Prove it or lose it

A recent tax case shows how important it is to be able to prove one’s claims when dealing with the tax authorities.

It involved a couple who moved to Belgium in 2001, having left the UK before 6 April that year. They were admitted as permanent residents of Belgium. They were not therefore resident in the UK during the 2001/2002 tax year and had taken advice on how to avoid being considered to be UK resident for tax purposes.

During that year, they disposed of most of their UK property – either by way of sale or by gifting it to their children. They also built themselves a villa in Portugal for their retirement. The properties they sold included some on which Capital Gains Tax (CGT) would have been payable were they UK resident.

When HM Revenue and Customs (HMRC) opened an enquiry into the couple’s tax affairs, they claimed that their property disposals were not subject to CGT by virtue of the fact that they were no longer resident in the UK. They claimed that when they moved abroad, they did so with no intention of returning to the UK to reside permanently and they intended to live in Portugal when they retired.

The first problem the couple faced in justifying their claim was that they could not produce accurate details of their whereabouts during the relevant tax year and it was clear that they had visited the UK several times during the tax years 2001/2002 and 2002/2003.

HMRC assembled evidence of the couple’s visits to the UK, using cashpoint withdrawal records, credit card records and other transactions. The couple were also shown to have kept a taxed and insured car at a UK property. HMRC were thus able to establish, to the satisfaction of the First-tier Tribunal, that the couple had not sufficiently cut their ties with the UK to justify being regarded as non-resident.

The Tribunal concluded that the couple were UK resident for 2001/2002 and 2002/2003. As a result of the Tribunal’s decision, more than £400,000 in tax will be payable.

The case illustrates the importance not only of complying with the regulations but also of being able to prove compliance. It is not enough to ‘know you are right’: you have to be able to prove it.

The contents of this article are for the purposes of general awareness only. They do not purport to constitute legal or professional advice. The law may have changed since this article was published. Readers should not act on the basis of the information included and should take appropriate professional advice upon their own particular circumstances.

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