Residency status and the importance of documentation

Take a recent story about a couple from Cheshire. They left the UK to live abroad more than a decade ago and claimed that they returned to England as visitors to see friends and family, but never for more than the 90 days a year. They are fine there, so why have they lost an appeal at the First Tier Tax (FTT) tribunal over their residency status, and why do they now face a £600,000 bill for capital gains tax and income tax?

The couple were the Rumbelows, multimillionaires who had made a fortune in a property development and leisure business. They owned a grade 1 listed mansion in the UK, but left in 2001 to live in Belgium before moving to Portugal. Since 2001 they continued to make frequent visits to the UK to see their children, receive medical treatment and oversee the sale of property and land associated with their previous business.

Then the couple received a notice from HMRC.

HMRC refused to accept that they were resident abroad in the tax years 2001–5 and challenged the couple’s self assessment tax returns for the period on that basis.

The couple appealed against HMRC’s decision.

The couple appealed the decision on the grounds that they never stayed in the UK for more than the 90 days a year.

The FTT Appeal dismissed their claims.

The FTT, the Appeal Tribunal, noted that the couple did not keep paperwork indicating the dates when they visited the UK, nor did they have written evidence of advice they allegedly received from their solicitor when they were first planning to move abroad.

Furthermore, the couple’s youngest daughter was only 15 when they left the country and she had stayed in the UK. The couple had also continued to be closely involved in winding down their businesses, and Mrs Rumbelow’s name had remained as licensee of one of their leisure outlets for a period after they had departed for Portugal.

The judge also pointed out how the couple had never sold their main property in the UK; it had "remained, essentially, a family home" he noted, and they were "not merely travellers" when they stayed there.

The Rumbelows have a big bill to pay as the appeal dismissed their claims.

The FTT ruled that while the couple had demonstrated some "loosening" of their social and family bonds with the UK it was not as "substantial" as to make them non-UK residents. The £600,000 tax liability the couple face is based on disputed income tax and capital gains tax for tax years 2001–05.

Conclusion

As this case makes clear it is very difficult to prove or disprove your status without a paper trail. There is no point in trying to argue a case unless it is watertight, that is, that your argument is backed up with documentation and that your argument is in step with the Statutory Residence Test as outlined in our blog of November 2013.

Whatever we might think of the UK’s Residency legislation, this couple evidently were not aware of it, because had they been, they would have realised that they were unable to satisfy the "automatically resident", "automatically non-resident, or "sufficient ties" test and they should have got advice either about satisfying these criteria or, more feasibly, how to minimise their tax liability.

The outcome of any investigation is dependent on the residency test, which can be complex, but in the event will be based on the documentation you can provide to prove residency status. Take a look at the DNS blog about working out your residency status and contact us if you are in any doubt.

Remember, information is power and to be forewarned is to be forearmed!

About the author

Sumit Agarwal
Sumit Agarwal (ACMA ACA India), the Managing partner of dns accountants is a highly respected accountant with expertise in helping owner-managed businesses.