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Falling foul of residence tax rules

Neil Dickey
The recent First Tier Tribunal (FTT) case of Rumbelow v HMRC concerned the taxpayers’ liability to UK capital gains tax (CGT), during a period in which they claimed to be non-UK resident.

Until April 2001, Mr and Mrs Rumbelow had lived in the UK, where they had been property developers. They took professional tax advice about how they could best mitigate their CGT liability, because they were expecting to realise substantial capital gains on the disposal of their UK properties.

The Rumbelows were advised that if they became non-UK resident, any disposals made after their departure would be outside the scope of UK CGT.

They therefore left the UK on 4 April 2001, spending just over a year in Belgium before settling in Portugal from September 2002.

Their daughter, then only 15, remained in the UK so as not to disrupt her schooling, and the couple returned regularly to the UK where their main residence and car were available for their use. On each visit, the Rumbelows ensured they stayed within the time limits set for non-residency that existed at the time.

HMRC argued that the Rumbelows had not changed their ties with the UK sufficiently for them to be non-UK resident, and that they had therefore not permanently left the UK in April 2001. When asked to do so, Mr and Mrs Rumbelow were unable to provide comprehensive documentary evidence of their movements between countries.

The FTT was also not convinced that the Rumbelows had made a sufficiently distinct break so as to lose their UK tax residency.

The case examined the previous meaning of ‘residence’, which was replaced by a statutory residence test in April 2013. Nonetheless, the case highlights some fundamental principles. Firstly, the burden of proof lies wholly with the taxpayer. Secondly, it is of vital importance that there is enough documentary evidence to support any claims that taxpayers make.

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