Lord Sugar has a massive Income Tax bill after he mistakenly claimed that he was a non-UK resident at the time that his company paid him a £390 million dividend. As a serving member of the House of Lords, he is automatically deemed to be resident and domiciled in the UK. It was reported that he is suing his advisers.
The story of the £186 million Income Tax bill was broken this week by the The Bureau of Investigative Journalism and The Sunday Times. They claim that Lord Sugar's advisers failed to note the Tax Residence rules for parliamentarians in Part 4 of the Constitutional Reform and Governance Act.
In normal circumstances, tax advisers would just be advising emigrating company owners who have UK companies which boast substantial distributable reserves to be wary of the temporary non-UK residence rules. If you leave the UK having lived here for at least four out of the last seven years and return to the UK within five years, you are deemed to be a 'temporary non-resident'. As such, any Dividend paid to you by your company when abroad substantially out of pre-departure profits will become subject to tax in the year of your return.
However, if you are not actually a non-resident, dividend income will be taxable in the year of receipt.
The rules in the Constitutional Reform and Governance Act affect serving MPs too.
Part 4 of the Constitutional Reform and Governance Act states:
Section 41Tax status of MPs and members of the House of Lords
(1) Subsection (2) applies if a person is for any part of a tax year—
(a) a member of the House of Commons, or
(b) a member of the House of Lords.
(2) The person is to be treated for the purposes of the taxes listed in subsection (3) as resident ... and domiciled in the United Kingdom for the whole of that tax year.
(3) The taxes are—
(a) income tax,
(b) capital gains tax, and
(c) inheritance tax.
Useful guides to this topic
Dividend tax (subscriber guide)
This practical tax guide explains how dividends are taxed on or after 6 April 2016. It includes HMRC's own examples, more detailed examples, including an Owner Managed Business (OMB) section together with tax planning tips.
Residence v Non-residence
What are the differences between being UK resident and non-UK resident for UK tax purposes?
Offshore Income Tax Toolkit
This toolkit provides an outline of the tax issues for UK resident individuals with offshore income and investments.
Foreign income and residency pages: FAQs
How do you complete the foreign and residency pages of the Self Assessment return?
Permanent establishment & residence
What are the rules for determining a company's country of residence? What is central management and control? When does a company create a permanent establishment in another country?
Statutory Review (by HMRC)
What is a Statutory Review? Is it automatic? What happens in a Statutory Review? Can you challenge a Statutory Review's findings? Can you influence a Statutory Review?
When can HMRC issue an assessment outside of the normal statutory time limits? What conditions must be met? What are your rights of appeal and defences?