Two recent tax tribunal cases illustrate the contrasting fortunes taxpayers can have in what can be very similar looking circumstances. One secured their victory but for the other the nightmare lives on.
When affluent couple Stephen and Pauline Rumbelow decided to unwind their business operations and move to Portugal they dreamed of enjoying their retirement by relaxing in sun.
But this wasn’t to be. Instead their move sparked off a 12-year battle with the tax office which has now resulted in the couple facing a £600,000 bill.
The couple, who made their fortune in property development and owned a grade 1 listed mansion in Northwich, maintain that they had discarded Britain as their home when they headed for the continent in April 2001.
Following a brief stay in an unfurnished apartment in Belgium, the Rumbelows built a villa in Silves, Portugal. But the couple retained their farmhouse in Northwich and returned home frequently.
They insisted that they had only returned to visit friends and family – and hadn’t exceeded the 90-days-a-year overseas residence threshold applied by HMRC.
However, Judge Cannan ruled that the farmhouse they had continued to own remained a family home, and that their departure had not marked “a distinct break” with the UK.
The penalty figure of approximately £600,000 is based on disputed income tax and capital gains tax from 2001–2005 for both Mr and Mrs Rumbelow.
An interesting contrast is the case of James Glyn, who is also a property developer.
Following a move to Monaco in 2005, Mr Glyn declared himself a non-resident, and shortly after received a £29m dividend from the sale of his family’s property business.
HMRC stated that £5.5million in income tax was owed from the dividend pay-out but Mr Glyn insisted he and his wife did not owe a penny.
But HMRC argued that Glyn’s heart was truly in London’s flourishing St John’s Wood district – where his partner, Sarah, was well-known with family and friends for her magnificent home cooking.
They alluded to the Glyns regular homecomings Jewish festivals and traditional Friday night suppers with their grown-up children as proof that they had never really left London – and, therefore, subject to the full scope of UK taxes.
However, Judge Nowlan revealed that the couple had bought two luxurious apartments in Monaco and, despite Mr Glyn returning to Britain on 22 occasions during the 2005/06 tax year, he had stayed below the 90-day-a-year threshold for overseas residency.
Due to Mr Glyn keeping meticulous records of his visits, the tribunal handed victory to the couple after ruling that they had made a distinct break with the UK.
The first point to make is that both these cases highlight the length of time it takes for a case to go through “the system” and, of course, either decision can be appealed against so it might still not be the end. So, in each case, the taxpayers have faced years of uncertainty over whether tax is actually legally due or not.
The second point to make is that the superior record keeping in the Glyn case undoubtedly helped them, whereas the lack of it in the Rumbelows case counted against them.
From 2013/14 there will be a new set of rules – the Statutory Residence Test – which should mean cases like these should not proceed to tribunal. However, a general point of wider application is the implication that if you are doing to anything to save tax, make sure you keep detailed records to show why and when you did it. Particularly when considering that any challenge from HMRC can crop up years later.
As a general rule, and subject to the fact that you are complying with the law, actions you take for commercial purposes which happen to achieve a tax saving cannot be challenged by HMRC.
If you have a tax enquiry please call KinsellaTax on 0800 471 4546