The recent Gaines-Cooper case (SpC 568) may indicate a change to HM Revenue & Customs policy on establishing UK residence for tax purposes.

According to HM Revenue & Customs (“HMRC”) guidance note IR20, people who wish to be considered non-UK resident must not spend more than 183 days in any tax year (6 April – 5 April) in the UK. Over four years, the average number of days per tax year must not exceed 90. Since 1993, HMRC has ignored the days of arrival and departure into and out of the UK in calculating the total. For example, if an individual flies into the UK every Monday and leaves on Wednesday evening, only one day is counted towards the annual total.

The effect of being non-UK resident is that a charge to UK tax only arises in relation to income arising in the UK, rather than on world-wide income (special additional tax rules also apply where an individual is not UK domiciled).

In the Gaines-Cooper case, HMRC argued that because Mr Gaines-Cooper retained sufficient ties to the UK, he was to be considered UK tax resident. Mr Gaines-Cooper was a British-born 69-year-old who was a member of the Rolls-Royce Owners’ Club, enrolled his son at Eton and travelled to the UK for Royal Ascot and pheasant shooting.

The HMRC sought to disregard its guidance set out in IR20 and count every night spent in the UK by Mr Gaines-Cooper, turning his traditional Monday-to-Wednesday visit from one day in the UK to two days (Monday and Tuesday nights were spent in the UK). This would mean that he spent 100 days in the UK and would fail the “90 day” threshold test and therefore be UK tax resident.

The Special Commissioners found in the HMRC’s favour. At first sight, this would seem to be a worrisome development as it seems to undermine the HMRC’s own guidance in IR20.

HMRC has said that they are considering the impact of this case to ensure that the principles are reflected in the guidance available. HMRC sources have insisted that the case is consistent with IR20. They argue that the 90 day test is only one of a number of factors which must be taken into account.

An HMRC spokeswoman confirmed that that department would be issuing a view 'shortly', but that no date had been set as yet.

Non-residency: the rules

Non-residents are liable only to pay UK tax on income arising in the UK, not including dividends and capital gains on assets.

Broadly, to qualify for non-residency, an individual must:

  • remain out of the UK for at least 183 days of a tax year;
  • average no more than 90 days in the UK each year over four years;
  • not accept a job that will base them in the UK for two years or more, regardless of whether they spend fewer than 183 days in the UK;
  • not live in the UK and go abroad for short periods; and
  • lifestyle factors such as club memberships, social events and family ties will also be taken into account when deciding non-residency status.