Market leading insight for tax experts
View online issue

Tax residence: more certainty and ‘a recipe for disaster’

printer Mail

New rules defining tax residence will bring greater certainty in many cases, according to tax professionals, but a new concept of ‘connection factors’ seems likely to undermine the government’s efforts to reduce the number of disputes going to court. One expert has claimed that the ‘Part C’ residence test outlined in today’s consultation is ‘ridiculously complicated’.

Consultations: Your A-Z guide, updated for the consultations launched on 17 June

The government has recognised that in the absence of a statutory definition of residence for tax purposes, the current rules are unclear, complicated and ‘seen as subjective’. Liability to UK taxes is determined by reference to case law and HMRC practice.

The Treasury is inviting comments by 9 September on a statutory definition of residence and is seeking views on options to reform the concept of ordinary residence.

‘The connection factor rules are a recipe for disaster,’ said Philip Fisher, Head of Employment Tax and Rewards at PKF.

In many cases the proposals will bring much-needed simplification and greater certainty, he said. But the concept of connection factors, combining presence in the UK with factors such as family and property location, is ‘ridiculously complicated and will almost certainly test even the experts’, he said.

‘Since the plan is to operate by requiring taxpayers to self assess, the government’s desire for certainty will be badly compromised far too often and the courts could still be busy considering residence cases – which is precisely what the Treasury is trying to get away from.’


‘Not being sure whether you are resident or not in the UK has become an increasingly difficult issue due to changing guidance and court decisions,’ said Francesca Lagerberg, Head of Tax at Grant Thornton. ‘In particular the recent high profile Gaines-Cooper case has highlighted how the absence of clear rules in the UK can lead to years of uncertainty for taxpayers.’

A statutory residence test could provide clarity, she added. ‘The new rules are a mix of objective tests (day-counting) and more subjective rules looking at a sliding scale of how close a taxpayer is linked to the UK. These details will now be picked over before legislation is issued in draft later this year.’

John Whiting, CIOT Tax Policy Director, called for ‘proper recognition of those who go abroad to work, who need to be outside the UK net, and clear rules that tell those who come to the UK when they will be in the UK tax net’.


The government has confirmed that the £30,000 annual remittance basis charge is to be increased to £50,000 for ‘non-doms’ who have been UK resident for 12 or more of the 14 years prior to the year of claim. Consultation on reform of the taxation of non-domiciles was launched today.

The broad principles behind the existing tax regime for non-doms will not change but HM Treasury said the current rules ‘discourage non-domiciles from bringing their income or capital gains to the UK, creating barriers to potential investment in the UK economy’.

Non-doms will be able to remit overseas income and gains tax-free for the purpose of commercial investment in UK businesses.

‘The Government wants to ensure that the rules of our tax system are fair. That is why we are increasing the tax charge for those non-domiciles who have been resident in the UK for long periods of time,’ said David Gauke, Exchequer Secretary to the Treasury.

‘At the same time, it is important that skilled individuals and investors are encouraged to come to the UK from abroad and we recognise the fact that non-domiciles can make a valuable contribution to the UK economy.’

The Treasury is inviting comments on reform of the taxation of non-domiciled individuals by 9 September.

The CIOT argues that the proposed increase in the non-dom levy ‘needs to be balanced by a real assault on the complexity of the system’.