Prior to 6 April 2008, the UK was generally regarded as a good place for foreign domiciled individuals to develop and grow their businesses. The changes introduced by the Chancellor of the Exchequer in the 2008 budget threaten to undermine the UK (and London in particular) as a place where business gets done, money gets made and jobs are created.

There are a number of areas that should cause concern for non-domiciled individuals - and against which good tax planning advice can be helpful.

1. New tax legislation

Legislation was introduced in Finance Bill 2008 to restrict access to the Remittance basis.  Unless unremitted foreign income and capital gains amount to less than £2,000, all non-domiciled individuals claiming the remittance basis lose their individual personal allowances, which (for higher rate taxpayers) adds over £2,500 to their tax bill.

In addition, adult non-domiciled, or not ordinarily resident, individuals who have been in the UK more than seven of the past ten tax years, will continue to be able to access the remittance basis of taxation only on payment of an annual charge of £30,000 charged on the foreign income and gains they leave outside the UK, unless their unremitted foreign income and gains are less than £2,000.

The charge will apply only to adults so that individuals under the age of 18 will not have to pay the £30,000 charge until the year they turn 18.

2. Period of Residence in the UK

The UK's position on residence initially is very clear. A person is not resident in the UK if during the tax year in question the individual spends (in total) less than 183 days in the United Kingdom. In addition, a person must spend less than 90 days on average over the last 4 years in the UK to count as non-resident.

However, this is not as clear cut as it may seem because the 183 day and 90 day average rules are a result of a mix of statute and case law, and may be set aside.

In the past, days of arrival and departure were ignored for the purposes of this calculation. The government had proposed to include days of arrival and departure. However following representations from advisors, this was relaxed a little. Now only days on which you were in the UK at midnight are counted as being days spent in the UK, which effectively means your date of arrival is included but your date of departure is not included.

If you are merely in transit in the UK, then even if this crosses the midnight 'counting point' that day is not included in determining whether you have reached the 183 days or not. However you must not use the transit (which could include travel from an airport to a sea port, or travel between two airports, for example) as an opportunity to conduct business meetings. This may create some grey areas over the use of, say, videoconferencing using portable electronic devices which may end up being tested in court before being clarified.

n July, 2005, the Special Commissioners in the case Shepherd v HMRC, decided that the 90-day rule was not the only factor determining whether a person is a UK-resident.

The Commissioners ruled that despite Mr Shepherd, a professional pilot, spending 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, he had not made a distinct break with his former life and therefore remained resident for UK tax purposes.

“There is no doubt that this is the next stage of the Revenue's clampdown on those individuals who are benefiting from favourable tax rates by basing their claim on the 90-day rule," commented Narinder Paul, tax partner at KPMG in Birmingham.

Mr Paul went on to add that: “With increasing ease of travel and homes overseas becoming increasingly common, it is likely that more people may be considering that they could be a non-UK resident for tax.

"Many may have been led by Inland Revenue guidance notes into thinking that the important thing is to count days. However, as this case shows, this on its own is not enough to exempt an individual from paying tax within the UK.”

In January 2007, HM Revenue and Customs (HMRC) felt the need to clarify its position on tax residence in the UK thus:

"The recently published decision of the Special Commissioners in Robert Gaines-Cooper v HMRC (SpC 568) has attracted some attention from tax practitioners and their clients. In particular, some commentators have suggested that the decision in Gaines-Cooper means that HMRC has changed the basis on which it calculates the ‘91-day test’. This is incorrect."

"The ‘91-day test’ is set out in Chapters 2 & 3 (‘Leaving the UK’ and ‘Coming to the UK – Short term visitors’) of the booklet IR20: Residents and non-residents. This guidance is clear that the ‘91-day test’ applies only to individuals who have either left the UK and live elsewhere or who visit the UK on a regular basis. Where an individual has lived in the UK, the question of whether he has left the UK has to be decided first."

"Individuals who have left the UK will continue to be regarded as UK-resident if their visits to the UK average 91 days or more a tax year, taken over a maximum of up to 4 tax years. HMRC’s normal practice, as set out in booklet IR20, is to disregard days of arrival and departure in calculating days under the ’91-day test’."

It continued:

"In considering the issues of residence, ordinary residence and domicile in the Gaines-Cooper case, the Commissioners needed to build up a full picture of Mr Gaines-Cooper’s life. A very important element of the picture was the pattern of his presence in the UK compared to the pattern of his presence overseas. The Commissioners decided that, in looking at these patterns, it would be misleading to wholly disregard days of arrival and departure."

"They used Mr Gaines-Cooper’s patterns of presence in the UK as part of the evidence of his lifestyle and habits during the years in question. Based on this, and a wide range of other evidence, the Commissioners found that he had been continuously resident in the UK. From HMRC’s perspective, therefore, the ’91-day test’ was not relevant to the Gaines-Cooper case since Mr Gaines-Cooper did not leave the UK."

"HMRC can confirm that there has been no change to its practice in relation to residence and the ‘91-day test’. HMRC will continue to:

Follow its published guidance on residence issues, and apply this guidance fairly and consistently;
Treat an individual who has not left the UK as remaining resident here;
Consider all the relevant evidence, including the pattern of presence in the UK and elsewhere, in deciding whether or not an individual has left the UK;
Apply the ‘91-day test’ (where HMRC is satisfied that an individual has actually left the UK) as outlined in booklet IR20, normally disregarding days of arrival and departure in calculating days under this ‘test’. "
Gaines-Cooper was again in the news in October 2008, when it emerged that he had failed to convince Court of Appeal judges in London that he was non-domiciled for tax purposes.

The ruling left the globe-trotting businessman with a huge tax demand for the years 1993-2004.

The judge dismissed the appeal as “nothing more than an illegitimate attempt to reargue the facts”.