Since there has up to now been no definition of “residence” in the UK tax legislation, for income tax purposes you should be aware:
- That the common-law meaning of “residence” applies, i.e. it relies on case-law which from time to time includes conflicting case-law and due to each case and the facts are so different it lacks extracting general principles;
- Certain statutory modifications apply (see ss. 829-832 of the Income Tax Act 2007 (“ITA 2007”));
- The booklet HMRC 6 replacing IR20 contains guidance which individuals can rely upon; and
- The case of Gainess-Cooper v HM Revenue and Customs the Supreme Court decided in favour of HMRC and casted doubt on tax practitioners ability to rely on IR20 (now HMRC 6).
Therefore, for tax payers and tax practitioners it has been a difficult task to determine a tax payer’s place of residence for tax purposes with a level of certainty. Accordingly for the exactly the same reason HMRC put forward their proposals for a statutory residence test in a public consultation document in 2011 and invited all interested parties for their comments. The consultation only covers individuals not companies.
The Government received around 120 responses from a variety of individuals and organisations. A summary of the responses to this consultation appears in the Government’s latest document issued on the 21st June 2012. The Government intends to introduce the statutory definition of tax residence and reforms to ordinary residence in Finance Bill 2013.
While the draft legislation is introduced to bring certainty in this area the rules proposed are far from reaching this aim and requires careful consideration.
Tulin Kiranoglu, Solicitor, Tax Advisor