Real Business - The Champion of UK Enterprise

The latest court ruling on non-doms: stay away or pay

By Jason Hesse, published 161 days ago in Leadership.

In an important test case, the Appeal Court rejected claims by Robert Gaines-Cooper that HMRC had laid a “devious trap” for him by refusing him non-resident status.

By losing his appeal, Gaines-Cooper is now liable to foot a retrospective £30m tax bill, despite spending less than 91 days a year in England, because it remained “the centre of gravity of his life and interests”, according to the ruling.

Commenting on the case, Andrew Renton, a partner at law firm Bowling & Co, says the ruling would “absolutely” have big implications for non-dom entrepreneurs.

“What’s new about this case is that not only do you have to live abroad and ensure you spend less than 91 days per year in Britain, but you also have to sever your social and family ties.

“For any non-tax-payers looking to play the rules, you’re going to be in a much more difficult position than you would have been before the appeal was heard.

“I’ll be contacting my clients to make sure they’ve severed their connections with the UK – they’ll need to consider selling their house here and ensure their wife and kids live abroad with them.”

How rigorously the law will be applied, however, will probably depend on your level of income, adds Renton.

But not all experts agree. Philip Beresford, who compiles the Sunday Times Rich List, says it is still too early to say what will happen.

"We'll have to wait until after April, when the 50 per cent tax band will already be pushing many who are fed up abroad. They'll just have to cover their tracks and never come back, I suspect."

Beresford adds that the penalties for permanently moving away will depend on how much cooperation Britain will get from tax havens such as Switzerland and Singapore.

"They may tell Britain that they can't extradite [the tax exiles] if the entrepreneurs refuse to cooperate with British tax authorities. But it might be a pretty miserable existence being trapped in tax havens, never able to come home or even fly to a country friendly with Britain, for fear of extradition."

Real Business finds the ruling outrageous, and it is difficult to see how Britain’s entrepreneurial community will react.

Sure, the large majority of you aren’t tax exiles, but surely this shouldn’t be a country where entrepreneurs feel the need to entirely sever their links with Britain in order to reap the rewards of their success.

"It's another nail in the coffin of enterprise culture. Why bother to build a business if you can never keep the wealth you have built up?" asks Beresford.

Whatever the merits – or not – of becoming a tax exile, this latest decision is clearly not in Britain’s interest. Too many successful entrepreneurs are being driven away from Britain because of the tax regime. We should be promoting success, not penalising it.

Related articles:"Non-dom" gets a nasty call from the taxmanDavid Cameron: UK must be a better place for enterprise

Picture source