
days of arrival and departure in the total time spent by Gaines-Cooper in the
UK. But subsequent guidance by HMRC said that the decision had not changed the
way it looks at tax residence because certain facts were unique to the case,
for instance the number of times Mr Gaines-Cooper used London to change plane on his travels.
It explained at the time that: "Individuals who have left the UK will continue to be regarded as UK-resident
if their visits to the UK average 91 days or more a tax year, taken over a maximum
of up to 4 tax years. HMRC’s normal practice is to disregard days of arrival
and departure in calculating days under the ’91-day test’."
However, the Commissioners decided that "in looking at these patterns,
it would be misleading to wholly disregard days of arrival and departure".
Nonetheless, tax experts have warned that if upheld, the ruling could have
consequences for many more so-called 'Monaco millionaires' who use the 90-day
rule to avoid UK tax residency.
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