Taxman targets exiles who keep UK toehold

Robert Gaines-Cooper

From The Sunday Times Online
November 29, 2009

by Jon Ungoed-Thomas

RICH Britons who claim to have moved overseas could find themselves back in the clutches of the taxman if they have hung on to a car, a mobile phone number or even a golf club membership in the UK.

A new HM Revenue & Customs unit is to probe the lifestyles of those who claim to have moved to the Channel Islands, Monaco and other tax havens. Inquiries will range from the homes of their close family to their children’s schools and club memberships.

HMRC’s new high net worth unit, which monitors the tax contributions of the country’s wealthiest 5,000 people, will examine the non-residency claims of the super-rich. Businessmen commuting to London from tax havens are expected to face particular scrutiny.

Britain’s tax exiles include the Candy brothers, Nicholas and Christian, who turned a £6,000 loan into a property empire. They are worth an estimated £330m and commute to London from Monaco. Others living in tax havens include Lewis Hamilton, the Formula One driver, Sir Roger Moore, the actor, and Peter Cruddas, who founded a financial trading group and is worth more than £1 billion.

Until this year, tax exiles could claim non-residency if they were in Britain for fewer than 90 days a year, under rules devised before private jets made it viable to commute. New HMRC guidelines make it clear that tax exiles must prove they have severed almost all links with the UK.

Ronnie Ludwig, a partner at Saffery Champness chartered accountants, said: “[The taxman] is now not just looking at the days you spend here, but your entire lifestyle to see whether you have really left.

“It comes down to many different things, like property, or a mobile phone number or membership of sports clubs. It is anything that would demonstrate an ongoing link with the UK. If you are ticking a lot of these boxes you are likely to face a challenge over your residency.

“A number of people who now think they are safely out of the system could find themselves on a 50% tax regime.”

HMRC changed its guidance after a case against Robert Gaines-Cooper, an Oxfordshire businessman who faced a tax demand of £30m after inspectors challenged his non-residency status. He claims he left for the Seychelles in the 1970s.

Gaines-Cooper said he spent fewer than 90 days a year in the UK on average, but tax inspectors argued that he was still resident here because he owned a 27-acre estate in Henley-on-Thames with a collection of vintage Rolls-Royces. His son also attended a school in England.

Gaines-Cooper is appealing against the decision because he says he complied with HMRC guidance. His website says his case has “ushered in a climate of uncertainty in taxation, which is ... arguably unfair”.

In another case the taxman has pursued a British Airways pilot who spends only a few weeks a year in the country. HMRC has argued that because the pilot, who is originally from South Africa, flies out of Gatwick and has a house in Britain he is resident for tax purposes.

Even if HMRC does not win these cases, others can expect to be challenged. Tax advisers are warning exiles previously resident in Britain to be cautious about continuing links to the country.

Among those who have recently gone into exile is Guy Hands, the private equity tycoon, who has moved to a £6m home in Guernsey, which has a 20% income tax rate and does not levy capital gains tax. But his wife Julia and family still live in Sevenoaks, Kent, and the couple celebrated their silver wedding anniversary this month.

Hands’s arrangements are likely to be examined closely. He has vowed not to set foot in Britain in the near future so as to establish his new residency.

Jon Moulton, founder of the private equity firm Alchemy and a friend of Hands, warned that the HMRC’s tough new approach could also apply to foreigners who live in London and then move overseas.

“The danger is that they make people who come to London fearful they will never get out again,” he said. “Some bright spark at the tax office will be asking, ‘Doesn’t your child still go to school here?’ ”

Tax inspectors have already tightened up some of the rules on residency. Previously, non-residents who commuted to London did not need to include their days of arrival and departure towards their 90-day tally.

It meant a company executive could fly in early Tuesday morning and leave the following Thursday, while officially having spent just one day in the country. Days of arrival are now counted towards the tally.

Despite the tightening of the rules, tax havens appear to be as popular as ever. Trevor Gabriel, who runs Monaco Villas, a property company in Monaco, said: “The British population in Monaco has doubled in the past 20 years and there is no sign of that slowing down.” He said in addition to its low tax regime, Monaco was clean, secure and well connected.

John Whiting, tax policy director at the Chartered Institute of Taxation, said HMRC wanted to ensure tax havens were not used as addresses of convenience: “It’s going to create a lot of uncertainty because the rules are not clear-cut.”