HM Revenue and Customs

4. Mr C complains that in 2002, HMRC gave him incorrect information when he sought advice about their tax affairs when he and his wife moved to live in France.

5. He says HMRC: • told him incorrectly that he still had to pay UK tax on all of his UK income despite being resident in France • failed to provide relevant information about the Double Taxation Treaty between the UK and France which sets out the agreement between the two countries regarding payment of tax on different categories of UK income.

6. He says he and his wife experienced: • significant financial loss because he has paid tax on parts of his UK income to HMRC which he was not obliged to do • stress and upset due to the French tax authority’s subsequent investigation of their unpaid tax to France

7. He would like HMRC to: • acknowledge that it misadvised him in 2002 • pay him costs equivalent to any tax he has paid unnecessarily on his UK income between 2002 and 2009. The latter date is the start date of tax relief which he has now successfully claimed from the Mutual Agreement Procedure (MAP) • pay him costs incurred for hiring an accountant during the French tax authority’s investigation • pay a financial remedy to acknowledge the stress, frustration and inconvenience he experienced during the French tax authority’s investigation

Contextual background

8. All UK nationals are generally liable to pay tax on their UK income whether they are resident in the UK or in another country. Resident UK nationals are also required to pay UK tax on their foreign income whereas non-resident UK nationals are not liable. A UK national who lives abroad is usually recognised as resident for tax purposes if they visit the UK for more than 183 days in a tax year. This is set out in part 14 of the Income Tax Act 2007.

9. Additionally every country has its own domestic tax regime and as such both the UK and the UK national’s country of residence may have the legal right to tax on the same UK income under their respective tax laws. This means a UK national may be taxed by both the UK and their country of residence on the same elements of their income.

10. Where this is the case, the UK national may be able to claim tax relief to avoid being taxed twice if the country where they live has a double taxation (DT) treaty with the UK. A DT treaty between two countries is an agreement designed to protect individuals from the risks and impact of double taxation. A DT treaty between the UK and another country sets out the rules about the tax a UK national is obliged to pay to both the UK and the other country and where they can apply for relief for any double taxation. Depending on the terms of the treaty, an individual can apply for either partial or full relief before they have been taxed or a refund after they have been taxed.

Complainant background

11. On 1 July 2001 Mr C wrote to HMRC enclosing his and his wife’s 2001 tax returns. He also explained: • that they had been living mainly in France since his redundancy in November 2000.

• intended to spend more than half of each year in France whilst retaining their property in the UK • their main sources of income would be UK based including his local government pension, rental income, interest from UK savings and dividends from UK stocks and shares • he had been advised that his pension could continue to be taxed in the UK • they had savings accounts and investments in the UK which were taxed at source and which they intended to keep • they did not intend to make any similar investments in France • they had a small amount of rental income from their property in France • his wife may have earnings in France from around 90 hours per year teaching

12. He asked for advice about their liabilities in respect of both France and the UK’s tax laws. He said that he had been advised professionally that despite living in France for half the year, they should continue to pay income tax in the UK except on any income arising in France such as from rental income and teaching. He said that unless HMRC advised otherwise he would assume this advice was correct.

13. Following his enquiries Mr C received a response from HMRC dated 22 July 2002. This said: • ‘whether or not you are resident in the UK for any particular year, you will basically remain chargeable to UK tax on any income arising in the UK and the only effect of residence position i.e. now resident in France but this may change will be whether there is any charge on income arising outside the UK which will not be so if you are non-resident’ and • ‘it might be possible that some income is chargeable to tax both in the UK and France …..but if this should be so credit will be available to ensure that there is no double charge’

14. Having received the above advice from HMRC, Mr C declared all of his and his wife’s UK income to HMRC and their small amount of French income to the French tax authorities from then onwards until 2020 believing they were acting in line with the instructions they had received.

15. In 2020, the French tax authorities contacted Mr C and his wife about unpaid tax on his UK income and carried out an investigation of their tax affairs over the period 2009 to 2018. He was told that the investigation could only go back ten years. He had to employ an accountant who understood both UK and France tax laws. He said it was extremely stressful and he felt as though he was treated like a criminal.

16. The French tax authorities completed the investigation and asked Mr C to pay tax arrears of €29,643, interest on late payments of €4,433 and penalties of €40,368. He says the French tax authorities told him that most of his UK income was actually taxable in France rather than the UK.

17. As such he believes that HMRC’s advice in 2002 which clearly told him he had to pay tax on all UK income was incorrect since he later understood that much of the tax he had paid was actually due to France.

18. Mr C complained to HMRC on 10 March 2022 about the advice given in 2002 and followed this up with further information on 22 February 2023. He received a response at tier one of the HMRC complaints process on 13 April 2023 which did not uphold his complaint. It told him that the advice provided in 2002: • was general advice as to how income was taxed in the UK depending on residence i.e. a non-resident would be liable for tax on UK income and a resident would also be liable for tax on foreign income • could not give him definite advice on his position since his residence status may change • told him that double taxation relief was available for income taxed in both countries

19. The response also advised how he could apply for a refund of any double taxation via the Mutual Agreement Procedure (MAP). MAP is a mechanism whereby an individual can apply to one or both countries in a double taxation treaty for a refund of any double taxation when they cannot do so under the normal rules and regulations. The purpose of MAP is to ensure that taxation aligns with the intentions of the double taxation treaty. In this case Mr C was out of time to apply to HRMC directly.

20. Mr C complained to tier 2 on 16 April 2023 and received a response on 27 October 2023 which upheld HMRC’s previous decision. It also provided further detailed information about how he could now go about applying for a refund of any double taxation.

21. He referred his complaint to the AO on 19 December 2023 and received a response dated 19 April 2024 which did not change HMRC’s decision.

22. Mr C tells us that since submitting his complaint to us and after some negotiation, the French tax authorities have agreed to waive almost all of the penalties and the outstanding balance was reduced to €34,076. He has also since pursued a refund from MAP who have agreed to refund the tax paid to the French authorities from 2009.

26. In his letter to HMRC, Mr C explains that he and his wife are intending to live for more than half the year in France and provides details of their French and UK investments and other income. He asks HMRC to advise him on his tax liability to both the UK and France.

27. We would expect HMRC to aim to make sure that customers are clear about their entitlements, about what they can and cannot expect from HMRC and about their own responsibilities in line with our principles of good administration (our Principles).

28. We have therefore considered whether the HMRC response in February 2002 adequately responded to Mr C’s enquiry and also reflected HMRC guidance relevant at that time. We have set out the contents of the response again for reference. The response said • ‘whether or not you are resident in the UK for any particular year, you will basically remain chargeable to UK tax on any income arising in the UK and the only effect of residence position i.e. now resident in France but this may change will be whether there is any charge on income arising outside the UK which will not be so if you are non-resident – i.e. will not be taxed by UK on French income as long as non-resident in UK’ and • it might be possible that some income is chargeable to tax both in the UK and France….but if this should be so credit will be available to ensure that there is no double charge’

29. We have looked at each of Mr C’s concerns below.

Advice on tax liability on UK income

30. Mr C says that HMRC incorrectly told him he was obliged to pay tax to HMRC on all of his UK income.

UK residence status 31. The first issue that arises here is UK residence status. Current HMRC guidance is set out in HMRC’s internal manual: Residence, Domicile and Remittance Basis Manual (RDRM): 10120, 9 March 2016. It explains that an individual who is has moved to live in another country but spends 183 days or more in a tax year in the UK will still be considered as resident here. Alternatively someone who has left the UK and spends less than 183 days here in a tax year, may still be considered resident although this may also depend on other factors. For example they would usually be considered non-resident if they: • were making a one off visit • left before they had been here for 183 days in a tax year • intended to stay for less than two years • do not intend to return

32. HMRC have provided archived guidance relevant to UK residence status. Resident for tax purposes: Information for non-residents: Non-residents: Frequently asked questions: archived 31 July 2003 is more generalised advice but still reflects the current guidance above. It says ‘Normally if you leave the UK permanently or for 3 years or more or to work abroad full-time, you will become not resident and not ordinarily resident in the UK if • your absence from the UK covers a complete tax year (i.e. 6 April to5 April), and • you spend less than 183 days in the UK during the tax year, or • your visits to the UK do not average 91 days or more a tax year over a maximum of 4 years.

33. We have not looked further into whether Mr C and his wife’s proposed arrangements for spending time in France and the UK met the criteria for resident or non-resident status. This is because: • although it appears their plan in 2001 would have likely given them a non-resident status, we may need more information to be able to define their status with certainty • from the wording of Mr C’s letter it is a proposed plan and therefore potentially liable to change • Mr C’s residence status in respect to his UK tax liability only impacted on his obligation to pay UK tax on foreign income and this is not relevant to his complaint. We have referred to this point further below.

34. Furthermore when we consider the wording of HMRC’s response, we see it advises on Mr C’s tax liabilities both in reference to resident and non-resident status and does not assume he is one or the other.

Liability to UK tax 35. Current HMRC guidance RDRM10410 - Residence: Liability to UK Tax, March 2016 sets out how an individual’s residence affects the types of income that are taxable in the UK. RDRM10415, says: • if an individual is not resident in the UK it does not mean that the individual is not liable to UK tax • an individual will always be liable to UK tax on income earned in the UK and on unearned income from UK sources.

36. HMRC archived guidance relevant at the time of HMRC’s response to Mr C in 2002 tells us the general rules were the same at this time. Information for non-residents: Non-residents: Frequently asked questions, archived 31 July 2003 explains, ‘If you remain resident in the UK for UK tax purposes, normally you will be taxable on your income arising in the UK and overseas. And if you become non-resident, you will normally only be taxable on your income arising in the UK’.

37. We have looked at HMRC’s advice to Mr C in 2002 in the light of the above guidance. We see it advises him that he will be liable for UK tax on any UK income whether he is resident or non-resident but would not be taxed by the UK on income from France as long as he is non-resident. There is no indication here that the advice provided is not in line with the above and current guidance.

Further discussion 38. Mr C disagrees that the basic advice given to him that he had to pay HMRC tax on all UK income was correct. He says this is because the French tax authorities told him that much of the tax paid on his UK income was in fact chargeable to France rather than the UK.

39. He has also quoted from a letter he received from the part of the HMRC responsible for double taxation at the time of his complaint to HMRC in 2022. This letter refers to different categories of his UK income and advises that some of these would be classed as exempt from UK tax from 2009 onwards or taxable only in the UK and exempt from French tax. He says that if some of his income is exempt from UK tax then it is not true that he had to pay tax to the UK on all UK income.

40. We have considered Mr C’s comments and understand why the further information he has received appears to conflict with the advice provided by HMRC in 2002. We hope that our response, as follows, resolves the matter for him.

41. We have referred above to Information for non-residents: Non-residents: Frequently asked questions, archived 31 July 2003 which was relevant in 2002 and current HMRC guidance RDRM10410 - Residence: Liability to UK Tax, March 2016 guidance. Both sets of guidance tell us that a UK national is liable for tax to the UK on all UK income regardless of their UK residence status. We have not seen anything to suggest that this is not the basic principle.

42. We have discussed the matter of double taxation in more detail below. However it may be useful at this point to refer to INTM151040 - Double taxation: concept and principles: Methods of relief. This current HMRC guidance explains that where double taxation occurs and there is relief available, this is achieved in different ways, including exemption at source as provided by the country’s own domestic legislation or via a credit system whereby the tax payer can apply for a refund of the payment of tax to one or the other country. The guidance explains that for UK residents the relief of double taxation is usually achieved by the credit method.

43. As such it is also possible that in some cases relief from double taxation may be achieved for UK nationals by exemption at source and this may be why Mr C has been told that this is the case in respect of some of his UK income. We are not in a position to provide Mr C with a detailed explanation as to how the UK provides relief for double taxation in respect of his different categories of income. If he wants further clarification we would suggest he seek further advice from the specialist departments of HMRC or an accountant.

44. However the basic premise that, regardless of any relief available and the manner of that relief, a UK resident is liable to the UK for tax on all UK income, is usefully set out HMRC’s International Manual (INTM) INTM150000: Principles of Double Taxation Relief and Introduction to Double Taxation Agreements at INTM152060: Domestic Law, April 2016.

45. This guidance tells us, ‘it should be noted that the existence of a DT agreement does not automatically release the payer from an obligation to deduct tax which is imposed under UK domestic law. It merely enables a claim for exemption or relief to be made by the resident of the other country’. As such the treaties do not exempt an individual from paying tax but rather offers them the opportunity to apply for tax relief.

46. The same information can be found in the archived guidance relevant at the time of HMRC’s response. Applications and claims under double taxation treaties, archived 31 July 2003 says that ‘relief from UK tax provided in a DT treaty is not automatic. Treaty benefits must be the subject of an application to the UK Inland Revenue’.

47. The underlying principle therefore is that a UK national whether resident or non-resident in the UK is obliged to pay tax on their UK income. However where the discharge of tax is duplicated in payment to another country for the same income, then the tax payer will have the opportunity to offset the double charge in various ways such as exemption, relief or refund from HMRC.

48. We hope the above is helpful to reassure Mr C on this point.

Advice on double taxation treaties

49. The current guidance issued in 2016, HMRC international manual: INTM151010: Double taxation: concept and principles: UK and foreign legislation initially confirms that UK domestic legislation generally provides that all UK income is chargeable to UK tax in respect of both non-resident and resident UK nationals as is all income derived from abroad by a UK resident but not a non UK resident.

50. The guidance continues to explain that many foreign countries have taxation systems based on similar principles so that income which arises in one country and flows to another is taxed twice, once in its country of origin and again in the country in which the recipient of the income resides.

51. We have referred above to INTM151040 - Double taxation: concept and principles: Methods of relief. For reference we said that this guidance explains that in order to ease the burden of double taxation, many countries provide for relief. This is achieved either by way of exemption under the country’s own domestic legislation or via a credit system set out in the provisions of a double taxation agreement. In respect of the latter, where the income or gains are taxed in both countries, the country in which the recipient is resident gives credit for the other country’s tax against its own tax.

52. The guidance goes on to say that both methods are used in double taxation agreements between the UK and other countries. For UK residents, relief from double taxation is usually achieved by the credit method.

53. The archived guidance relevant at the time of HMRC’s advice in 2002 provides the following information about double taxation.

54. Applications and claims under double taxation treaties, archived 31 July 2003 explains that if an individual: • has income from a source in one country and is resident in another, they may be liable to pay tax in both countries under their tax laws. To avoid 'double taxation' in this situation, the United Kingdom has negotiated double taxation ('DT') treaties with more than 100 other countries.

• is a resident of a country with which the UK has a double taxation treaty, they may be able to claim exemption or partial relief from UK tax on certain types of income from UK sources. The precise conditions of exemption or relief can be found in the text of the relevant treaty.

55. In this case the Double Taxation Relief (Taxes on Income) (France) Order 1968, sets out the relevant legislation at the time of HMRC’s advice to Mr C in 2002. Subsequently the UK/France Double Taxation Convention came into force on 18 December 2009.

56. In view of the above guidance we have reviewed HMRC’s advice to Mr C. We see it tells him that, ‘it might be possible that some income is chargeable to tax both in the UK and France…. but if this should be so credit will be available to ensure that there is no double charge.’

57. It appears that the advice given here reflects both the current guidance and the guidance relevant at that time, as set out above. This is because it tells Mr C that he and his wife might be liable to tax on some income both in the UK and France but that there will be credit available to avoid paying tax twice on the same income.

58. From his account it appears Mr C did not understand that he may also have to pay tax on UK income to the French tax authorities. He says this is because HMRC did not tell him specifically about double taxation treaties.

59. He says if it had done so he would have familiarised himself with the relevant double taxation treaties and understood which of his income was chargeable to which country. Since HMRC did not give him this information, his understanding for the next 18 years was that he was not required to pay any tax to the French authorities on his UK income.

60. We asked if he had made any further enquiries about HMRC’s advice that there was ‘credit available to ensure there is no double charge’. He said he had not done so and added that ‘in hindsight’ he could see that there was other information in the letter but his understanding from HMRC’s response was that his income was outside the remit of the French tax authorities. As such he did not think it necessary to pay an accountant at this time since he had a good understanding of the UK tax system and believed that this would suffice.

61. We have explained above that the information provided in HMRC’s response was in line with the guidance at that time. We have gone onto consider whether HMRC’s should have provided any further information to fully address Mr C’s enquiry.

62. Having reviewed the available evidence, we consider that HMRC’s response was sufficient to make sure he understood his responsibilities in line with our Principles which expect public organisations to make sure their customers are clear about their entitlements, about what they can and cannot expect from HMRC and about their own responsibilities. We have set out our reasons below.

63. Firstly we have explained above that HMRC’s advice in 2002 provided Mr C with the correct and relevant information that he had requested in respect of his tax liabilities to France and the UK. This information included the advice that he may be chargeable to France on his UK income and he could obtain credit on any tax that he subsequently paid twice.

64. We have considered whether the absence of a specific reference to double taxation treaties would have reasonably prevented Mr C from understanding that he and his wife may have to pay tax to France on UK income. We cannot say this is likely to be the case because the HMRC advice clearly states, ‘it might be possible that some income is chargeable to tax both in the UK and France … but if this should be so credit will be available to ensure that there is no double charge’.

65. We would not expect HMRC to advise on another country’s tax legislation and have also taken into account that HMRC has told us that its response in 2002 also provided the contact details for HMRC’s specialists teams. One of these teams at that time, was the Centre for Non-residents (CNR). HMRC evidence archived on 31 July 2003: Information for Non-residents tells us that the CNR was a specialist division of HMRC who dealt with matters including: • the UK tax liabilities of non-resident individuals • claims to relief from UK tax, by residents of countries with which the UK has a double taxation treaty

66. Finally we also see that, at this time, there were several HMRC leaflets available publicly which provided advice on the tax liabilities of UK nationals living abroad including information about double taxation. They included: • IR20: Residents and non-residents, liability to tax in the UK, December 1999 • IR138: Living or retiring abroad? A guide to UK tax on your UK income and pension, October 95

67. In summary for the reasons we have explained we have not seen anything to indicate that HMRC gave Mr C incorrect information or failed to provide information it should have done.

68. We understand that the events of his complaint have caused Mr C distress and frustration and we hope that our consideration of what happened reassures him that HMRC complied with all relevant guidance and standards.

1. We have carefully considered Mr C’s complaint about HMRC. We are sorry to hear about the difficulties he and his wife have experienced in regard to the management of their tax affairs and the French tax authorities’ investigation.

2. Having reviewed the available evidence we have decided to take no further action. This is because, we have not seen any indications of failings on the part of HMRC in respect of the advice it provided to Mr C in 2002.

3. We have explained how we have arrived at this decision in more detail below.