Appeal judgments could hit tax exiles

Wednesday 17 February 2010

Judgements in the Court of Appeal yesterday (Tuesday 16th February) surrounding residence and domicile could have far reaching implications for those seeking to leave the UK to avoid the new 50 per cent rate of income tax, according to Ernst & Young.

In dismissing the appeals of three individuals Lord Justice Ward said that HMRC was entitled to look for a “clean break” with the UK.

He said that HMRC was being more rigorous in checking that tax payers in these circumstances had fully severed social, domestic and family ties in Britain.

Alison Vine, Tax Director at Ernst & Young in Guernsey, said: “Those seeking to leave the UK and become non-resident may need to do far more than simply prove that they have satisfied the less than 90 midnights on average in the UK in any tax year.

“The decision to leave the UK is not one that can be taken lightly and more than ever will require a substantial severing of ties which was previously only associated with obtaining a domicile of choice outside the UK.”

The appeals were against decisions previously made in the cases of Robert Gaines-Cooper v HMRC and Robert John Davies and Michael John James v HMRC.

In summing up Lord Justice Ward said: “Even if the appellants have established an ordinary residence abroad, the fact that they return to sleep in their own beds in their own homes on a fairly regular basis and retain a string of connections with the life they led in this country, then the Revenue are entitled to question their claim to be non-resident here.”

Mrs Vine explained that domicile and residence are two very different concepts.

“Whereas residence is where one physically lives day to day, an individual has a domicile status at birth dictated by the domicile status of their father. To adopt an alternative domicile of choice in a different jurisdiction this person must give up all attachments with the old domicile, spend at least three complete tax years out of the UK in the new domicile and intend to remain there indefinitely or permanently.

“The impact of the decision made today is not to suggest that someone leaving the UK to become resident abroad needs to intend to remain abroad long term, but they really need to give up associations and connections which might continue to tie them to the UK for the period that they are abroad.”