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UK resident or not? Getting it wrong could cost you…

Category : Latest News · by Dec 10th, 2013

UKResidentOrNotAn international financial adviser has warned those planning to move abroad that they must ensure they understand their tax residency and their liabilities or HMRC will hunt them down – as a recent costly case has proven.

Angela South, managing director of Magna Wealth Management which trades overseas as Expat Pensions, said the case involving a couple named Rumbelow should serve as a warning to those who “think” they live abroad and hence have no UK tax to pay.

She said:

“In essence, a Manchester tribunal ruled that a Cheshire couple who moved to Portugal more than ten years ago are still classified as UK residents.”

The ruling has left property developer Stephen Rumbelow and his wife Pauline with a £600,000 tax bill. The couple first moved to Belgium in April 2001, living in an unfurnished flat, before moving to live in a property in Portugal.

Ms South said:

“The Rumbelows problems started when HMRC refused to accept that the couple were resident abroad in the tax years 2001-2005 and hit them with retrospective tax demands. The long running dispute pre-dates the new UK residency test which HMRC brought in from April this year and HMRC zeroed in on whether the UK farmhouse they owned remained a family home.”

The couple had argued that they only returned since 2001 as visitors to see family and friends, and had never exceeded the 90 days threshold which was at that time applied by HMRC for overseas residence. But Judge Cannan said that despite their protestations that they had made their permanent home abroad, Yew Tree Farm, their property in Northwich, Cheshire, had “remained, essentially, a family home”.

Angela South said:

“The tribunal accepted that there had been some ‘loosening’ of the couple’s social and family bonds with Northwich, but it was not ‘substantial’ enough to make them non-UK residents.”

The order to pay £600,000 was based on disputed income tax and capital gains tax from 2001-2005 for both Mr and Mrs Rumbelow.

Ms South said:

“Many in the expat field will be aware of the Gaines-Cooper case and clearly HMRC had followed this precedent when pursuing Mr and Mrs Rumbelow.”

Robert Gaines-Cooper, a wealthy entrepreneur who moved to the Seychelles in 1976, eventually, after a number of appeals, lost his case in 2011 when the Supreme Court ruled that he was still technically a UK resident.

Ms South added:

“The Gaines-Cooper case serves to highlight the challenges that expatriate Britons can face when attempting to sever their tax obligations to the UK.”

Earlier this year the Government published its first comprehensive legal definition of residency.

“It is absolutely vital that if someone is living abroad, contemplating moving abroad, or in doubt as to where they should pay their taxes, and whether this discharges their responsibility totally – then they should take professional advice from advisers with knowledge and experience in this field. It is not an area for the enthusiastic amateur, and ‘golf club terrace’ advice from a chum on the Costas is unlikely to afford you any protection if the taxman comes knocking. More and more tax authorities across more and more jurisdictions are now cooperating and sharing information on who pays their taxes, how much and where. There are very few hiding places now that are not under the HMRC spotlight, so expats should be warned,”

said Ms South.

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