High Net Worth Individuals are frequently in and out of the UK, and a recent tax ruling seems to have caused surprise at their UK tax treatm...

High Net Worth Individuals are frequently in and out of the UK, and a recent tax ruling seems to have caused surprise at their UK tax treatment. However, there is a lot more to claiming UK non-residency status than simply limiting your time here.

They may have missed out on the popular legacy and place in history achieved by contemporaries such as the Beatles and Rolling Stones, but the Dave Clark Five were one of the top British bands of the 1960s.

They had 22 hit records in Britain and 24 in the United States, along with six sell-out US tours and 13 appearances on the Ed Sullivan Show, the definitive and longest running variety series in television history.

As you might have guessed from the band’s title, drummer Dave Clark was the driving force behind the band and when, during the late 1970s, he received a huge royalty payment while on tour in the USA, he decided to extend the band’s tour – to the point that he was absent from the UK for a full tax year.

Perhaps Mr Clark was simply well-advised by his accountants, or maybe he knew a thing or two about tax himself, but this turned out in the end to be a profitable move, and it provides a lesson for anyone in the UK seeking non-resident status.

A Special Commissioners ruling last month (Shepherd v HMRC) concerned an airline pilot, Mr Shepherd, who claimed he was not resident in the UK in 1999/2000 and had actually become resident in Cyprus in October 1998.

In this case, the outcome was a verdict in favour of HM Revenue & Customs. In adjudicating on the 1999/2000 tax-year, Mr Shepherd was deemed fully taxable in the UK because he had left the United Kingdom for the purpose of only occasional residence abroad.

It would appear from reports on the Shepherd case that a large portion of Mr Shepherd’s claim rested upon reliance of the so-called "90-day rule" – commonly misunderstood as meaning that an individual is able to qualify as UK non-resident simply because they spend no more than 90 days in the country.

Mr Shepherd apparently spent 180 days in the tax year out of the UK on flights, 77 days in Cyprus where he rented a furnished flat, and 80 in the UK in the family home. Clearly, he spent less than 90 days in the UK.

It has been claimed that the Shepherd ruling marks the start of a clampdown and tightening-up of the rules by HM Revenue and Customs, in respect of people seeking to escape the UK tax net, but the fact is that successfully claiming to be UK non-resident has always involved a lot more than simply ticking off the days you spend in the country.

Back to our tax-savvy Sixties Rockstar and, needless to say, the taxman was not very happy with Mr Clark’s extension of his US tour. The Revenue felt it could have been lengthened purely to minimise his time in Britain that year in order to disqualify the tax liability on his royalty payment on the basis of a claim of being non-resident in the UK.

In this instance, a later court case (Reed v Clark, 1985) ensued in which the Inland Revenue attempted to claw back taxes they felt were owed in relation to the band’s 1978/79 tour of America. However, the Revenue was defeated, and Dave Clark was treated as non-resident for the relevant tax year.

Crucially, Dave Clark and his band were clearly out of the UK for a period of time much greater than 90 days, but still he had to fight to avoid being caught by UK taxes. The Dave Clark Five demonstrated successfully that claiming to be UK non-resident depends on a lot more than counting off the days to meet the so-called "90-day rule".

In the more recent case of the airline pilot, Mr Shepherd, the Special Commissioner’s conclusion was that, “after taking into consideration…the appellant’s past and present habits of life, the regularity and length of his visits here, his ties with this country, and the somewhat temporary nature of his attachments abroad, I have come to the conclusion that at least until 5 April 2000 he continued to be resident and ordinarily resident in the United Kingdom.

The Special Commissioner added: “He dwelt permanently here and this was where he had his settled or usual abode and so he was resident here.” Mr Shepherd had simply not done enough to show that he had left the UK.

Rather than, on its own, signalling the start of a stricter and more ominous regime, the case should reinforce the fact that people ordinarily resident in the UK really do need to demonstrate that they have left.

In the case of Mr Shepherd, he still had his family home in the UK and the Special Commissioner found that “his residence here was part of the regular and habitual pattern of his mode of life”. Clearly, as an airline pilot, he spent a long time outside the UK, and he may have thought he had a strong claim because of his time spent in Cyprus. However, his absence from the UK was found to be only temporary.

The Shepherd case is a reminder that individuals need to think about their claim to be UK non-resident very carefully. However, there are one or two things that it may help to bear in mind.

1 If an employee is sent to work abroad full time by their employer, the employee is likely to qualify as UK non-Resident even if the arrangement is only temporary, provided that two criteria are met:

· The absence includes a complete tax year; and
· Visits to the UK are less than 183 days in any one tax year, and less than 91 days on average.

2 Individuals from overseas are under different, although in many ways similar, rules. Assuming that they do not buy a home in the UK, such individuals will generally avoid treatment as Resident or Ordinarily Resident by ensuring that they do not spend more than 90 days in the UK in any one tax year.

As always, there is no substitute for professional advice.