Businessman and the star of The Apprentice Sir Alan Sugar is under fire over his tax affairs after attempting to declare himself a UK non-resident.
Earlier this month, The Sunday Times reported that following a dividend payment of £390 million in the 2021-22 tax year, one of the largest in UK corporate history, he allegedly attempted to declare himself a UK-non-resident and avoid a £186 million tax bill.
Sir Alan was said to have made the claim after spending time in Australia filming a version of the Celebrity Apprentice. The Sunday Times reported that he was ultimately unsuccessful, paying HMRC £186 million in tax because as a sitting peer he is automatically deemed to be UK resident, as well as UK domicile. Sir Alan vigorously denies all the allegations.
The rules on residency and domicile are complex and confusing and claims of change to tax status is likely to attract scrutiny from HMRC. Here, we explain the difference between residency and domicile and the tax implications.
Residence and domicile
An individual will automatically be considered UK resident if they are in the UK for 183 days in any given tax year. If they spend less than 16 days in the UK they will be considered UK non-residents as long as they were UK resident in any of the previous three tax years. If the same individual has been outside of the UK and non-resident for more than three years, they will be able to spend 46 days in the UK without affecting their tax status.
However, other factors need also be considered including family ties to the UK, such as a home or children remaining in the country, and whether they continue to work full time in the UK to successfully argue change of residency.
An individual will be regarded as UK domiciled if they were born in the UK or if they were born overseas, they have established stronger connections to the UK and it is now considered their long-term home.
Inheritance tax is based on an individual’s domicile rather than residence, meaning if an individual lives overseas for a long time they could still be caught in the IHT net. Challenges to domicile will often come to light after the death of an individual with HMRC challenging the non-domicile status.
Whilst possible, it is difficult for a UK national to claim to be non-domiciled unless they have severed their ties to the UK. HMRC has challenged such claims through numerous court cases.
Significant tax savings on dividend payments can be made for those who can successfully claim to be UK non-resident, benefiting from the disregarded income regime. Additionally, UK non-residents do not pay UK tax on overseas dividends, income earned overseas or on the disposal of assets in and outside the UK. It should be noted, however, that the disposal of UK property is treated differently and would be caught in the Non Resident Capital Gains scheme.
But a word of warning. If a UK non-resident resumes UK residence within six years any gains made within that period will then be subject to capital gains tax. Return visits need to be monitored and managed to avoid a hefty tax bill.
The rules around residency as Sir Alan has discovered, are complex and will often attract close scrutiny. Specialist advice should always be taken.
Contact our Private Client Solicitors
If you are in need of advice or assistance on any of the legal issues mentioned in this article please contact any member of our experienced Private Client team Nicholas Barlow, Olivia Meekin, or Helen Langworthy on 020 7631 4141 or email email@example.com
The above is accurate as at 26 September 2023. The information above may be subject to change during these ever-changing times. The content of this note should not be considered legal advice and each matter should be considered on a case-by-case basis.