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Court strikes down 90-day tax residency rule

The traditional 90-rule on UK residency for tax purposes was overturned yesterday as an appeal court ruled that liability should be judged by long-term ties to the country.

Businessman Robert Gaines-Cooper was judged to have maintained the ‘centre of gravity of his life and interests’ in the UK, despite having spent less than 91 days in the country each year and based himself in the Seychelles.

The ruling will have widespread repercussions for the UK’s wealthy who have been considering an overseas base as the deadline for a 50% tax on high-earners nears.

The 90-day rule has led to a thriving commuter traffic between residencies such as Monaco and Switzerland (above) and London, and to millionaires such as the Barclay brothers living in self-imposed exile for much of the year.

Ronnie Ludwig, partner in the private wealth group at accountancy firm Saffery Champness, said: ‘The Court of Appeal judgment confirms how difficult it can be to shake off UK residency. 

‘Retention of ties to the UK can seriously jeopardise residency status and many individuals, including those who have already left and think they are no longer resident here, need to reassess their lifestyles and take professional advice.’

The revenue services are now said to be urgently liaising with wealth management businesses on how the new rules will be applied for those who work in the UK but base themselves overseas.

The treasury this week has also published draft rules on a tougher ‘residency test’ which will use a greater level of qualitative judgment to determine residency such as family ties and the extent of business interests when determining liability for tax.

Leading lawyers and tax advisers said that despite being an accepted convention, the 90 day rule had never had firm base in law, however.

Withers partner Christopher Groves said: ‘One of the great myths of tax planning is that spending less than 91 days (or nights) in the UK is sufficient for an individual not to be treated as resident here. 

‘The reality is that this is not and never has been the case and the test of whether or not an individual should be treated as UK resident is much more complicated and uncertain, as Mr Gaines Cooper has found to his cost.

‘HMRC confirmed earlier this week that despite extensive consultation they would not be introducing a statutory residence test in the Finance Bill this year which would remedy the uncertainty but instead allow this unsatisfactory position to continue, so that even an individual who leaves the UK for a whole tax year and does not return for a single day cannot definitively be said to be non-resident.’  

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