Coming to Work in the UK: Ordinarily Resident or Not?

HM Revenue & Customs (HMRC) is taking an ever increasingly aggressive approach to taxpayers who claim a "non-domiciled" or "temporarily resident" tax status in the UK. Whether or not a taxpayer is "ordinarily resident" in the UK, is also relevant to determine the extent to which that taxpayer will be liable to UK tax. It remains a hot topic for those who claim the status.

A recent attack has been looking at "ordinary residence" status, of which the case of Tuczka v HMRC 2010 UKFTT 53 will come as very bad news to taxpayers. There is no statutory definition of "residence" or "ordinary residence" in the UK. The meanings have been derived and blurred through case law. Taxpayers had previously relied on guidance provided by HMRC in booklet IR20 to understand how they are likely to be treated by HMRC. IR20 was replaced with HMRC6 from 6 April 2009.

Under UK legislation, an individual will be taxable as if they were resident in the UK, if they spend 183 days or more in the UK in a given tax year. Ordinary residence is a more difficult concept, being more than residence. Its meaning has been derived from case law, and is "more than temporary [residence].... it connotes residence in a place with some degree of continuity."1 It is on the basis of these concepts that the UK courts and HMRC look at residence and ordinary residence in the UK for tax purposes.

The old guidance in IR20 provided that an individual who came to the UK, with the intention of staying for less than three years could be regarded as not "ordinarily resident" in the UK, potentially until the beginning of the next tax year following the third anniversary of their arrival. Therefore, if a taxpayer arrived on, say 1 June 2004, in tax year 2004/2005, and they could show they had not formed an intention to stay longer than three years, they would not usually be regarded as ordinarily resident until 6 April 2008. However, over the last few years, HMRC frequently challenged those who "passively" overstayed the three years and claimed their intentions had not changed.

In the light of the number of enquiries into this area, it was no surprise when HMRC withdrew IR20 and replaced it with the less prescriptive HMRC6. Although HMRC claimed its views had not changed, HMRC6 indicates that a taxpayer who overstays the three years will be regarded as ordinarily resident in the UK, with effect from the beginning of the tax year in which the third anniversary falls - a year earlier than the...