UK: UK Tax Residence And The 91 Day Rule

Individual taxpayers and their advisers are used to ignoring days of arrival and departure in calculating whether they spend sufficient days in the UK to be UK resident, but the recent Gaines-Cooper case has underscored that this may not always be possible.

UK tax residence is not defined by statute and, despite the importance of the issues, the courts have been reluctant over the years to issue specific guidelines. However, HM Revenue & Customs has for some time published its own views in a booklet universally referred to as "IR20", and these are generally followed and accepted in the absence of much statutory or clear judicial guidance.

Taking advantage of statements in IR20, the taxpayer in Gaines-Cooper v Revenue and Customs Commissioners claimed that he was non-UK tax resident in various tax years by virtue of spending an average of less than 91 days in the UK over four year periods.

While IR20 provides that days of arrival and departure can normally be ignored in working out the number of days spent in the UK, the Special Commissioners agreed with HM Revenue & Customs that this did not yield an accurate result, and, not being bound by any authority to calculate the number of days spent in the UK in this way, substituted a test involving the number of nights spent in the UK. In the case of this taxpayer, this produced a dramatically different result, in that he went from having "spent" 50 days in the UK in one tax year to having "spent" 94 days in the UK in that tax year.

The case involved complicated evidential issues (the taxpayer gave evidence for four and a half days) and turned not just on the number of days "spent" in the UK but also on the taxpayer’s other attachments to the UK and regularity of visits. He had also been resident in the UK for some time previously. Ordinary residence and domicile issues were also considered. It is also difficult to determine how much weight the Special Commissioners gave in reaching their decision to the numbers of days "spent" in the UK rather than other factors.

Given the increased regularity of travel with daily international commuting now possible, it was perhaps only a matter of time before a question mark arose over ignoring days of arrival and departure with regular trips. However, unless and until this part of the judgment is specifically overruled, this ruling again shows that reliance on excluding days of arrival and departure and indeed the 91 day rule may not be wise - and even if this judgment is reversed, the ruling serves as a reminder that IR20 does not have the force of law and HM Revenue & Customs are not bound to follow it.

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

The original publication date for this article was 22/11/2006.