The Tax Man Cometh! (UK)

[Lavion Rose]

I heard a nasty rumour the other day that a UK Expat pilot has lost a case against/by the HMRC on the grounds that he was not really non-resident.
I read a thread here that -petered out last year about the 90 day rule but it is starting to sound like to quote the other thread, "If you have a wardrobe with clothes in it HMRC will take you as still being resident". I am currently in the UAE but as I still have committments in the UK, aka mortgage, a wardrobe and a garage full of stuff I am getting a bit more than a bit worried!
The idea of coming out here was to try and make some money and clear a few debts, but if one goes back and gets hammered by HMRC then its either never go back or go back now before one gets a Lester Piggot size bill!!
I am guessing that this revolves around the idea of a domicile and although I signed the appropriate form and am never in the UK more than 30 days a year, because of the above I am guessing that I could be considered to still have a UK domicile?
So,

1. Has any one else heard the same rumour?
2. Does anyone know what the UK liabilities would be if deemed to still have a domicile or considered by HMRC to still be resident in the UK? I.E. would tax liability be based on money sent home to cover the mortgage or would it be factored to guess what your income is based on what you are able to send to cover the mortgage?
3. Does any one have a good tax advisor they could recommend? PM please!

[stansdead]

They may try and take you for tax on all earnings if you are domiciled still.

Good luck finding a job in UK. There are very few to be had.

[Alpinepilot]

tax advisor required

I was in a similar position a few years ago. I used Wilfred Fry who are specialists in this field. google them , they are based in worthing west sussex. They advise lots of pilots from the south . Good luck.

[Agaricus bisporus]

How can they do that if you have abided by their own 90 day rule? I suspect there is more to the case quoted than we have been told. The law has not changed to include posession of wardrobes or mortgages afaik.
If you are doing what you are doing in compliance with the law and in good faith theyhave no case. Endex.

[peba]

just divert the revenue towards brookfield aviation,that should keep them busy for a few years,by then your debts will be cleared!!
on a serious note,if you bring most of the money you earn out in the sand back to uk,then you might raise a few eyebrows,every govt needs money right now,so god help anybody trying to claim non-residency or domicile etc!!

[Lavion Rose]

1. Peba. Yes have heard about Brookfield so LOL there and yes you are absolutley right, hence my fears based on the story I mentioned and also a recent case against a Business man in the Seychelles.

Below is the link posted from an earlier thread regarding the 90 day rule: The long arm of the UK taxman - Telegraph

1. Agaricus Bisporous: I am so glad you took the trouble to read and reply to my post. Your reply has filled me with confidence to tell the HMRC to get stuffed as I spend less than 90 days in the UK.

I thought by making bullet point questions it would cut down on opinions and I might get a few facts but hey!
I suspect there is more to the case quoted than we have been told.
First, which case are you referring to? Are you referring to the rumour of a pilot losing a case against HMRC or are you referring to the basic circumstances that I laid out pertaining to myself?
The former I cannot answer, which is why I posted this thread and asked if anyone had heard about this rumour, specifically listing it as a question!
If you are doing what you are doing in compliance with the law and in good faith they have no case. Endex.

They can probably do it, because as I said, ( I suggest you read the above link to the article in the Telegraph if you think it might affect you), it would appear that they differentiate between one saying and declaring that one is no longer a resident of the UK and really having no ties against someone similar that still has ties and hence, I believe what they call domicile which could be construed, as mentioned on another thread, as having a wardrobe full of your clothes as opposed to owning a wardrobe that is rented out full of a lodgers clothes! I.E. it is sounding like it could be argued that because you still have a “home” in the UK your are liable for UK tax.
3. Stansdead (how did he die? Doh). Thank you for your reply. This is exactly what I am worried about. Yes I agree there are few jobs in the UK and even fewer worth taking. Might be time for a career change if I can think of one!

4. Alpine Pilot; Many thanks for reading my post, understanding it and giving me some useful info. Will google. Thank you again.

[Sygyzy]

Bat and Ball

You have to remember here that HMRC have the bat, ball and rule book in this game. They may play or not. There was a case some while ago where they argued that the rule book that they published was for 'guidance' only. The judge agreed. IIRC the guidance was about the '90 day rule'...and it's irrelevance!

Having said that....If you live and work abroad then you have little to worry about. When you moved abroad; Did you have a leaving party. Did you sell your car, or at least have ownership transferred to another. Did you cancel your golfclub membership as you clearly won't need it. Same for electoral roll. Why vote, when you care less who governs. Not still adding to an ISA are you. I'm sure you told your pension fund that you'd moved so that they could write to your new address. C/C doesn't send statements to a UK address I hope.

Do you visit family in UK for holidays a few times a year-fine. But if you visit UK for three or four days/midnights twenty or so times (60-80pa-non working) then ask yourself if you're living abroad or 'having a larf'. HMRC won't give a fig if you stay in UK for 90 days or 09 days if they don't think that you live elsewhere. They'll investigate your centre of life and if they consider it UK you'll pay UK tax. Bear in mind all this is about you, not your family.

Also how long do you envisage living abroad. Six months or six years. One is an extended posting, the other shows an intent to live abroad/stay offshore for a goodly time. If you're away more than five year I believe there's no CGT on anything that you may own UK and subsequently sell.

If you're living abroad, working for a foreign carrier but have a family/mortgage/car in UK then speak with Fry's. They're well up to speed on all of this and will make sure that you do it right.

UKplc is close to skint and if they can find/see easy pickings they'll chase you. Best to set things up properly before they come chasing.

S

PS. Domicile and residency, or more particularly non-residency are entirely different concepts that needs an expert to explain.

PPS. I'm not a lawyer/accountant but I've been in too many bars and listened to too many sad stories.

[BBK]

My advice is talk to a taxation expert such as Manntax, Fry's, Chiltern. My understanding is that you have to show HMRC that you really have moved your life overseas. So the less ties you have to Blighty the better.

However, it may depend on what type of property you have in the UK. If you have a family home abroad and only have a small flat in the UK for use when you do need to visit the UK then that may be ok. The point is that merely following the rules re the 90/183 days is not enough, you must be able to show that your lifestyle is one of an expat. In that sense the rules are not, in my opinion, CAVOK but patchy fog!!

regards

[Baron buzz]

The trouble is, all this boils down to case law. Which, as the name suggests defines each individual situation at the time. There are few guidelines, and no rules which allows HMRC to rule each case as they see fit.

However, what I believe to be consistent is as follows. If your overseas based, have made a cut with the UK, are paid overseas (in foreign currency), have a permanent, full time based position, overseas then you should be ok. It goes without saying that you need to have left the UK for one complete tax year, and not to have spent 90 midnights on UK soil in any complete tax year.

The problems, and sometimes the stories, come from pilots who are paid in sterling, work for a British carrier and have the family in the Uk, but a home in France or something. If this is the case, clearly you are trying to avoid tax, and still have all your centre of interest in the UK.

Taxation is to do with the individual. If your meet the overseas, full time, permanent situation i've mentioned above, your family should be able to do what they like. Only if you don't meet the situation above, will they try to prove your interests are UK based.

I have to mention that this is my take on the situation, and I am no tax advisor although this is the advice I have sought regarding my personal situation.

Hope it helps.....

[cavortingcheetah]

The case is the Grace case.

2011 - Case Law Development on Residence

4 February 2011

Grace v The Commissioners for Her Majesty's Revenue & Customs (TC00913)

A year after the Court of Appeal's decision in Gaines-Cooper [2010] STC 860, the First-Tier Tribunal has held that another individual, Mr Grace, a long-haul pilot for British Airways, remained tax-resident in the UK, despite establishing his main home in South Africa.
The Tribunal's decision is not surprising; the High Court had previously found Mr Grace to be UK resident and, when the Court of Appeal referred the case back to the Tribunal, it did so with thinly-veiled hints that a finding of residence was likely. However, the Tribunal adopts an interesting approach to several of the indicators of tax residence, as summarised below.
CASE LAW PRINCIPLES
The Tribunal approached the case by setting out the principles on residence which can be derived from case law, as summarised by Lewison J (in the High Court: Grace [2009] STC 213) and Dr Brice (in the Special Commissioners: Shepherd [2005] STC (SCD) 644). These formulations, which were approved by the Court of Appeal in Grace [2009] STC 2707, appear now to be the standard starting point for the Tribunal when considering the residence of individuals.
THE IMPORTANCE OF A DISTINCT BREAK
The Tribunal considered whether residence (under case law principles as opposed to statute) has an "adhesive" nature, such that an individual who has been resident in the UK must make a "distinct break" in the pattern of their life in order to become non-resident.
The Tribunal concluded that an individual who has been a UK resident must demonstrate that they have lost that status. The Tribunal considered that this would be difficult, although not impossible, without showing a "distinct break". The Tribunal envisaged a taxpayer who gradually reduced his ties with the UK over time would ultimately become non-resident without having made a distinct break. (The comparison being drawn would appear to be between the breaking of ties which occurs suddenly or more gradual. In either case, it will need to be comprehensive and identifiable in order to show that residence has been lost.) For the majority of individuals who claim to have left the UK, the "distinct break" concept will be "inextricably linked to the question of residence".
Mr Grace claimed to have made a distinct break in one year, 1997. The Tribunal disagreed. It found that, although Mr Grace had established ties in South Africa, where he had acquired a home and engaged in an active social life (and had reduced the time he spent in the UK), he had not severed his main ties with the UK, being his house and employment.
THE RELEVANCE OF DAY COUNTING
The Tribunal considered Mr Grace's presence in the UK and in South Africa in the relevant periods, focusing in particular on the comparison between the amount of time he spent in the UK and the amount of time he spent in South Africa (where he accepted he was resident).
The Tribunal found that the number of days Mr Grace spent in the UK (being 106 days a year on average, compared to 85 in South Africa) did not point strongly to residence or non-residence, noting that the time spent in the UK was both higher than individuals who had been found to be resident and lower than individuals who had been found to be non-resident. Further, the Tribunal did not focus on the "91 day" average rule found in IR20, stating that the rule has no basis in the case law.
Mr Grace's relatively low day-count was held not to preclude residence. The Tribunal considered the pattern of his visits to the UK in light of his occupation as a long-haul pilot. The Tribunal found that the short, very frequent and predictable visits to fulfil employment duties were sufficient to amount to residence.
YOU TREAT THIS PLACE LIKE A HOTEL
The Tribunal accepted that a person living in a hotel, or in a house treated like a hotel, in the UK was less likely to be (but not precluded from being) a UK resident. In Mr Grace's case, the Tribunal found that he did not treat his house near Gatwick airport "just like a hotel", keeping his car, furniture and personal possessions there, receiving mail doing paperwork there and doing his own washing and shopping whilst staying there. The Tribunal found that the use of his own house pointed to Mr Grace being resident.
FANCY GOING OUT?
Mr Grace argued that his presence in the UK lacked the quality of residence. He claimed to have no social life or hobbies in the UK; he was merely killing time here before or after flights by sleeping, watching TV and surfing the internet. In contrast, his life in South Africa was described as "gregarious". South Africa was where the focus of his life was, where he spent his leisure time with friends and family, stored his private aircraft and lived in a more substantial house that he considered to be his home.
The Tribunal acknowledged the differences between Mr Grace's lifestyle in the UK and South Africa, although it considered such differences were inevitable for a person based in one country for work and another for leisure.
The Tribunal rejected Mr Grace's claim that he spent all his leisure time in South Africa – he spent time in the UK resting before or after flights. The fact that he chose to spend his leisure time in the UK was considered important, although what he did with that time (eating in rather than going out, etc.) was not considered determinative.
It is interesting to note that the Tribunal was careful to avoid a search for the taxpayer's "home" (an ever-present temptation in residence cases). The Tribunal simply noted the existence of the South African home as relevant to the case, but not conclusive.
BRITISH AIRWAYS
Arguably the most important feature in this case was Mr Grace's long term employment with British Airways. The Tribunal noted that this employment was (and continues to be) a very important part of Mr Grace's life, without which he would not be in the UK. It made his presence in the UK a permanent feature of his life which would continue so long as his employment continued. It was the basis of the settled purpose for which he was in the UK, making him much more than a visitor when he was in the UK. It was the reason for the frequency and predictability of his return visits to the UK (Mr Grace was required to fly every 28 days to maintain his pilot's licence) and it gave rise to the frequent use of his UK house which was found to be a settled abode.
Mr Grace's employment, together with his house, was his main tie to the UK which he retained, despite also establishing himself in South Africa.
CLOUDY SKIES
HMRC has won almost all of the individual residence cases which have come before the courts in the last ten years.
The Tribunal's decision in Grace is a reminder that short, frequent and predictable visits to the UK in connection with a UK employment can be sufficient to establish residence. In order to illustrate a "distinct break", those who have been UK resident will need to show that their main ties to the UK (e.g. employment and accommodation) have been significantly reduced, not merely that additional ties have been established elsewhere.
This decision also demonstrates the difficultly which individuals who have retained UK accommodation will have in showing that they have become non-resident.

ccs notes.

HMRC6 is the new and relevant HMRC guideline on residence and domicile.

At the present time the steps someone must take to establish non residence are almost as severe as those needed to establish non domicile.

It would be very helpful, probably for all, if Britain adopted a statutory residence test. This is not something that has proved difficult for other European countries, the US or Australia and New Zealand to establish. One can only conclude that it suits HMRC to keep matters in the unofficial dark.
Stability is not a keystone of the British tax system.

(There are, by the way, tax implications regarding the import into the UK of certain types of income during the first five years of non residence, assuming that at some stage in the future you resume residence in the UK. I think this mostly relates to income not from employment but you might want to check up on that with your soon to be appointed professional advisor!?) )

[Lavion Rose]

To Sygyzy, bral, BBK, Baron Buzz and cavortingcheetah, thank you for your posts and info. And alos thank you to those that PM'd me. Have sent off messages to the mentioned organisations.

Cavort due you mean as in a Grace and Favour home? Of course if the politicians can get away with that it means I probably can't! As you mentioned on another thread, we do not really have a tax constitution in the UK. My old company had a pilot who took HMRC to court after they reached an agreement on the tax break on fixed rate expense allowances and then renaged on the deal. Although effectively the case went in the pilots favour the Judge ruled that it was not in the countries interest that a lot of back tax should be paid. It did lead to a universal fixed rate expense allowance amongst the airlines rather than a rate agreed with the local tax office where the particular airline had its tax affairs based.

[Lavion Rose]

Oops. Sorry cavortingcheetah the reat of you post wasn't there just now. Thank you.

[cavortingcheetah]

Lavion Rose.

Thank you for the pm by the way, most kind of you.
Not grace and favor. The pilot's name is Lyall Grace, hence Grace v Commissioners/HMRC etc.
It is perhaps interesting, in the full context of the case history, to note that in 2001 South Africa changed its income tax basis for residents from an arising basis to a world wide basis.

Please do not fall into the trap of confusing Domicile and Residence (Ordinary Residence) in Britain. The two are clean different things.

[potkettleblack]

Interesting case for poor old capt. Grace. I wonder if he had transferred his house in the uk into a trust and paid rent for the nights he was in town then it might have been harder for hmrc to go at him.

[Dan Winterland]

Quote BRAL: ''The rules are cavok:

•Normally if you leave the UK to work abroad full-time, you will become not resident and not ordinarily resident in the UK if:

•your absence and employment from the UK covers a complete tax year (that is 6 April to 5 April)

•you spend less than 183 days in the UK during the tax year

•your visits to the UK do not average 91 days or more a tax year over a maximum of four years''.

The rules are written, but like many they are far from CAVOK. Like all rules laid down by British Governemnt agencies, they are shrouded in a certain amount of mist - which is the HMRCs prerogative to interpret them as they see fit. Someone mentioned the distinction between Domicile and being Ordinarily Resident. Domicile is quite clear. However, the 'Ordianarily Resident status' is open to intepretation - from HMRC as well as the taxpayer and if they think that you are Ordinarily Resident, then the onus is on you to prove it under the 'Distinct Break' classification.

I left the UK in 2005 and on advice from my accountant I made a distinct a break as possible. He advised me that HMRC may want to interview me - and they did, by phone. During the interview, I was asked questions such as "and where will you keep your car?''. An answer that I would keep it in long term airport parking would have jepoardised my 'break'.

I suspect it depends on the mood and humour of the tax inspector who reviews your case, but I would suggest keeping a property in the UK which you don't rent out, or even a wardrobe full of clothes will seriously harm your case for being non resident.



A PM is on the way with the details of my accountant.

[ZFT]

Another potential 'gotcha' is "Do you have any UK credit cards?"

HMRC can deem this sufficient reason to assume no Distinct or permanent Break.

[cavortingcheetah]

There has been for quite a while now and bouncing merrily from court to court, the Gaines-Cooper case and saga. His proposed place of residence was Seychelles and his rumoured tax bill at point of last defeat was £30 million. I think the business is under appeal to The Supreme Court. Perhaps he should have sent HMRC his British passport suitably shredded after he got his Seychelles passport which is something I don't think he ever bothered to do. It would be difficult to argue that throwing your British passport back at HM Gov didn't represent an indication of a clean break with Britain

[harrypic]

Difference - employed abroad or living abroad

In their documentation HMRC are very clear - if you have a contract of employment to work abroad you are automatically ordinary non resident, as long as you keep to the 90/180 day rule. This is irrespective of ties with UK.

If you choose to live abroad, but dont have a contract of employment to work abroad you may need to justify to HMRC you have severed ties with UK to obtain ordinary non resident status, as refered to in the above posts.

Its clear and any accountant will tell you - if you have a contract of overseas employment, as you would have working here in UAE, you are ordinary non resident as long as you keep to the rules.

Any UK derived income you must declare though....eg house rental income, for which HMRC have a special scheme for non resident (employed overseas) landlords.

Where the water gets muddy is where, for example, your employed by a UK company, working in UK as your base, (so your work is not overseas) but choose to live abroad......these are the people HMRC are interested in and insisting they prove UK ties have been broken.....

It actually is very clear if you research properly and thoroughly....

[Damianik]

UK contract living abroad

I agree with this last post:
I am Italian, living in Italy, contract with UK company. HMRC is asking me to prove i live in ITALY by sending them a letter signed and stamped by my tax authority that i pay tax in Italy, which i dont because i pay them in Portugal!

It is gonna be a mess.
D