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November 21, 2013

Capital Gains Tax & Residence - Putting Advice into Action

Key Lessons to be learnt

The recent case of Stephen & Pauline Rumbelow v HMRC (TC03022) concerned the liability of the taxpayers to UK capital gains tax, during a period they claimed to be non UK resident.

The case involves tax years prior to 2013/14 and as such involved an examination of the 'old' common law meaning of residence and cases such as Gaines-Cooper.

This common law test was replaced by a statutory residence test in April 2013, therefore the Tribunal's analysis of the meaning of residence will be of limited use going forwards.

However the case highlights some important messages to consider where tax advice is being put into practice:

1. Follow the advice carefully

In this case the tribunal felt that the advice received was "put into effect in a casual manner".

The advice the taxpayers received was not provided to the Tribunal and we cannot therefore comment on the likely effectiveness of the proposed plan.

However it seems likely that the lack of attention to detail, regarding the overseas move and the impact of their movements and family life on their residence status, will have played an important part in the outcome of this case.

2. Don't underestimate the importance of keeping evidentiary documents.

Mr & Mrs Rumbelow did not maintain a record of their visits to the UK or overall movements between different countries.  This led to “inconsistencies” in the evidence provided to the Tribunal.

The Tribunals decision was at least partly influenced by the lack of evidence because they felt that “the onus is on the appellants to satisfy us by the evidence how their pattern of life changed after 4 April 2001 and where they spent their lives in the relevant tax years”.

An overview of the case is provided below.

The Rumbelow Case - Capital Gains Tax & Residence

The taxpayers, Mr & Mrs Rumbelow, expected to realise significant capital gains on the disposal of their UK assets and took professional tax advice regarding how they could mitigate their capital gains tax liability.

They were advised that if they became non-UK resident, any disposals made in a later tax year would be outside the scope of UK capital gains tax.

With this in mind, they decided to move to Portugal, a country in which they had friends and enjoyed the pace of living.

However further advice established that the gains could be subject to tax in Portugal.  They therefore decided to move to Belgium as a stop-gap measure before moving to Portugal.

Mr & Mrs Rumbelow submitted that they left the UK on 4 April 2001 and were therefore non-UK resident from the tax year 2001/02 onwards.

HMRC on the other hand contended that Mr & Mrs Rumbelow did not make a definite break with the UK.

The tribunal found in favour of HMRC on the basis that Mr and Mrs Rumbelow's pattern of living did not fit with a definite break abroad.  They returned to the UK frequently, their 15 year old daughter remained in the UK, their UK family house and car remained available for their use.

Whilst there had been an established change in the pattern of their life, this primarily came about because of the winding up of their business interests which did not necessitate a move abroad.


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