For reasons which will be obvious to everybody, one of the most frequently occurring questions at the moment is: How can I become non-resident? There is a good deal of uncertainty about the present practice of HMRC but this might be improved when the new IR20 is published later in the year. However, there continues to be a general assumption that if you leave the UK and do not return for more than 90 days each year, that will be OK. Unfortunately, this is a very dangerous oversimplification.
Once upon a time (and for about 30 years) we all knew this was how the practice worked, but following the case of Gaines-Cooper v HMRC SpC 569 and the publication of HMRC Brief 01/07, we now know that we have been misunderstanding the position for all these years. They tell us that the 90-day test is entirely irrelevant. The test is only relevant to an individual who has left the UK permanently and is already nonresident.
What matters is whether the individual has “left the UK”. There is no 90-day test in connection with a person leaving the UK. HMRC acknowledge that a reduced presence in the UK can indicate that they have left the UK but what they look for is a distinct break which shows a conspicuously different pattern of life to demonstrate that the UK residence has ceased.
The Revenue’s view is that absences from the UK do not equate to a cessation of residence in the UK regardless of whether the individual has established a residence elsewhere. It is the quality of the presence in the UK which is important and whether his visits here are as a resident or as a mere visitor – whether the presence in the UK is substantial and continuous or whether it is casual and temporary. Accordingly, leaving the UK, setting up home abroad and returning to the UK for less than 90 days will simply not be accepted by HMRC as being sufficient to establish non-residence. You may say that these things should be accepted, and you may be right – but it does not help. We now have a complete mishmash of the legal position and Revenue practice which could end up in a coherent code – but it is not at the moment. Accordingly, how long you have to be away and what visits you can make to the UK are questions which cannot now sensibly be answered.
HMRC are exploiting the uncertainty to challenge claims to non-residence with a cascade of arguments as under:
a) You counted the days wrongly and have been here for more than 90 days – if necessary by counting hours and minutes. (This will now be less uncertain following the new statutory rule where you count nights – and although the new rules apply only to the 183-day test and not to the 90-day test, HMRC are going to apply them anyway.)
b) Even if you have not been here for 90 days each year, you have not “left” the UK because you have not made a distinct break and the pattern of your life has not changed sufficiently to say you are no longer resident here. (Yes – I know this is a circular argument).
c) Your visits to the UK are not merely temporary visits and you are therefore resident by reason of section 336 TA 1998 (now section 831 ITA 2007).
d) Even if you have done all these things, you left the UK for the purpose only of occasional residence abroad within the meaning of section 334 TA 1998 (now section 829 ITA 2007). So even if you were out of the UK for the whole of the year, you were not abroad for the purposes of continuous and settled residence elsewhere and therefore you are treated as remaining resident.
So where an individual leaves the UK and spends nearly all his time in his homes in (say) France and the United States, but becoming tax resident in neither country, HMRC will argue that he is only occasionally resident abroad because he does not have a continuous and settled residence elsewhere.
Although HMRC may be considerably overplaying their hand and pressing the flimsiest of arguments with full vigour, this is their approach and if you want them to agree that you have become non-resident without a trip to the courts, it is sensible to take on board all their points (flimsy or otherwise).