UK Non-Residents and the Offshore Tax Test

Summary: Has the ruling against Mr. Gaines-Cooper changed the way the Inland Revenue applies the offshore tax test to UK non-residents?

In a recent article on ShelterOffshore entitled ‘How to Become Non-Resident for Tax Purposes’ we highlighted the case that had been brought by the Inland Revenue against a Mr. Gaines-Cooper who believed himself to be non-resident and therefore not liable to UK taxation on his worldwide income and gains, but whom HMRC were able to prove failed the ‘offshore tax test.’

In the Inland Revenue’s ‘IR20: residents and non-residents’ booklet there are guidelines presented relating to UK non-residents and the offshore tax test they should apply to determine whether or not their presence in the UK falls within the 90 day limit applicable annually over a maximum of 4 years and if so, whether they retain their UK non-resident status or not.

The guidelines in the booklet suggest that those who are applying this offshore tax test need not include their days of arrival and departure in the UK, and as long as they stay within the limit and do not reside, holiday or visit the UK for 91 days or more annually over a period of four years, they can still be classed as non-resident and therefore not liable to UK taxation.

When it came to Mr. Gaines-Cooper however, and the case brought against him by HMRC, the Special Commissioners judging the case decided they would include his days of arrival and departure when determining his taxation status. 

This sent shock waves through the British expatriate community, a large number of whom regularly return to the UK particularly for business purposes.

As a result of the concern caused and subsequent panic that ensued, HM Revenue and Customs issued a special statement explaining the actions that were taken by the Special Commissioners and how, going forward, UK non-residents should apply the Inland Revenue’s so called ‘offshore tax test’.

Apparently the case against Mr. Gains-Cooper can be viewed as a stand alone case in part, particularly when it comes to the inclusion of days of departure and arrival in determining how long he was in the UK annually.  The case against Mr. Gains-Cooper was brought because the pattern of his presence in the UK did not appear to match his claims of non-resident status. 

It seems that in a bid to prove that Mr. Gains-Cooper considered himself to be a UK resident whilst claiming non-resident status the Special Commissioners decided to include his days of arrival and departure in the UK as just one element in the entire case brought against him.

HMRC in their recent statement confirmed that - “there has been no change to its practice in relation to residence and the ‘91-day test’” – i.e., those who are in the UK for 90 days or less can be considered non-resident and those who are resident for 91+ days can be classed as resident.  This statement has clarified that the guidelines have not changed – but the ruling against Mr. Gains-Cooper has clarified that the ‘IR20: residents and non-residents’ booklet contains guidelines only and that in special cases where an individual’s pattern of presence in the UK or taxable actions raise suspicion about their residency status for example, the Special Commissioners can choose to ignore the guidelines.

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