DJS Consulting - News and Links

Previously deferred by the Government to allow further time to finalise the details and now due to be legislated in Finance Bill 2013 to apply from 6 April 2013. Publication of summary responses to the consultation and draft legislation is anticipated shortly so do continue to watch this space for further news.

It is also proposed to abolish Ordinary residence for tax purposes from 6 April 2013. Overseas workday relief is to be placed on a statutory footing as currently it is a non-statutory means of apportioning earnings between duties performed in the UK and duties performed elsewhere. Aircrew have previously agreed a more precise duty calculation with HMRC based upon hours and minutes and it is envisaged by us that this should continue with details already known to you or if not then they are available upon request.

The Government will consult on a capital gains tax charge on residential property owned by non-resident, non-natural persons (ie companies /partnerships etc) along with a stamp duty land tax annual charge for high-value residential properties, for application from April 2013. As yet there does not appear to be any suggestion to extend this proposed CGT legislation to cover the sale of personally owned UK property by a non-resident individual.

Proposed increase in the IHT-exempt amount that a UK domiciled individual can transfer to their non-UK domiciled spouse or civil partner. The Government similarly proposes to allow individuals who are domiciled outside the UK and who have a UK domiciled spouse or civil partner to elect to be treated as domiciled in the UK for the purposes of IHT. Legislation will be in Finance Bill 2013.

HMRC reiterated its new practice from 10/11 in relation to “full-time” work abroad being to accept generally that non-United Kingdom residence can be demonstrated, even though some of the duties carried out in the United Kingdom are not incidental duties, as long as such duties do not exceed 10 days in one year. This is a concessionary practice agreed by HMRC in relation to s830 only and can for some individuals help them to fast track Non Residence status after one complete UK tax year. This said do remember that a potential liability remains in respect of the UK duties performed and so further specific advice in relation to your own individual circumstances is best advised.

In perhaps a classic case of kicking the football up the pitch - David Gauke Exchequer Secretary to the Treasury within a Ministerial statement earlier today (6/12/11) indicated that:-

“At Budget 2011, the Government announced a package of reforms to the taxation of non-domiciled individuals and its intention to introduce a statutory definition of tax residence.

The consultation on tax residence raised a number of detailed issues which will require careful consideration to ensure the legislation achieves its important aim of providing certainty for individuals and businesses. The Government will therefore legislate the statutory residence test in Finance Bill 2013 to take effect from April 2013 rather than April 2012. It will introduce any reforms to ordinary residence at the same time. This will give time to consult thoroughly on the detail of these changes well in advance of implementation.

The Government is committed to the form of the statutory residence test outlined in consultation. It will make a further announcement around Budget 2012 when it will publish its response to the recent consultation together with a further consultation on policy detail and draft legislation.”

Earlier this week the SUPREME COURT found in favour of HMRC in a majority decision upholding the Court of Appeal's decision that Gaines-Cooper was a resident of the UK for tax purposes.

Not a Pilot but still of historical note and interest for some as it charts and comments upon HMRC approach regarding their own guidance in this regard and highlights the overall need to demonstrate at the very outset a distinct and clear break with the UK in relation to such a claimed departure for UK Non Residence status to be upheld.

IR20 was the authority's former guidance on what constitutes residency for tax purposes and although Gaines-Cooper claims to have followed the guidance, HMRC and a number of court rulings found he retained strong links to the UK, which meant he was resident. Furthermore the Supreme Court did not consider that HMRC had wavered sufficiently from its own guidance.

Such cases as Gaines Cooper might well have contributed to the shift in favour towards the proposed Statutory Residence Test via consultation this year (now closed) with expected publication of the questions and answers along with draft legislation by the end of November or early December.

Aircrew need to continue to proceed with utmost caution and further comment regarding your own individual circumstances is available upon request.

The Government has indicated that the current rules that determine tax residence for individuals are unclear and complicated. A consultation document with the aim of introducing a Statutory Residence Test to provide greater certainty for taxpayers was issued on the 17/06/11. The consultation phase lasts until 9/09/11 after which they intend to legislate and apply new measures from 6/4/12.

HMRC predict that ;- “there will be a small number of individuals whose residence status will change as a result of this test but it is not possible to calculate precisely how many will be affected.”

Clearly we need to wait and see exactly what transpires and then precisely how any Statutory Residence Test is applied to Aircrew. In the meantime Aircrew, in particular, should proceed with utmost care planning ahead as far as possible to strengthen claims. Tailored advice is available to existing clients and we will gladly undertake an initial review for new contacts without obligation.

· Arrivers - defined as those individuals who were not UK resident in all of the previous three tax years; and

· Leavers – defined as individuals who were resident in one or more of the previous three tax years.

The test follows progressive steps as appropriate to determine UK Residence status of individuals in relation to Income, Capital Gains and Inheritance Tax.

· UK Work Day – for the SRT is any day during which three hours or more of work is carried out in UK.

· Substantive UK Employment (or self-employment) -being work in the UK for 40 or more days in the tax year.

Part A contains conclusive non-residence factors that would be sufficient in themselves to make an individual not resident. For instance;-

· not resident in the UK in all of the previous three tax years and less than 45 days in the UK during current tax year; or

· resident in the UK in one or more of the previous three tax years and less than 10 days in the UK during the current tax year; or

· leave the UK to carry out full-time work abroad, provided less than 90 days in the UK and no more than 20 days are spent working in the UK in the tax year.

Individuals who do not meet all the criteria for full-time work abroad, for example if they have more than 20 working days in the UK, will not necessarily be resident; they may still be non-resident under Part C.

Part B contains conclusive residence factors that would be sufficient in themselves to make an individual resident (Provided Part A of the test does not apply) if they:

· have only one home and that home is in the UK (or have two or more homes and all of these are in the UK); or

Part C applies to those with more complex circumstances and whose residence status is not determined by Part A or Part B. It sets out to reflect the principle that the more time someone spends in the UK, the fewer connections they can have with the UK if they want to be non-resident. Connecting factors which will affect the number of days a person can spend in the UK with a separate sliding scale published on the Treasury web site for “arrivers” and “leavers” are:-

Generally still liable to UK tax on UK trade, rental and employment income for UK duties performed including work for less than 3 hrs per day (ie working flights, training / simulator etc). Subject of course to the provisions of relevant double tax treaties but even then Aircrew duties performed “wholly” in the UK, rather than in” international traffic,” usually remain taxable in UK after tax free allowances.

*DJS view – Aircrew should however continue to factor in the prior caveat issued by HMRC within HMRC6 guidance being “If you spend very significant amounts of the year travelling internationally, you should keep a record both of the days you were present in the UK and of those days where you are here at midnight. Both will be factors when looking at the pattern and purpose of your visits.”