The UK’s revenue authority’s (HMRC) position on residence reads like one of Aesop’s fables or a fairy story gone wrong!

Once upon a time in a kingdom there was an old and trusted rule [Booklet IR20] which held no legal authority but the powers and the populace followed it and everyone was happy. Then one day an enterprising individual came along and used the words in the rule to suit his own purpose. Because this was not a rule stamped by the kingdom’s law makers it was difficult to stop this person from lining his pockets with gold. The authority was very angry that the rule was manipulated to the benefit of this person and said the old rule would be banished and a new rule was brought in to replace it which everyone would follow. But when the populace saw the new rule they thought it was not as good as the old rule and even had some errors! The authority said ‘We will improve the new rule’ and did so [three times so far] even withdrawing the preamble about the rule having no legal force.  The populace was not convinced but the old rule had been banished from the kingdom forever and the new rule would apply all because one individual who did not live in the kingdom sought to take advantage of the old rule. Confusion reigned throughout the kingdom.

Try going to sleep on that story the night before you embark abroad to work or retire!

Yes, basically old IR20 has been replaced by HMRC6 as the new booklet on residence, domicile, and, the remittance basis applicable to non-domiciliaries living in the UK. HMRC6 has been revised a number of times and will have to change yet again because of errors, changes, etc. The problem is that after the court case that caused HMRC to go into a furore it was decided that IR20 had to go. The replacement HMRC6 was probably brought out too fast and hence the errors. As one eagle eyed practitioner commented in the authoritative UK Taxation magazine ‘…the booklet incorrectly lists New Zealand as a country with which the UK has a treaty on national insurance: the treaty in question covers only benefits, not contributions.’ He is correct.  As an author of a book on UK national insurance contributions I had to hurriedly check I had got my facts correct. Thankfully I had!

Advisers abroad who consider the implications of UK residence and domicile have to refer to HMRC6 in their work. At section 4 of HMRC6 on domicile it quite correctly states that there are three types of domicile of ‘choice’ ‘origin’ and ‘dependence’ for the purposes of the booklet. Although that is correct it may lull advisers and expatriates into a false sense of security. I feel a short paragraph should be added mentioning that there is also ‘deemed domicile’ for Inheritance Tax [IHT] purposes. Deemed domicile is an HMRC statutory rule that UK domicile for IHT purposes attaches to any non-domiciled person who has been in the UK for 17 out of the last 20 tax years. Also, when the person departs the UK they are still deemed to be domiciled for a further three years even though they have left! With an IHT rate of 40% on worldwide assets it is a big oversight if you only consider domicile only in the terms of HMRC6.

I am an admirer of some aspects of HMRC6 such as the domicile flowcharts which are a lot better than the old IR20 and credit should be given that the booklet states ‘If your father’s domicile changed when you were a child you should not use the chart’ and ‘you may wish to consult more detailed guidance or a tax adviser.’ In addition, the examples are written with a lot of imagination and are fairly comprehensive.

I hope this fairy story eventually has a happy ending soon but until it does I won’t be telling it to my grandchildren!

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