Gaines-Cooper and MM2H

Old Jun 19th 2010, 6:45 am
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Default Gaines-Cooper and MM2H

Hello......my very first post to this site (or to any for that matter!)

I came to Malaysia with my wife last year under the MM2H scheme on the understanding that my UK private pension would not be taxed in either country under the terms of the Double Taxation Treaty. I have been careful to follow the rules regarding acquiring Malaysian tax residency for 2009 and 2010 (not spending or planning to spend more than 14 days outside the country since I arrived up to 3 July 2010 when the 183 day qualifying period is over). In addition I do not plan to spend more than 90 days in the UK in any year from now on. My wife, however, also a British citizen, may like to spend more than 90 days in the UK each year, living with friends and family. She has no independent income and, as we are taxed separately, would attract no UK tax in her own right. I should add that we have kept a house in the UK (let to a company under a long-term contract) and we are currently renting in Malaysia.

My question is this. Is anyone else in a similar position and, if so, have they considered the relevance of the Gaines-Cooper case to their tax position? My understanding is that the first test made by HMRC in determining residency under the Double Taxation Treaty is in which country do they have a permanent home available to them. If they have a permanent home available in both countries, the second test is in which country are their personal and economic relations closer (where is their centre of vital interests).

In my case, although my pension is paid in the UK, I shall be spending at least 75% of my time in Malaysia and all my social interests are here (including my dogs!) In my wife's case, however, it could be argued that the centre of her vital interests has remained the UK if, say, she spends 4 or 5 months of the year there visiting friends and family. My main concern, of course, is that if she chooses to do this, whether it will affect my own tax position!

I should perhaps add that we are considering selling the UK house and using part of the proceeds to buy a flat in the UK that could be used by our children when they are on holiday from university and by my wife when she visits the UK. Thus we shall be moving from a position of not having a permanent home available in the UK (because it is on a long-term rental contract) to having one available (because it will not be let). The rest of the proceeds from the sale may be used to buy a property in Malaysia for us to live in.
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Old Jun 19th 2010, 8:22 am
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Default Re: Gaines-Cooper and MM2H

Originally Posted by Niblick
Hello......my very first post to this site (or to any for that matter!)

I came to Malaysia with my wife last year under the MM2H scheme on the understanding that my UK private pension would not be taxed in either country under the terms of the Double Taxation Treaty. I have been careful to follow the rules regarding acquiring Malaysian tax residency for 2009 and 2010 (not spending or planning to spend more than 14 days outside the country since I arrived up to 3 July 2010 when the 183 day qualifying period is over). In addition I do not plan to spend more than 90 days in the UK in any year from now on. My wife, however, also a British citizen, may like to spend more than 90 days in the UK each year, living with friends and family. She has no independent income and, as we are taxed separately, would attract no UK tax in her own right. I should add that we have kept a house in the UK (let to a company under a long-term contract) and we are currently renting in Malaysia.

My question is this. Is anyone else in a similar position and, if so, have they considered the relevance of the Gaines-Cooper case to their tax position? My understanding is that the first test made by HMRC in determining residency under the Double Taxation Treaty is in which country do they have a permanent home available to them. If they have a permanent home available in both countries, the second test is in which country are their personal and economic relations closer (where is their centre of vital interests).

In my case, although my pension is paid in the UK, I shall be spending at least 75% of my time in Malaysia and all my social interests are here (including my dogs!) In my wife's case, however, it could be argued that the centre of her vital interests has remained the UK if, say, she spends 4 or 5 months of the year there visiting friends and family. My main concern, of course, is that if she chooses to do this, whether it will affect my own tax position!

I should perhaps add that we are considering selling the UK house and using part of the proceeds to buy a flat in the UK that could be used by our children when they are on holiday from university and by my wife when she visits the UK. Thus we shall be moving from a position of not having a permanent home available in the UK (because it is on a long-term rental contract) to having one available (because it will not be let). The rest of the proceeds from the sale may be used to buy a property in Malaysia for us to live in.
Interesting............ let me state that I am not a qualified financial adviser, but I have followed the Gaines-Cooper case closely.

There were one or two aspects to that case that are probably unique to him only: HMRC based their legal action against him on the view (upheld by the courts) that he had never actually left the UK in the first place.

The one that might concern you is owning a property that can be used by you or your relatives (if it is let to tenants, goes the taxman's thinking, you can't use it).

But G-C held on to all sorts of 'links' to the UK (he had a shotgun, and renewed the licence every year, he retained club memberships, he had a vintage car collection for which he maintained the road fund licence ('tax disc') [why didn't he declare them to be permanently off-road?] ......

......... but bizarrely, he applied for, and was granted, a UK passport/citizenship for his Seychelloise wife, despite the fact that she rarely, if ever, visited the country.

There may be matters that should concern you, but my non-expert guess is that Gaines-Cooper isn't one of them.

Last edited by The Dean; Jun 19th 2010 at 8:23 am. Reason: i
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Old Jun 19th 2010, 9:47 am
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Default Re: Gaines-Cooper and MM2H

Was a bit confused over this bit, ''I have been careful to follow the rules regarding acquiring Malaysian tax residency for 2009 and 2010 (not spending or planning to spend more than 14 days outside the country since I arrived up to 3 July 2010 when the 183 day qualifying period is over). In addition I do not plan to spend more than 90 days in the UK in any year from now on.''

As well as qualifying for Malaysian Residency you have to qualify for UK non residency for tax purposes and that requires a 12 month period outside the UK for a minimum of one full tax year, April to April not to be liable for UK tax on earnings outside UK: I assume your income from your house rental and UK pension will not take you above your UK tax allowances.
Reading the bit of your post I quote above makes me think this may not yet be the case.
I've always been under the impression that if above the allowance limit for earnings in the UK then you will be taxed on this unless non domiciled.

Any way, apologies for my confusion, you obviously know more about this than I but I decided to 'stick my oar in'.

And finally, if your wife and you for that matter intending spending time in the UK for whatever period where will you get the money from that you will need during that time.
If you have money in a UK bank which attracts interest that has to be declared? and I believe there is a limit of the amount you can bring into the UK without it also being taxed.

All the above is my 'feeling' and as likely to be wide of the mark than as a bull's eye.

Last edited by ex reg; Jun 19th 2010 at 9:59 am.
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Old Jun 19th 2010, 10:01 am
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Default Re: Gaines-Cooper and MM2H

Thanks to both of you for your replies and comments (The Dean and ex reg).

As regards the qualifying for UK non-residency, you are quite right that I must do this too. In other words I must not spend more than 90 days in the UK in 2010/2011 or, on average, over any four years thereafter. However my understanding is that when I have qualified, I can back-date my UK tax rebate claim to the date that I left the UK during 2009 on a split-year basis, provided that I can show that I obtained Malaysian tax-residency from that date.

At least this is the advice I have had (orally) from HMRC! I hope I have understood it correctly.
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Old Jun 19th 2010, 1:51 pm
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Default Re: Gaines-Cooper and MM2H

Originally Posted by Niblick
Thanks to both of you for your replies and comments (The Dean and ex reg).

I have qualified, I can back-date my UK tax rebate claim to the date that I left the UK during 2009 on a split-year basis, provided that I can show that I obtained Malaysian tax-residency from that date.

At least this is the advice I have had (orally) from HMRC! I hope I have understood it correctly.
Fill in an R85 / P85 - I can't remember which and you will get your tax rebate before you leave.
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Old Jun 19th 2010, 6:58 pm
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Default Re: Gaines-Cooper and MM2H

Originally Posted by Niblick
Thanks to both of you for your replies and comments (The Dean and ex reg).

As regards the qualifying for UK non-residency, you are quite right that I must do this too. In other words I must not spend more than 90 days in the UK in 2010/2011 or, on average, over any four years thereafter. However my understanding is that when I have qualified, I can back-date my UK tax rebate claim to the date that I left the UK during 2009 on a split-year basis, provided that I can show that I obtained Malaysian tax-residency from that date.

At least this is the advice I have had (orally) from HMRC! I hope I have understood it correctly.
If you are not qualified then to qualify you must spend a full tax year April the 6 to April 5 outside the UK.

Thereafter your 90 day thingy comes into effect.

I'm 99% certain I'm correct on this but if anyone else knows differently ...
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Old Jun 20th 2010, 6:16 am
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Default Re: Gaines-Cooper and MM2H

Thanks ex-reg but I don't think that is right. I am copying below an extract from HMRC6, the latest guidance issued by The Revenue on residence issues.

8.2 Leaving the UK permanently or indefinitely
If you are leaving the UK permanently or indefinitely, you will only become
not resident and not ordinarily resident from the day after the day of your
departure, as long as you have actually physically left the UK and have left
for the purpose you have stated, not for example, to have a holiday until
you move into your new home or begin your overseas employment.
You can still visit the UK but if your visits here after you have left average
91 days or more in a tax year, you will remain resident and ordinarily
resident in the UK.
If you say that you are no longer resident and ordinarily resident in the UK,
we might ask you to give some evidence to show that you have left the UK
permanently or indefinitely. For example, we would expect you to show that
when you left the UK you had acquired accommodation abroad to live in as
a permanent home.
The act of leaving the country is not likely to be sufficient evidence that you
have left the UK permanently and have become non-resident and not
ordinarily resident.
If you still have property in the UK which you can use after you leave, we
might want you to explain why you are retaining that property when you
say you have left the UK.

8.3 How to calculate your average visits to the UK
You only need to calculate the average of your visits to the UK after you
have physically left and have become non-resident and/or not ordinarily
resident.
If you need to calculate your annual average visits to the UK, you do so like
this:
Total days visiting the UK x 365 = annual average visits
Total days since leaving
When you are making this calculation, you do not include the days which
you spent in the UK in the year before your original departure. The
calculation looks at a maximum of your visits in the most recent four years
since you left the UK.
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Old Jun 20th 2010, 7:45 am
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Default Re: Gaines-Cooper and MM2H

Niblick - are you sure that this is the most recent guidance?

The finance act 2009 caused HMRC6 to define domicile and residence - although the former is irrelevant in this case. Is your extract from HMRC 6?

Ex reg is right about the 90 days or so but the theme that you raise is also right to the extent that a lot of your tax status is based on interpretations on what you do. For example if you consistently come to the UK for the maximum number of days and have a home available then I think the Inland Revenue will have real grounds to question your status.
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Old Jun 20th 2010, 7:59 am
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Default Re: Gaines-Cooper and MM2H

Hello Bijilo,

Yes the extract is from HMRC 6, the latest guidance.
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Old Jun 20th 2010, 8:31 am
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Default Re: Gaines-Cooper and MM2H

But doesn't it refer to leaving the UK and not to gaining non residency for tax purposes.
I know I banging on a bit on this but it would be a pity to suddenly find out you had a large tax bill awaiting you.

For me you first have to gain non residency by the April to April bit then you keep non residency by utilising the 90 day bit.

Your 90 day bit wouldn't make you not liable to UK tax IMO.

But of course MM2H rules and double taxation etc may effect this.

We may be talking at cross purposes here.
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Old Jun 20th 2010, 9:51 am
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Default Re: Gaines-Cooper and MM2H

Some incorrect information here.

You do not have to spend 12 months out fo the Uk to be considered non-resident for tax purposes.

The Gaines-Cooper case was more about domicile than residency and will not affect the average expat.

If you are UK non-resident for tax purposes then your UK pension may be paid to you free of UK income tax, but that doesn't mean you wouldn't be liable for tax on it elsewhere.

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Old Jun 20th 2010, 10:06 am
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Default Re: Gaines-Cooper and MM2H

Meow is correct. The terms of the UK-Malaysia Double Taxation Treaty state quite clearly that

"Pensions and other similar remuneration paid in consideration of past employment to a resident of a Contracting State and any annuity paid to such a resident shall be taxable only in that State."

That means that if one establishes Malaysian residency and UK non-residency for tax purposes, my UK pension is taxed only in Malaysia. As it happens, the tax on pensions in Malaysia is zero!

My original query was primarily about the extent to which my wife's (possible) desire to spend more than three months a year in the UK might affect my own UK non-residency status, even though I am unlikely to spend more than a couple of weeks a year there, with most of the rest of the time being spent in Malaysia.
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Old Jun 20th 2010, 10:08 am
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Default Re: Gaines-Cooper and MM2H

The last sentence should have finished

"with most of my time being spent in Malaysia!"
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Old Jun 20th 2010, 10:11 am
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Default Re: Gaines-Cooper and MM2H

Your wife's residency will not impact on yours. You are only claiming to be non-resident, not non-domiciled.

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Old Jun 22nd 2010, 7:43 am
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Default Re: Gaines-Cooper and MM2H

Originally Posted by Niblick
Hello......my very first post to this site (or to any for that matter!)

I came to Malaysia with my wife last year under the MM2H scheme on the understanding that my UK private pension would not be taxed in either country under the terms of the Double Taxation Treaty. I have been careful to follow the rules regarding acquiring Malaysian tax residency for 2009 and 2010 (not spending or planning to spend more than 14 days outside the country since I arrived up to 3 July 2010 when the 183 day qualifying period is over). In addition I do not plan to spend more than 90 days in the UK in any year from now on. My wife, however, also a British citizen, may like to spend more than 90 days in the UK each year, living with friends and family. She has no independent income and, as we are taxed separately, would attract no UK tax in her own right. I should add that we have kept a house in the UK (let to a company under a long-term contract) and we are currently renting in Malaysia.

My question is this. Is anyone else in a similar position and, if so, have they considered the relevance of the Gaines-Cooper case to their tax position? My understanding is that the first test made by HMRC in determining residency under the Double Taxation Treaty is in which country do they have a permanent home available to them. If they have a permanent home available in both countries, the second test is in which country are their personal and economic relations closer (where is their centre of vital interests).

In my case, although my pension is paid in the UK, I shall be spending at least 75% of my time in Malaysia and all my social interests are here (including my dogs!) In my wife's case, however, it could be argued that the centre of her vital interests has remained the UK if, say, she spends 4 or 5 months of the year there visiting friends and family. My main concern, of course, is that if she chooses to do this, whether it will affect my own tax position!

I should perhaps add that we are considering selling the UK house and using part of the proceeds to buy a flat in the UK that could be used by our children when they are on holiday from university and by my wife when she visits the UK. Thus we shall be moving from a position of not having a permanent home available in the UK (because it is on a long-term rental contract) to having one available (because it will not be let). The rest of the proceeds from the sale may be used to buy a property in Malaysia for us to live in.
A lot of the contributions here might be interesting and well-intended, but may end up generating more heat (in terms of future hassles) than light! If ever you end up in a dispute with Inland Revenue, you can hardly say 'Well, my mate in KL said...' so it may well be worth your while getting professional advice from a tax specialist in the UK. I know they will charge you an arm and a leg, but that might be cheaper than a dispute with IR with fines for late payment of taxes etc!
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