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Holidaymaker Becomes UK Resident

Meanwhile, in a decision that did not go the taxpayer's way, the FTTT concluded that an individual became UK resident whilst on holiday in the UK(Kimber v HMRC [2012] UKFTT 107).  On the precise facts, this decision may not be quite as alarming as it first appears, but it does sound a warning to those planning to become UK resident that it is vital to get the timing right. 

Mr Kimber, who had been resident in Japan for many years, came to the UK between 17 and 30 July 2005, for a family holiday. However, during that period, he signed an employment contract to work in the UK, signed a lease on UK accommodation and enrolled his children in a UK school, all commencing from September 2005. On 1 August, Mr Kimber and his family left for a holiday in Italy, returning to the UK on 28 August 2005 with the intention of residing here permanently. Mr Kimber argued that he became UK resident from that date. 

Crucially, on 12 August 2005, Mr Kimber sold some shares, and realised a large capital gain. HMRC conceded that split year treatment was available. This treats taxpayers who arrive part way through a tax year as resident from the date on which they assume UK residence rather than for the whole of the tax year. If, therefore, HMRC had accepted that Mr Kimber became UK resident from 28 August, the shares would have been sold before his residence commenced and any gain would have been CGT free. In the event, the FTTT determined that Mr Kimber in fact became UK resident between 17 and 30 July, so that he was liable to CGT (of approximately £96,500) on the disposal of the shares. 

The FTTT concluded that either Mr Kimber had already made up his mind to return to the UK permanently or indefinitely on 17 July (and the fact that he left for a short pre-arranged holiday in Italy a little while after was irrelevant) or alternatively that Mr Kimber had not made up his mind when he first arrived (so could then be said to have come to the UK for a temporary purpose) but that by the time he left the UK on 30 July, he had made the decision to return to the UK permanently or indefinitely. They held that the evidence for this was his signing an employment contract, entering into a lease for accommodation and enrolling his children in a school. 

The FTTT's decision will ring alarm bells for many individuals planning to move to the UK because it is not unusual for potential residents to visit the UK a little while beforehand in order to sort out practicalities such as accommodation or schooling before actually making the move. Similarly, it is fairly standard planning for individuals to make disposals or realise income before becoming UK resident, to minimise their liability to UK tax. The FTTT's decision also raises the question of what would have been the outcome had Mr Kimber's holiday occurred earlier, perhaps in the previous tax year? 

Individuals may now need to be very wary of making visits to the UK in preparation for becoming resident here and of doing anything to suggest that they have already formed a permanent intention to reside. A cautious approach, where feasible, would be to make disposals before any fact finding/preparatory visits. 

It is perhaps too early at present to speculate whether the outcome of this case will have any lasting effect, pending sight of the draft legislation for the statutory residence test.

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