Expats and tax: How the 91 day rule does not give complete protection


A number of recent incidents, none more so than the case of Robert Gaines-Cooper, have again highlighted the difficulties that can arise when people seek to establish themselves as non UK residents. So as an expat who lives abroad how can you avoid an unwelcome, and surprising, tax bill from HMRC?

One of the main bonuses of living abroad, and keeping your money abroad, is the fact that you can benefit from a more relaxed tax regime than in the UK. However now, more than ever before, it seems that simply living and working abroad is not enough for the taxman to class you as exempt from UK taxes, you must show a significant severing of UK ties.

The case of Mr Gaines-Cooper is a stark eye-opener.

Having been resident of the Seychelles since 1976, the very wealthy Gaines-Cooper saw no reason to be charged UK tax, and upon receiving a hefty and backdated tax bill from HMRC he took his case to the Court of Appeal.

His main argument was the 91 day rule. Expats have long been under the impression that spending 90 days or less in the UK is enough to show that you are no longer tied to the country. However, while this is an important factor in a quest to become a non-resident, on its own it is not always enough to convince the taxman.

Despite Gaines-Cooper citing the HMRC IR20 leaflet, a leaflet that proclaims non-residents to be people who have spent less than 91 days in the UK, as evidence for his case, the Court of Appeal still rejected his case. Their reasoning was that, regardless of time spent in the country, people must show they have made a “distinct break” for them to prove they are non-resident worthy. With a distinct break not evident Mr Gaines-Cooper was handed a huge bill of £30 million, backdated from 1993.

This is worrying news for British expatriates around the world. Firstly, it is vitally important to understand that the 91 day rule has never been the be all and end all of residency status. Unless expats are aware of what is required, there could be an expensive letter entering their letterboxes, and with HMRC at their most aggressive due to the huge national debt, that danger is more prevalent now than in previous years.

To obtain full clarity on your unique situation you should sit down with an IFA who can look at your situation and evaluate any tax risks that may affect you.

You should also learn from the mistakes that were made by Mr Gaines-Cooper.

Even though the 91 day rule is indeed mentioned in IR20, one’s family and social ties are often a stronger indication of whether or not there has been a distinct break from the UK. Despite Gaines-Cooper’s Seychelles residency, it transpired that his wife and child lived in a home in the UK that he owned, his son went to school in the UK, his will was written in the UK and he even had a UK mobile phone.

So in the courts eyes, these points were more than enough to prove that Gaines-Cooper was sufficiently tied to the UK, and with many expats most likely in similar positions, now is the time to evaluate your situation carefully.

Going back to the 91 day rule, whilst it is not necessarily a prime factor in establishing your non-residency, if you do spend more than 91 days in the UK you will definitely be seen as a UK resident. The IR20 manual has now been replaced by HMRC6, and this booklet highlights the need to sever links to the UK, simply living abroad is not enough.

As mentioned HMRC are currently in their most aggressive mindset ever, last year a special taskforce was created, the high-net worth unit, to investigate wealthy expats who they think may be liable for UK tax. An HMRC statement read: “We are looking at residency and domicile more carefully. HMRC is committed to ensuring that all those who are resident in the UK pay the tax that is due, and this judgment will aid that effort.”

If you think that you may be liable under this information you have a few options. Changing one’s life significantly is a solution but clearly not always viable, if you have family in the UK then forcing them to relocate could be very difficult and stressful.

However, what you can do is an adequate amount of planning, planning that will cover your back and help minimise the impact of an HMRC assault. Speak to an IFA and go over your circumstances in great detail, together you will be able to find the best ways of decreasing your exposure to UK tax.

Planning is key here, even if you are certain that you’re non-resident, HMRC may see things very differently.

Contact an IFA today and work out a plan to help minimise the taxman’s grip.