Accountants are reviewing the advice they give to tax exiles on how best to achieve the tax perks of UK “non domiciled” status in the wake of a groundbreaking court ruling this week.
A decision by the Special Commissioners, which adjudicates tax disputes, has attracted the attention of accountants and tax advisers as it raises the possibility that more people who avoid tax by being resident outside the UK by carefully limiting their time spent here could now be caught within the tax net of Revenue & Customs.
Some accountants have reported a string of calls from wealthy clients following the ruling. Grant Thornton, the accountancy firm, estimates that around two thirds of the Sunday Times rich list are either “non dom” or non resident in the UK for tax purposes.
The commissioners ruled that the links of Robert Gaines-Cooper, a British-born businessman based in the Seychelles and multi-millionare, were not tenuous enough to be labelled as domiciled outside of the UK.
Of particular concern to accountants was the fact that the commissioners called Mr Gaines-Cooper’s assessment of the days he spent in the UK on Revenue guidance into question. Mr Gaines-Cooper had judged he was not liable to pay tax because he spent fewer than 90 days a year on average in the UK. In order to achieve non residency status, individuals must not spend more than 90 days on average in any one year in the UK.
But the commissioners agreed with Revenue & Customs that ignoring the dates of arrival and departure created a distorted picture of the time Mr Gaines-Cooper spent in the UK.
The Commissioners ruled that nights spent in Britain must be counted. Before this ruling, accountants deemed it an acceptable practice for non-residents to fly to London on, say, a Tuesday afternoon and leave on the following morning and not record that as a day on their tax records. Now they must count overnight trips.
This ruling is likely to have a big affect on so-called ‘Monaco millionaires’ who live in the tax haven to avoid income tax, but fly to London for short stints on a usual basis to handle their affairs. Many of these people closely watch the numbers of days they spend in the UK so as not to be caught out by the 90 day rule.
Maurice Fitzpatrick, a senior tax manager with Grant Thornton, said: “The bottom line is that accountants advising people who spend certain amounts of time in the UK and want to avoid being regarded as tax resident here are going to have to reassess the parameters they use.”
The main appeal for achieving “non dom” status is that, with some exceptions, individuals’ estates will not be subject to UK inheritance tax on their death. In addition, if they are deemed “non dom” than even if they are UK resident for tax purposes, they do not have to pay tax on overseas income provided it isn’t remitted into the UK.
Though tentative, the case has set off alarm bells in the international tax accountancy arena.
This week, some accountants said they thought Mr Gaines-Cooper’s case underscored the degree to which the Revenue was growing concerned about the growing number of citizens looking to use loopholes in the tax system to escape the UK as a tax jurisdiction.
In the last five years, more Britons have put changing their domicile and residency at the top of their agendas, financial advisers report. Scores of people in the UK are emigrating and when they leave, they often look to change their residency and domicile status to lower their tax burdens.
“There is more interest now in changing your domicile than there was several years ago,” says Catriona Syed, a partner at Charles Russell, the law firm. “It’s much easier to leave the UK than it used to be. Almost anyone can buy a house in France for a reasonable amount of money and people feel that taxes in the UK have become quite onerous.”
Mr Gaines-Cooper’s solicitor said he intended to appeal the ruling, which does not set a formal legal precedent unless it is agreed by a High court judge.
