Budget News 23/03/11 - Statutory Residence Test

The Government has indicated that the current rules that determine tax residence for individuals are unclear and complicated. They intend to consult on the introduction of a statutory definition of residence to provide greater certainty for taxpayers. It will issue a consultation document in June and intends to implement the measure from April 2012.

Clearly we all need to wait and see exactly what if anything actually transpires from this. Frankly such reviews have been undertaken several times before with little or no change. Perhaps each one thus far has simply concluded it to be too difficult a subject or upon closer examination lacked the political backing for dramatic change. Further clarification and simplicity are of course noble aims but not if they arrive at the cost of many individual Non Residence claims by seeking to encompass, or retain, more people within the UK Tax Net than otherwise might have been the case – or even to deter inward investment to UK.

Aircrew in particular should in the meantime continue consider the tax case of Grace highlighted below amongst others and we will gladly undertake an initial review for you without obligation.

Grace Tax Case

A rather tortuous passage for Lyle Grace, via the Special commissioners in 2007 and appeal by HMRC in 2008, countered by referral to the Court of Appeal in 2009, matters were handed back to the new Tribunal process for hearing in November 2010 with published findings on the 5/1/11.

In short, Mr Grace a British Airways pilot was present for part of a year in UK for purpose of his employment –owning and occupied two properties, one in the UK and one in South Africa – held to be Resident and Ordinarily Resident in UK for the years at issue.

Clearly it was, in our opinion, primarily the combination of ongoing UK substantial duties coupled with the use of available UK living accommodation – albeit amongst other factors that led to this outcome.

The full adjudication provides a relevant summary of the numerous considerations for Aircrew concerning UK Tax Residence. Whilst each case will continue to be judged upon its own full facts and individual merits, HMRC still concede that if you leave the UK permanently or indefinitely then working for a UK employer and performing some UK substantial duties does not in itself prevent a Non Residence claim - providing that other connections with the UK are reduced sufficiently to demonstrate and uphold a clear “distinct” break.

UK Visits

Limitations of less than 183 days in any one tax year and no more than 90 days per annum on average taken from Legislation and HMRC practice derived from earlier tax cases.

General practice prior to 5/04/08 was to discount the day of arrival and departure and from then onwards to count “midnights” in UK. Indeed whilst on the one hand HMRC seem to indicate no change - and hopefully so for those clearly living abroad - they evidently along with the courts reserve the right, as and when it suits, to compare actual days / time present in the UK to the midnight count in order to gain a more complete picture. (As per the Grace case and revised HMRC6 publication.)

The concession regarding days in the UK due to exceptional circumstances has not changed but frankly apart from say the global impact of the volcanic ash disruption or war it is simply best not relied upon.

Exemption for those in transit which may span a midnight providing no business activity is undertaken whilst in the UK - does not apply to working Aircrew transiting the UK engaged upon working flights.

HMRC6 – Basic Residence Guidance

"There are many different factors which will determine whether you are resident in the UK. With one exception (ie 183 day limit), it is not simply a question of the number of days you are physically present in the UK during a tax year, although this is an important consideration. If you spend very significant amounts of the year travelling internationally, you should keep a record both of the days you were present in the UK and of those days where you are here at midnight. Both will be factors when looking at the pattern and purpose of your visits.”

“Leaving the UK ‘permanently’ means that you are leaving the country to live abroad and will not return here to live. Leaving ‘indefinitely’ means that you are leaving to live abroad for a long time (at least three years) but you think that you might eventually return to live here, although you do not currently have plans to do so.

The act of leaving the UK does not necessarily make you not resident and not ordinarily resident. You must also make a definite break from the UK and any remaining ties you have with the UK must be consistent with not being resident here. If you say that you are no longer resident and ordinarily resident in the UK, we might ask you to give some evidence to show that you have left the UK

permanently or indefinitely and that there has been a clear change in the pattern of your life. For example, we would expect you to show that when you left the UK you had acquired accommodation abroad to live in as a permanent home.”

   Federation of Tax Advisers

  Professional Pilots Rumour Network 

                               British Airline Pilot Assoc

                               Bassa

 HM Revenue & Customs

Aircrew Taxation Matters

This site provides a specialist service for all Aircrew in relation to personal UK taxation matters.

Disclaimer.....
All comments posted are to be regarded as 'general' information and should not be relied or indeed acted upon without our first undertaking a specific review of your exact individual circumstances.