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The tax treatment of income and capital gains depends on an individual's residence status. However, there are no general statutory definitions of UK residence and ordinary residence for tax purposes. Instead, individuals have to rely to a great extent on guidance and practice from HM Revenue & Customs.

An important residency case

Robert Gaines-Cooper had a UK domicile of origin. Over time, he developed considerable business interests outside the UK. He ensured that his visits to the UK normally averaged less than 91 days in a tax year under HMRC guidance in their booklet IR20. He argued that by complying with HMRC guidance in this way, he was no longer ordinarily UK resident.

However, it was decided that although there were tax years in which he was not resident in the UK, he nevertheless remained ordinarily resident. Various factors were viewed as demonstrating his strong ongoing links to the UK. For example, he beneficially owned a property in the UK where his wife and child lived; and made regular visits to the UK for family and social purposes.

From 6 April 2009, HMRC guidance, in HMRC6, states that an individual's lifestyle pattern significantly influences their residence status. This includes the time an individual spends in the UK, but also takes account of the reason an individual is in the UK and the place of their normal home, family ties and social connections. IR20 has been withdrawn.

Future hope?

Mr Gaines-Cooper lost his case in the Appeal Court in February, but he has been given permission to appeal to the Supreme Court.

The case should be heard early in 2011. The outcome could have enormous significance for other individuals who believe they should have benefited from being non-UK resident based on IR20.
 

Scottish Widows has a full range of residence and domicile fact sheets on the Technical Zone area of its Adviser Extranet at: www.scottishwidows.co.uk.