Weekly Tax Update - Monday 25 November 2013

1 GENERAL NEWS

1.1 Potential changes to CGT for non-UK residents

The rumour mill has started working at full tilt ahead of the Chancellor's Autumn Statement on 5 December. One rumour concerns the possible widening of the scope of capital gains tax (CGT) to cover gains made by non-UK residents on the disposal of property in UK.

The current rules

As the rules stand at present, gains made by non-resident individuals are normally exempt from CGT, unless they are away from the UK for less than five tax years and dispose of an asset which they owned before they left or the property is used in a business which they own. In addition there is extensive anti-avoidance legislation which applies to offshore trusts and companies.

Changes which took effect from April 2013 meant that non-resident companies became liable to CGT on gains on the disposal of residential property valued at more than £2 million.

Potential changes

The Deputy Prime Minister has been reported as saying that plans are afoot to charge CGT on British property sold by all non-residents. It is not clear at this stage whether the potential changes would apply only to residential property or whether they would include commercial premises. It is also not clear whether the proposed changes will apply to all non-residents, including all companies.

When the changes covering high value properties owned by non-resident companies were introduced last April a rebasing facility was included so that existing capital gains were excluded from charge. It remains to be seen whether a similar rebasing would apply to a more general widening of the charge.

The CGT rules include an important relief for properties which are used as the individual's main residence throughout the period of ownership; where an individual owns more than one residence it is possible to elect which is to be regarded as the main residence although the election must be made within strict time limits. We will have to wait and see whether non-residents will be allowed to claim this relief and if so whether the strict time limits for making the election are relaxed.

Normally, changes to tax rules take effect from the April following their announcement. However, there have been examples where changes have become effective from the date of an announcement, or forestalling rules have taken effect immediately.

This potential change seems to be motivated largely by political drivers rather than tax raising alone and so it is conceivable that any change could apply from December. Many other countries already charge tax on the disposal of properties situated in that country and so the Chancellor would no doubt argue that he was merely bringing the UK into line.

1.2 HMRC organisation chart

An organisation chart for HMRC as at November 2013 has been published.

www.gov.uk/government/uploads/system/uploads/attachment_data/file/260421/HMRC_organisation_chart_2013-11-01.pdf

2 PRIVATE CLIENT

2.1 Tribunal cases on statutory residence

Two recent cases on residence status (with the rules applying before the statutory residence test in FA13) have been heard at First-tier Tribunal:

Mr & Mrs Rumbelow (TC03022) (involving disputed tax totalling approximately £0.59m between 2001/02 and 2004/05); James Glyn (TC03029) (involving disputed tax of £5.5m for the 2005/06 tax year). Both cases involved close families and a continuing use of their home base in the UK. Mr & Mrs Rumbelow were found not to have demonstrated sufficient loosening of ties with the UK to be regarded as not resident, while James Glyn demonstrated a sufficient loosening of ties and overseas residence for the Tribunal to conclude his case succeeded. In both cases there is a detailed discussion of the facts, and the Tribunal took notice of the meticulous records of movements kept by Mr Glyn, while they noted the absence of records and inconsistencies in the case of Mr & Mrs Rumbelow.

The Rumbelows' case concerned income and gains made in the tax years 2001/02 to 2004/05. They had three children, the youngest of whom was 15 at the time they purportedly left the UK (4 April 2001) and was about to sit GCSE exams. However the arrangement was that she would stay with one of her sisters. Some of the Rumbelows' business interests were passed on to one of their daughters and her partner (later husband), but there appeared to be continuing involvement of Mrs Rumbelow in the business in the UK after the date she claimed to be non-UK resident. Both Mr & Mrs Rumbelow had purportedly moved to Belgium initially with the intention of living in Portugal once a property they commissioned had been built. Their motive for moving abroad was to have a break from their busy UK life and also for Mrs Rumbelow's health reasons. However on the evidence submitted the Tribunal were not convinced the claimed periods of non-residence satisfied the requirements for non-residency.

The case of Mr & Mrs Glyn was similar in some respects in that there was a desire for a distinct break from involvement in UK business activity. The intention in leaving the UK on 5 April 2005 was to spend a period abroad and eventually return to the UK, the UK family house being retained to cater for that eventuality. Mrs Glyn accompanied Mr Glyn in their relocation to Monaco, but non-UK residency was only being claimed for Mr Glyn. There were visits back to the UK connected with finalising Mr Glyn's involvement with his business and also for certain family occasions, but a strict diary was kept indicating Mr Glyn was present in the UK. In contrast to the Rumbelows' move to Belgium there had been more preparation for the move and the Glyns had acquired an apartment in Monaco which they moved to. When in the UK the Glyns (in keeping with their Jewish background) would have Friday night family meals at their UK property, but the Tribunal concluded that the frequency and intention of such visits were of an insufficiently settled nature to establish UK residency. The Tribunal considered on the balance of evidence that the Glyns did make a habitual home in Monaco and had effected a substantial loosening of ties so that Mr Glyn had established non-UK residency for the years 2005/06 to 2009/10. A detailed analysis of the Glyn case follows.

www.bailii.org/uk/cases/UKFTT/TC/2013/TC03029.html

www.bailii.org/uk/cases/UKFTT/TC/2013/TC03022.html

2.2 James Glyn case

The First-tier Tribunal has considered the case of James Glyn where the point at issue was whether Mr Glyn was resident in UK in 2005/06. This case pre-dates the new statutory residence test, but the decision will still be of interest for years up to 5 April 2013.

In 2005/06 Mr Glyn received a large dividend in respect of the shares in his family company, and the tax at stake in relation to that dividend was approximately £5.5 million. It was accepted that if the Appellant succeeded in establishing non-residence in the year 2005/2006, it was likely that the same status would apply for the next four years until Mr Glyn returned to live in UK.

At the beginning of 2005, Mr Glyn was 56 years old. He described himself as a secular Jew who honoured most of the Jewish traditions and festivals though was not religious and very rarely attended the synagogue.

Mr and Mrs Glyn had lived at Circus Road, in St. John's Wood. It was located close to the Mr Glyn's elderly mother, close to their children, and close also to their considerable circle of close friends.

Mr Glyn's father died when Mr Glyn was only 21, and he found himself having to run...