Resident evil

My client, who currently works in the UK and is UK resident and ordinarily resident, wishes to leave the UK before 6 April 2011 to take up employment abroad. He is engaged and rents a property with his fiancée. Their tenancy agreement expires in five months' time.

When he leaves the UK, he is uncertain about the impact on his UK residency status. He has asked me to advise him on the legal position and to provide him with a practical solution.

Currently there is no legal test to determine when an individual becomes or ceases to be UK resident, other than presence in the UK exceeding 182 days in a tax year. My client will be required to provide evidence to HMRC that he has made a 'distinct break' from the UK in order to become non-UK resident. Under common law principles, the factors to consider are:

1. total days spent physically in the UK after the date of departure (to ensure that he does not exceed 91 days per year for the duration of his absence);

2. whether there continues to be accommodation available to him in the UK (this is ignored in determining residence in cases of employment abroad);

3. location of any immediate family members and whether they relocate with him; and

4. length of his employment contract, whether it is full time and where the duties are performed.

Further hurdles

My client should also be aware of the statutory trap, which provides that an individual who moves for only 'occasional residence abroad' will be deemed to remain a UK resident. HMRC has successfully argued this point on a number of occasions, most notably in the case of Gaines-Cooper, to catch individuals who appear to have spent more than one year outside the UK but who cannot demonstrate that they have put roots down elsewhere during this absence.

On a point of law, therefore, it is not inconceivable that my client could take up an employment contract of 18 months' duration and still fall into this trap.

Under statute, tax residence is determined for a complete tax year and 'split year' treatment is granted under ESC A11. HMRC has provided guidance in A6 paragraph 8.5 which, if adhered to, should provide as close to certainty as is ever possible. This provides that an individual who takes up full-time employment abroad is deemed to be non-UK resident and ordinarily resident from the date after the date of departure from the UK until the date before the date of return to the UK provided that:

1. absence from the UK and the duration of full-time employment both include at least one complete year of assessment;

2. physical departure is to begin the employment, and not for any other reason; and

3. visits to the UK during the period are less than 183 days in any year and average less than 91 days per year (the average being taken over the period of absence up to a maximum of four years).

Gainfully employed

So, I would advise my client to:

• sign his new contract of employment and commence work abroad before 6 April 2011;
• take up his employment on departure, and if not the employment commences before 6 April 2011;
• ensure that the employment has a standard pattern of working hours which can be compared to a typical UK working week;
• make sure the duties of the employment are performed outside the UK (although some incidental UK duties are permitted, specific advice should be sought);
• ensure that he remains in full-time employment outside the UK until at least 6 April 2012; and
• make sure that visits to the UK total less than 183 days in a year and ideally total less than 91 days a year.

Ultimately, where any of these conditions are not met, HMRC will review the absence under the factors relating to 'temporary non-residence'.

Finally, for UK CGT purposes, my client should be aware that if he returns to the UK within five years he will be subject to CGT on any gains during his period of absence.

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