Intention is hard to prove

by **Matthew P** on Fri Jan 20, 2012 9:29 pm

I relocated to the UK on 21 July 2011, having lived and worked abroad for the past 23 years.

Previous to my return, I owned and drew rent on property in the UK which I sold before returning. At no stage did I spend more than 90 days in the UK in one year. I was expecting to settle here, but have since changed my mind, and will probably leave as soon as I can get work abroad.

How do I fill in my tax return? I assume that I am:
• resident (I have spent more than 183 days this year in the UK)
• not ordinarily resident (I don’t intend to remain here, and neither my wife nor I own property in the UK, though she has lived here for 3 years and rents an apartment on an assured shorthold tenancy).
• UK domiciled (I was brought up here, my parents were British, it is my home country).

Before I came, I used to fill in an on-line form, designed for non-residents with potential UK tax liabilities. Actually, these forms were not supplied by the HMRC, but had to be purchased from a commercial company.
• Now I am here, it seems appropriate to fill in the standard HMRC tax return, which is angled towards residents. Is that assumption correct?
• Before I came back, I sold a UK property. Do I put that in, although I am not liable for capital gains tax on it (it was sold while I was non-resident and non ordinarily resident)? If so, why, since I would not have declared it if I had stayed abroad?

I am of course nervous that if I put in the sale of the UK property, this will encourage HMRC to try to claim that my intention was always to settle, and to re-draw the date of my residence to April 6th. Should I be nervous? Presumably not, since I do not intend to stay here for 3 years. But intention is a hard thing to prove…

by **maths** on Sat Jan 21, 2012 12:48 am

In practice (despite the theory) you are likely to be regarded as resident for 2011/12 tax year but non-ordinarily resident.

There may be a problem with respect to overseas income generated between 6 April 2011 and date of your arrival (assuming you are still UK domiciled). If this is substantial care is required on completing the tax return (the "normal" return). Overseas capital gains for this period shouldn't be a problem.

It may be worth taking advice if the numbers warrant it.

by **Matthew P** on Sat Jan 21, 2012 11:46 am

Hmmm... part of the capital gains were from the sale of a UK house

by **maths** on Sat Jan 21, 2012 1:22 pm

No CGT liability arises on the sale of the UK house so Long as it was sold prior to the date of your arrival in the UK (ie when non-resident).

by **Matthew P** on Sat Jan 21, 2012 4:03 pm

The issue is, date of arrival. If I was non-resident and living abroad, it would not occur to me to declare sale of a UK property, since in those circumstance, I would not be liable to capital gains tax.

But I am now living in the UK, and now filling in a UK tax return. So what to do about the sale of a house in the UK which I sold after April 6, but before I became resident here (in my view - HMRC could conceivably take a different view). I visited the UK several times last year (not more than 91 days in the year), and I visited the UK this year before I finally 'settled' here.

I thought I had arranged it well, the house was sold before I settled. But your previous answer was: "In practice (despite the theory) you are likely to be regarded as resident for 2011/12 tax year but non-ordinarily resident."

So my question is:
> Am I liable to capital gains tax on the sale of the UK property?
> If not liable, do I declare the sale in my tax declaration?

by **maths** on Sat Jan 21, 2012 4:47 pm

If you acquired UK residency from the date of your arrival in the UK then strictly you are resident from the prior 6 April; in which case any capital gains arising on or after the 6 April are subject to CGT and must be disclosed in a tax return.

However, by concession (ESC D2), capital gains made between 6 April and day before date of arrival in the UK are not subject to CGT. It may be arguable as to whether disclosure on the tax return is required. I would argue disclosure is necessary. However, ESC D2 should preclude any CGT charge (as a sale of UK property HMRC will be aware).

In view of your wife's presence ( i assume you are not separated), your earlier visits to the UK and the fact that your overseas work has terminated, HMRC may try to assert residence was acquired at an earlier date, possibly prior 6 April, in which case CGT would be chargeable on your disposal and disclosure on the tax return necessary.

Another line of defence is to argue that you are in the UK for a temporary purpose only and have no intention of establishing residence in the UK; assuming you are not in the UK in any tax year for 183 days or more then no CGT charge arises on your disposal by statute (thus no reliance on ESC D2 is necessary) and no disclosure in the tax return necessary. However, in this regard, your reference to "settled" here in its strictest sense would preclude this defence.

Residence depends upon a detailed review of all pertinent facts of which I am unaware. The above are only the principles involved.

by **kumar9** on Mon Feb 20, 2012 12:53 pm

Maths said

''In practice (despite the theory) you are likely to be regarded as resident for 2011/12 tax year but non-ordinarily resident.''

'What is the difference, from a tax liability point of view,between ''regarded as resident' for a particular tax year,but 'not ordinarily resident'' for that particular tax year please ?

Kumar9