In the wake of increases to the top rate of tax, changes to the pension rules and the taxation of non-UK domiciled individuals, the question of whether to leave the UK has been on the minds of many wealthy residents.

Whilst there has not been the feared "mass exodus" of high net worth individuals, some jurisdictions such as Switzerland have welcomed a number of wealthy hedge fund managers and city professionals during the past two years. As the new Coalition Government has no immediate intention of lowering the 50% income tax rate, or abolishing the £30,000 annual charge for non-UK domiciled individuals that wish to claim the remittance basis of tax, the attraction of becoming non-UK resident remains strong. Indeed, the recent Budget confirmed that the non-dom rules are under review to assess whether changes are required to "ensure that non-dom inidividuals make a fair contribution to reducing the deficit", prompting many to predict a less favourable tax regime for such individuals is on the horizon.

However, will those who leave risk still being treated by HMRC as UK tax resident? - are they effectively stuck on the runway for UK tax purposes? This risk was highlighted by the recent highly publicised decision in the Gaines-Cooper case. British born entrepreneur Robert Gaines-Cooper lost in the Court of Appeal on the question of UK residency, leaving him facing a UK tax liability of £30 million, dating back to 1993. Mr Gaines-Cooper has appealed this decision and will now have the case heard by the Supreme Court. However, HMRC's success against Mr Gaines-Cooper at every stage in the case so far means that most tax commentators predict he will lose on appeal; and that his case will lead to HMRC focusing on similar high net worth individuals who have purported to move abroad but maintain links with the UK.

It is clear that the reach of HMRC is far wider than previously generally believed. Whilst the Court of Appeal in the Gaines-Cooper case held that some parts of HMRC's previous guidance on residence (known as IR20) was binding, the latest guidance (known as HMRC6) comes with a robust health warning declaring that "it has no legal force". This leaves taxpayers in the unsatisfactory position of following guidance that HMRC can technically withdraw or change at any time. This level of uncertainty, together with the lack of statutory legislation on tax residence, means that far greater reliance is placed on case law on this area. Expecting non-tax specialists to follow the complexities of case law in order to be in a position to organise their tax affairs efficiently is regarded by many as unnecesarily onerous.

HMRC also now enjoys wider information powers, which have recently been used to target UK resident individuals with undisclosed offshore bank accounts. It is clear that not being aware of the law is absolutely no defence for those are still found to be within the UK tax net.

This article is not intended to encourage the wealthy to move abroad. There are clearly many attractions in remaining in the UK. However, if an individual makes the decision to leave the UK, it is clear that this will not be a simple matter of filing a form P85 with his or her local tax office, getting on a plane and staying outside of the UK for the right number of days.

If you are interested in receiving advice on this subject, please contact Glen Atchison or Dhana Sabanathan at Harbottle & Lewis LLP.

2 September 2010