UK: Are Tourists Being Taxed As UK Residents?

Last Updated: 19 March 2012
Article by Camilla Wallace

The Facts

Rupert Kimber had lived and worked in Japan from 1989 until 2005 with only a short interlude between 1994 and 1997 as a result of a UK posting. In July 2005, he and his family visited the UK as they did every year. However, this year the holiday took place only a few weeks before the family was to return to the UK permanently and this was to have a crucial impact on Mr Kimber's UK tax status for the 2005/06 tax year.

Following the annual holiday to the UK the family went to Italy for four weeks and it was during this holiday, in August, that Mr Kimber disposed of some Cazenove shares standing at a significant gain which would have triggered nearly Ł96,500 of UK tax had he been UK resident at the time of sale. Consequently, HMRC decided to throw down the gauntlet and challenge Mr Kimber's residency.

The Result

This month HMRC won their case in the First Tier Tribunal having successfully argued that Mr Kimber was UK resident from July 2005 as a result of the actions he took and intentions he formed during the 2005 annual family holiday. HMRC accepted that the extra-statutory split year concession was available, which enables individuals to benefit from periods of UK residency and non-UK residency within a single tax year. However, in this case it was argued that Mr Kimber became UK resident prior to the disposal of the shares thereby triggering a liability to UK capital gains tax when he sold the shares as a UK resident and so the split year concession was of no benefit.

The First Tier Tribunal's view

The First Tier Tribunal did not accept Mr Kimber's arguments that he was in the UK for a temporary purpose only and was intending on accepting a job for TT International in Hong Kong. The tribunal cited the following reasons as to why Mr Kimber became UK resident in July 2005 during his annual holiday in the UK:

  • whilst on holiday in the UK, Mr Kimber signed his employment contract with Polar Capital to work in the UK from 1 September 2005 (he had been offered the job in April);
  • his two daughters were enrolled to attend a private school in Norfolk from September 2005;
  • the family had viewed Squirrelwood Farm in Norfolk with a view to renting it and a finalised copy of the lease had been printed off on 27 July 2005;
  • all the family's belongings and furniture had been shipped to the UK from Japan in June (and not sent to Hong Kong);
  • the family owned a leasehold interest in a National Trust property in Norfolk, The Old Hall, which required significant renovation and could not be sub-let (the corollary being that the family were likely to move into the property eventually and not move to Hong Kong for several years leaving it vacant); and
  • KBC (Mr Kimber's employers) were under the impression that Mr Kimber was moving to Polar Capital (a client and not a competitor) and had therefore waived gardening leave provisions.


Mr Kimber's employment, family and accommodation arrangements were put in place on a permanent basis during that "holiday" to the UK in July and any argument that he was considering taking up a post with TT International in Hong Kong were deemed by the tribunal to be implausible.

Paragraph 7.4 of HMRC6 sets out how an individual can come to the UK with a temporary purpose (such as a holiday) but become resident for tax purposes immediately should their intentions change. An individual is vulnerable to this should they come to the UK to prepare for future residence; particularly so if they have already formed the intention to reside in the UK (albeit at a later date) or carry out acts such as Mr Kimber did which would enable HMRC to argue that the intention to reside in the UK was formed during the visit to the UK.

What now?

The Government's consultation document on the statutory definition of tax residence confirms that the split year concession will be included in forthcoming legislation but as it stands there are no specific rules determining the start date of an individual's UK residency. Following this, the drafting team will surely need to revisit the legislation if they are to provide the workable statutory residence regime which has been promised and which is so long overdue.

As for clients, we would recommend that if you are considering a return to the UK, then you should contact us immediately to ensure that (i) you do not unwittingly slip into the UK tax net sooner than anticipated and (ii) you have maximised your pre-arrival tax planning options. For example, it might be advisable to keep visits during the tax year of return to a minimum and ensure where possible that arrangements regarding your return are made from outside the UK. Furthermore, should you wish to dispose of any assets, this should ideally be done the tax year prior to your return to the UK if you are to avoid UK capital gains on the same (bearing in mind the requirement to be non-UK tax resident for five complete tax years to avoid UK tax being clawed back by HMRC on your return to the UK in relation to the disposal of assets during your period of non-UK residence).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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