Surprise decision in tax residence case
Doubt has been cast on the strength of one of the main tests for determining whether a person is resident in the UK. Following a High Court decision last November, it may no longer be enough to just spend an average of fewer than 91 days a year in the UK when claiming non-UK residence status.
The case concerned Lyle Dicker Grace, a South African pilot employed by British Airways flying out of Heathrow. He had been resident in the UK since 1986, but in 1997 he acquired a home in Cape Town. From then on he stayed in his UK home only for brief periods immediately before and after flying for British Airways and spent an average of fewer than 91 days per tax year in the UK.
Grace claimed he was not UK resident from 1997/98 onwards but the High Court disagreed, largely because Grace had not left the UK to live abroad, and was not in the UK for only a temporary purpose.
Make a break
The case highlights the need for a distinct break where a former UK resident claims to be non-resident. To be safe, a UK resident who wants to become non-resident should move their domestic and business life to another country, and spend as little time as possible in the UK in the first tax year of non-residence.
The High Court also held that Mr Grace was not in the UK for a temporary purpose because he was here to exercise the duties of his permanent employment. Some commentators have suggested that anyone who lives abroad but spends two or three days a month, say, working in the UK for a UK employer is now at risk of being taxed as a UK resident. Others believe this is very unlikely though there may be a danger in a few cases.
Keep a record
For most people it will remain the case that if your family and social life is clearly abroad, you are unlikely to be treated as resident in the UK if you are present on fewer than 183 days in any tax year and fewer than 91 days a year on average. You should keep a precise record of your movements in and out of the UK.
Determining residence status can be complex and needs care. We can advise you on matters concerning residence and domicile status.