The kitchen is the heart of a home, but at what cost?

For ten years Mr Glyn has tangled with HMRC over a £5.5 million tax bill. It all rests on whether he was UK resident when a dividend was paid out.

For ten years Mr Glyn has tangled with HMRC over a £5.5 million tax bill. It all rests on whether he was UK resident when a dividend was paid out. The most recent development in the saga is relevant to anyone considering leaving the UK or selling their business and a warning to never consider an issue in isolation. 

In 2004 Mr Glyn sold his property business and was advised that a move to Monaco (before distribution) would result in him saving £5.5 million in taxes. In 2005 the Glyns moved to Monaco and became resident there. It was known they would ultimately return to the UK so they retained their London home to avoid paying SDLT on their return. They were not seeking to lose their UK domicile, just to become non-UK resident for a time. When they left London they simply shut the door as they did on any other day and continued to enjoy the property whenever they returned in the same way as before; they continued to host dinner parties there and planned their “travel days” for maximum time there. 

It was argued that there was no “distinct break” in their London lifestyle and they maintained their circle of friends and still participated in the local dinner party circuit. The greater majority of business assets were sold prior to the move so there was arguably a severance for business purposes. It was also key that they enjoyed life in Monaco, were involved locally and changed their lifestyle following the move. Mr Glyn’s advice focused on his corporation tax position and not his personal tax position. As a consequence the most recent judgment found in favour of HMRC and Mr Glyn faces not just the cost of a move to Monaco and the costs of defending the claim but also the tax bill which is outstanding with interest due. 

Personal advice may have highlighted steps to support his case, such as:

  • Renting out the London home to a third party while they were non-resident. This would have assisted their case by: 
    • ensuring he didn’t appear to be able to pick up his old life at will, whenever he was in the UK, 
    • reducing the number and consistency of their dinner parties at their home and therefore the appearance of continued enjoyment of their old home, with no change, 
    • making them less likely to plan all of their travel around flights out of London and also would make it less likely they would take the earliest and latest flights possible to maximise time in the UK. 
  • Not relying so heavily on HMRC guidance, rather than legislation, as this is changeable 
  • Taking steps to create a clear personal and business distinction between life before and after the move from the UK.

In the context of a sale of a business it is important to consider not just the corporation tax position but also what steps may be taken to mitigate the personal tax position. The earlier advice is taken the better. It is increasingly important not to consider one tax in isolation to the other. 

We can now rely upon the statutory residence test, however, Glyn is still relevant to the “15 out the last 20 tax years” test, when considering “arrivers” and “leavers” (2013-2016 tax years only) and when considering temporary non-residence rules. It may also be of interest for domicile cases. 

If you require advice, it is always better to take it early and consider the wider implications in light of your lifestyle.

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Every piece of content we create is correct on the date it’s published but please don’t rely on it as legal advice. If you’d like to speak to us about your own legal requirements, please contact one of our expert lawyers.

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