Interesting Article Idea: The Curious Case of Lyle Dicker Grace and the Factors for Determining UK Tax Residency

, We thought the below article about the factors for determining UK tax residency would be of interest to your readers. We hope you can use it as is, but do let us know if you would like Mark to expand on any areas: The Curious Case of Lyle Dicker Grace and the Factors for Determining UK Tax Residency (Grace v The Commissioners for HM Revenue and Customs, EWCA Civ 1082, 28 October 2009) Managers of hedge funds with operations based in the UK are increasingly concerned changes to the UK tax rules for high earners (50% tax band will be with us from April next), combined with EEA restrictions on pay, will make it harder to retain and attract the best talent. Switzerland in particular is gaining popularity as a possible destination for the emigration or part-relocation of resources. As a result of these trends, becoming non-resident for UK tax purposes enters the conscience of mobile senior employees and other High Net Worth individuals planning. Achieving this where employment and other ties remain here is more difficult than ever but not impossible with the right fact pattern and careful planning. Just how difficult it can be to interpret the rules on loss of UK tax residency was most recently illustrated in the case of Grace v The Commissioners for HM Revenue and Customs 28 October 2009. The case concerned whether Lyle Dicker Grace was resident in the UK for tax purposes and has once again highlighted that there is no statutory definition of residence for tax purposes. In the absence of a statutory residence test, there is an increasing need for greater clarity and certainty around the non-statutory residence tests used by the courts to develop a series of guiding factors when considering tax residence. The Revenue’s practice notes have been reinterpreted by them with a succession of cases seeking to challenge any established understanding. The background to this particular case makes for curious reading and illustrates the challenges. At the heart of the case is the question of in what circumstances (when a long-standing UK tax resident moves abroad) can they be certain they have, in effect, achieved a clean break from being resident for UK tax purpose. In examples that can be traced back over the last 100 years, the courts have discouraged us from trying to find specific pointers such as "the right fact pattern" that might drive careful legitimate planning, instead insisting that there is a need to take into account, weigh-up, and balance all relevant factors in each case. Mr Grace is a long-haul pilot for British Airways who claimed, after a period of living in the UK, that he had relocated to his native South Africa and was now commuting to the UK for his work. He claims that he only visited the UK in this way because each of his long-haul flights started and ended here. A closer look at the facts of the case quickly reveals that matters were complicated because Mr Grace had lived in the UK for ten years until 1997 when he moved back to Cape Town. Therefore the enquiry had to assess: • the nature of the visits to this country, including: - the duration of his presence in the UK and, - the regularity and frequency of his visits. Equally, the enquiry had to take into account his continuing links to this country and his connection with South Africa, including his ownership and use of a house there, and his activities, ties and other connections there. His ownership and use of a house in South Africa was not considered conclusive that he did not reside in the UK, but it was a relevant factor to be taken into account along with, in this case, the following list of factors about his UK ties: • he retained a house in the UK; • he was on the electoral roll in the UK as a resident; • post was sent to him at his UK address; • he kept a car in the UK; • he had a bank account in the UK into which his salary from British Airways was paid; • he was registered with a dentist in the UK; • he had no relatives in the UK; • his ex-wife and daughters lived in the UK but he had no contact with his children for over 30 years; and • he was a member of the professional body of the British Airline Pilots Association. HM Revenue & Customs have argued that Mr Grace did not break his UK residency at any stage given the extent of his visits to the UK and the nature of his continuing links to this country. Indeed the many volumes of case law support the idea that a UK tax resident is unlikely to have left the UK unless there has been a definite break in his pattern of life. In the absence of a statutory residence test (along the lines of the USA and Ireland) planning to make a definite break requires careful consideration of non-statutory residence factors as outlined above. In the case of an individual who has been resident in the UK, the making of a "distinct break" in his pattern of life, including establishing a residence elsewhere, may mean that even lengthy or regular visits to this country may not amount to continued or resumed residence. What is clear in this case, and one or two others, is that established practice is no longer as clear and distinct as it may have appeared for many years. The lack of a statutory residence test makes planning for non-residency status more challenging. Contacts: Mark Walters, Frank Hirth: +44 (0)20 7833 3500 MarkW@frankhirth.com www.frankhirth.com Lauren Alexander, Maltin PR: +44 (0)20 7887 1357 Lauren@maltinpr.com www.maltinpr.com I look forward to hearing from you soon. Kind regards, Lauren Alexander Media Director Maltin PR Berkeley Square House Berkeley Square London W1J 6BD T +44(0)20 7887 1357 F +44(0)20 7887 6001 M +44(0)7515 664 338 www.maltinpr.com