Taxing Matters

The details have now been published about how days are to be counted for the purposes of determining UK residence. From 6 April 2008, days of arrival and departure will be counted as days in the UK. There are two strands to this proposal—a statutory change and change of practice. The statutory tests for both income tax and capital gains tax are that an individual will be resident in the UK if he spends 183 days or more in the UK. This has been the statutory rule for a couple of hundred years. There is no guidance about how you calculated the 183 day rule but the case of Wilkie v IRC [1952] Ch 153, [1952] 1 All ER 92 decided that hours and minutes could be taken into account in determining whether the limit was breached. The published HMRC practice for the last 50 years has been to ignore days of arrival and departure in counting days for the 183-day test and the same practice has been applied to the 91-day rule; if a person spends an average of 91 days in the UK over four years, they are normally treated as resident and ordinarily resident from the beginning of the fifth year.

From 6 April 2008, a day of presence for the purpose of calculating residence will include days on which the individual arrives in or departs from the UK. There will be an exception for transit passengers who do not leave the boat or aircraft, or stay airside. That will be the statutory rule and will apply only to the 183-day test. However, HMRC has announced that it will change its practice from 6 April 2008 in relation to the 91-day average so that for the purposes of this test the days of arrival and departure will similarly be taken into account.

Implications

While in principle this seems like a simple enough change, the implications are rather more wide ranging. If days of arrival and departure are both counted, what really matters is if you are in the UK at midnight because if you are, that is bound to count as two days.

Mr Brown seems to think that people who come here on Tuesday and leave on Thursday will become resident and be subject to UK tax. Er no. Wake up. They won’t come…or if they do, they will make quite sure that they do not stay the night but leave on the last flight. Similarly, they will not want to come here the night before a meeting so as to be refreshed and properly prepared; that would just add one more day to their tally so there is going to be a considerable demand for more early morning flights to the UK and more late flights out of the UK—and a corresponding reduction in the demand for hotel accommodation. Good news for foreign airlines and foreign hotels—but nobody in their right mind could think that this is anything but damaging to Great Britain Plc.