Beware of taking holidays in the UK if you are a non-resident and use the trip to plan a future return. The Inland Revenue may pounce, says Camilla Wallace of Wedlake Bell
BUSINESSMAN RUPERT KIMBER has just found this out to his cost. The First Tier Tribunal has ruled (March) that a brief visit Mr Kimber made to the UK to sort out a few details, over a month before a permanent return after six years working in Japan, counted as residency restarting for tax purposes.
This mattered. Shortly after his visit whilst on holiday in Italy Mr Kimber disposed of shares, a decision which was to have a crucial impact on his UK tax bill for the 2005/6 tax year. He made a significant gain, enough to trigger a capital gains tax liability of £96,500 if resident.
Mr Kimber resisted payment on the grounds that he was still non-UK resident at the time of the disposal. Her Majesty’s Customs and Excise disagreed, arguing that because he used the holiday in July 2005 to put employment, accommodation and family arrangements in place, the trip constituted his official return.
Mr Kimber argued that he was in the UK for a temporary purpose only and was about to accept a new job in Hong Kong. The tribunal cited the following reasons as to why Mr Kimber became UK resident during his annual UK holiday:
• Whilst in the UK, Kimber signed a permanent contract with Polar Capital to work in the UK from 1 September 2005;
• His two daughters were enrolled to attend school in Norfolk from September 2005;
• The family had viewed a property in Norfolk with a view to renting it and a finalised copy of the lease had been printed off on 27 July 2005;
• The family’s belongings and furniture had been shipped to the UK from Japan in June 2005;
• The family owned a leasehold interest in another property in Norfolk which required significant renovation and could not be sub-let (and the family were likely to move into this property and not move to Hong Kong for several years leaving it vacant); and
• Mr Kimber’s employers were under the impression that Kimber was moving to Polar Capital (a client and not a competitor) and had waived gardening leave provisions.
Mr Kimber’s return to the UK and is personal and business circumstances were placed on a permanent footing during that “holiday” to the UK in July. Any argument that he was considering taking up a post in Hong Kong were deemed by the tribunal to be implausible.
The First Tier Tribunal essentially ruled that Mr Kimber became UK resident during the holiday in the UK as a result of the actions he took and intentions he formed during the trip.
The lesson for anyone considering a permanent return to the UK is to take professional advice to avoid an unwitting slip into the tax net sooner than anticipated. They should maximise pre-arrival tax planning options.
It might be advisable to keep visits during the tax year of return to a minimum and ensure where possible that arrangements regarding return are made from outside the UK. Ideally any disposal of assets should be done the tax year prior to returning.
The Government’s consultation document on the statutory definition of tax residence does not currently include specific rules determining the start date of an individual’s UK residency. Following this, the drafting team will surely need to revisit the legislation if they are to provide the workable statutory residence regime which has been promised and which is so long overdue.