Feb 2010:
Thousands of offshore entrepreneurs face huge tax bills after a British businessman based in the Seychelles lost a long-running court battle over his residency yesterday.
The Court of Appeal ruled that Robert Gaines-Cooper was liable to pay UK tax despite spending less than 91 days a year in the country because England had remained “the centre of gravity of his life and interests”. The ruling is a serious blow for wealthy men and women who are based overseas but visit Britain frequently. After the court’s decision, Revenue & Customs (HMRC) said that it would increase its efforts to catch people who owed tax.
Although the three Court of Appeal judges expressed “some sympathy” for Mr Gaines-Cooper, they ruled that he had never qualified for exemption from British taxes as a non-resident. Now he may be pursued for tax bills dating back to 1993, estimated at about £30 million.
Accountants and their clients have waited anxiously for yesterday’s decision, the culmination of a court battle that has dragged on for years. While Mr Gaines-Cooper, 72, has a house in Henley-on-Thames, Oxfordshire, where he keeps his collection of paintings, classic cars and guns, he maintains that he “fell in love” with the Seychelles in 1976 and bought a French-style plantation house there, which he renovated at a cost of $2.5 million (£1.6 million).
The Reading-born entrepreneur, who began a jukebox business in England in 1958 and set up companies across the world, including a successful concern that produces surgical aids, insists that he “made a break” with Britain in the 1970s and that his chief residence has long been his home in the Seychelles.
Despite Mr Gaines-Cooper’s argument that he had kept to HMRC’s rules by spending no more than 91 days a year in Britain, the taxman pointed out that his second wife and son had lived for some time on his Henley estate. In addition Mr Gaines-Cooper’s son went to an English school in 2002 and his will was drawn up under English law.
Yesterday the appeal court judges said that England had remained the “centre of gravity of his life and interests”. Lord Justice Moses added that Mr Gaines-Cooper had failed to show “a distinct break” from his social and family ties in the UK and his complaints of unfair treatment were based on an “impossible construction” of the law.
Accountants said that the ruling was “very, very worrying” and would trigger increased scrutiny by the tax authorities.
Mike Warburton, tax director at Grant Thornton, said: “This ruling means that wealthy people now need to take enormous care before being able to claim that they are outside the UK tax net. This is going to affect thousands of people. “In particular, it will be bad news for the so-called ‘Monaco millionaires’ who have kept their connections with the UK even though they spend most of their time in offshore jurisdictions.”
The tax man and offshore 'non-doms':
- People who are UK- resident and domiciled pay tax to the British exchequer on their worldwide income and gains
- Non-domiciled individuals, or “non-doms”, are people whose family originate from overseas and typically retain affiliations with that country
- Until 2008 those residents not domiciled in Britain paid tax on foreign income and gains only when these were remitted to Britain. In short, non-doms avoided tax on money earned outside Britain unless they brought it back into the country. They can still do so if they pay the Government £30,000 each year
- Non-residents are not generally liable for income or capital gains tax, except on income arising in Britain. They usually pay national insurance contributions on work they do in Britain for a British employer
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- Individuals are treated as British residents for tax purposes if they spend 183 days or more here in any tax year or more than 90 days on average over a period of up to four years
- People who have been treated as tax-resident may lose that status — become a “non-resident” — if they leave Britain permanently or live abroad for at least three years, and their return visits since leaving are less than 183 days in any tax year, and average less than 91 days per tax year
- The best way to give up your British residence status is to move abroad permanently or take a full-time contract overseas. You should be non-resident for at least three tax years.