ACCA ATX ^UK Syllabus A1. Income tax - The residence of an individual - Past Papers ^{1 / 1}

Your client, Dan, requires advice on the inheritance tax implications arising as a result of the recent death of his father, Noah, Dan’s own UK residence status, and the potential chargeable gain arising on his proposed disposal of his UK house.

Dan:
– Is domiciled in the country of Skarta.
– Is unmarried, and has no children.
– First became resident in the UK on 1 July 2012.
– Left the UK on 1 January 2016 to go travelling.
– Returned to the UK for the first time on 15 May 2017, when his father was taken ill.
– Intends to work part time in the UK throughout the month of July 2017 only.
– Will remain in the UK until 5 August 2017, when he intends to move permanently to Skarta.

Dan – disposal of his UK house:
– Dan purchased a house in the UK on 1 October 2012 for £286,000, where he lived until 1 January 2016.
– He has not lived in the house since this date.
– He allowed his father, Noah, to live in the house, rent-free, until his father’s death.
– He has agreed to sell the UK house on 1 August 2017 for £318,000.
– The house was valued at £297,000 on 5 April 2015.

Required:
(b) (i) On the assumption that Dan does not satisfy either of the automatic tests for determining his UK residence status, explain why Dan will NOT be resident in the UK for tax purposes in the tax year 2017/18. (5 marks)

Your manager has been advising a client, Waverley, on his plans to sell his business. An email from your manager setting out the current situation and some notes on the tax system in the country of Surferia are set out below:
Email from your manager – dated 8 September 2016

Waverley
Waverley was born in 1976. He divorced his wife in 2014. His three children, all of whom are under 18, live with his ex-wife in the UK. Waverley began trading as a sole trader on 1 March 2008. We are advising him on the sale of this unincorporated business with the objective of minimising his capital gains tax liability. 
It has been concluded that it will be very difficult to sell the business as an unincorporated entity, so Waverley is going to sell the business to a newly-formed company which he owns, Roller Ltd. Waverley will then sell his shares in Roller Ltd.

Waverley has decided to emigrate to the country of Surferia. He wants to make a fresh start and has heard from friends that moving abroad could be advantageous from the point of view of UK tax. He will move to Surferia on 5 April 2017.

Waverley wants to see his children regularly and is also an enthusiastic member of an amateur football team in the UK. As a result, he intends to spend as many days as possible in the UK in the tax year 2017/18. He will continue to work for Roller Ltd until the company is sold and it is also possible that the purchaser of Roller Ltd will ask Waverley to do further work for the company whilst he is in the UK.

Waverley will sell his home in the UK in March 2017. The house is Waverley’s principal private residence, such that there will be no capital gains tax in respect of its disposal. Once the house has been sold, whenever Waverley is in the UK he will stay in a hotel, as he does not have any other UK property available for his use. When he is not in the UK, he will live in a new house which he plans to buy in Surferia.

Residence status
Waverley has always been resident and domiciled in the UK, but it is likely to be beneficial for him to be non-UK resident for the tax year 2017/18.

Please carry out the following work:

(b) Residence status:
Explain the maximum number of days which Waverley will be able to spend in the UK in the tax year 2017/18 without being UK resident. I have already concluded that for the tax year 2017/18, Waverley will be neither automatically resident overseas nor automatically resident in the UK.

Required
Carry out the work requested in the email from your manager. The following marks are available:
(b) Residence status.(6 marks)

Your manager has received a letter from Jodie in connection with her proposed emigration from the UK. Extracts from the letter and from an email from your manager are set out below. 
Extract from the letter from Jodie

I was born in 1975 and I have always lived in the UK. I plan to leave the UK and move to the country of Riviera on 5 April 2016. My intention is to move to Riviera permanently and acquire a new home there. However, if my children are not happy there after four years, we will return to the UK.

My husband died three years ago. My brother lives in Riviera and is the only close family I have apart from my children. I will not have any sources of income in the UK after 5 April 2016. I intend to work part-time in Riviera so that I can look after my children. In the tax year 2016/17, I will return to the UK for a holiday and stay with friends for 60 days; for the rest of the tax year I will live in my new home in Riviera.

Extract from an email from your manager

(a) UK tax residence status and liability to UK income tax

Assuming Jodie leaves the UK in accordance with her plans, explain how her residence status for the tax year 2016/17 will be determined and conclude on her likely residence status for that year. To help, I have already concluded that Jodie will not be regarded as non-UK resident using the automatic overseas tests so there is no need to consider these tests. 
State how becoming non-UK resident will affect Jodie's liability to UK income tax.

Required: Prepare the paragraphs for inclusion in a letter from your manager to Jodie as requested in the email from your manager. The following marks are available: 
(a) UK tax residence status and liability to UK income tax. (7 marks)

(b) Buraco’s links with the country of Canasta:
– Buraco is domiciled in Canasta.
– Buraco owns a home in the country of Canasta.
– Buraco’s only income is in respect of investment properties in Canasta.
– Buraco frequently buys and sells properties in Canasta.

Buraco’s links with the UK:
– Buraco’s ex-wife and their 12-year-old daughter moved to the UK on 1 May 2013.
– Buraco first visited the UK in the tax year 2013/14 but was not UK resident in that year.
– Buraco did not own a house in the UK until he purchased one on 6 April 2014.
– Buraco expects to live in the UK house for between 100 and 150 days in the tax year 2014/15.

Required:
(i) Explain why Buraco will not satisfy any of the automatic overseas residence tests for the tax year 2014/15, and, on the assumption that he does not satisfy any of the automatic UK residence tests, explain how his residence status will be determined for that tax year. (7 marks)