Who can forget the Charman v Charman case in 2005? It was the largest ever contested divorce case in England at the time with total assets of £131 million. Unfortunately for Mr Charman, that wasn’t the end of his woes. After relocating to Bermuda, Her Majesty’s Revenue and Customs (HMRC) slapped a £13 million income tax bill on him.
The court’s ruling in Charman v HMRC confirms that taking firm action remains the best way for a person to establish that they are no longer resident in the United Kingdom. This was a case of high stakes after HMRC assessed Mr Charman to be liable for tax for just over £13 million for a period over three tax years. Mr Charman argued that he had abandoned his UK residency and was resident in Bermuda for all of that time and so no tax was due from him during that period. In reviewing Mr Charman’s appeal against the assessment, the court restated the rules that apply to determine whether or not a person has successfully abandoned their UK residence.
Here, in no particular order, are 25 principles to take away from the case:
- There is no statutory definition of what it means to be resident in the UK for tax purposes.
- The question of whether someone is resident in the UK for tax purposes is a question of fact.
- The court accepted as the leading statement on the meaning of residence, the definition in the Oxford English Dictionary: “to dwell permanently or for a considerable time, to have one’s settled or usual abode, to live in or at a particular place.”
- The approach to residence involves looking at multiple factors and no particular factor is definitive, and many different factors can be taken into account.
- Physical presence does not amount to residence if it is a “stopgap.”
- The amount of time spent, the nature of presence in a particular place and the connection with that place are all factors to be considered.
- Residence connotes some degree of permanence, continuity or expectation of continuity.
- Short but regular periods of presence may amount to residence.
- It is possible to reside in two places at once, so the fact that a person is resident in one place does not preclude residence in another.
- Residence must be voluntarily adopted.
- Residence dictated by business will count as voluntary.
- If a person has his sole residence in the UK, he is unlikely to have ceased to reside in the UK unless there has been a definite break in his pattern of life.
- It is wrong to approach the issue by asking for the person’s “real home.”
- The test is more qualitative than quantitative – the quality of time spent more than how much time.
- The day count approach is just another component of the overall multi-faceted approach.
- The burden of proof is on the taxpayer to demonstrate that his whereabouts supports his argument that he was non-resident for the period in question.
- Where there is a conflict between the documentary evidence and the oral evidence of the taxpayer, the documentary evidence will be preferred.
- The question is less one of absolute numbers (in terms of the number of days spent) than of comparisons between the years and the rate of change between the period. Therefore, a change of no more than 10% between one period and another did not indicate a “definite” break with the UK.
- Working full time in one place connotes having no other working time elsewhere.
- Short but frequent visits to the UK can amount to residence.
- Retention of a home is not a decisive factor in determining residence, but it is a factor that weighs relatively heavily towards an assumption of residence.
- Presence in the UK to support a failing marriage cannot be viewed as anything other than voluntary.
- A definite break connotes taking some steps which make it difficult to change your mind or reverse the direction of travel.
- The question of whether a person has become non-resident is primarily a question of fact and not a question of belief or intention.
- Frequent use of credit cards at city of London restaurants and upmarket London department stores indicate presence in the UK.
With Brexit looming, many foreign UK residents – be they professionals who came over to the UK for work, or entrepreneurs who have set up businesses in the UK – will be mulling over whether to stay or go. If that’s you, then you need to pay close attention. Because, if you decide to leave, you need more than just intentions to get away from the long reach of the UK taxman. Actions really do speak louder than words when you are trying to become non-UK resident.