Sugar’s not so sweet tax bill
15th September 2023
Posted in Articles by Michael Hodgson
The Sunday Times recently published an article claiming that Lord Alan Sugar had tried to avoid paying £186m in tax, by becoming non-UK tax resident.
The main background facts appear to be:
• In 2021 Lord Sugar received a dividend of £390m from his wholly owned UK company.
• Having spent six months working in Australia, hosting The Celebrity Apprentice Australia, Lord Sugar filed his UK tax return on the basis that he had spent sufficient hours working overseas and spent fewer than 91 days in the UK and therefore he was automatically non-UK tax resident under the statutory residence tests.
• Under normal rules such a filing would have been correct as non-UK resident individuals are not taxable on UK dividends if they are happy to forfeit their personal allowance.
• However, Lord Sugar, and his advisors, appear to have missed a small, but vital, part of the UK’s residency rules; that members of the House of Lords are automatically UK tax resident, regardless of their location.
• As Lord Sugar was automatically UK tax resident, he was forced to pay one of the largest UK tax bills in 2021, amounting to £186m.
Given that Lord Sugar had already been working in Australia for six months, it is easy to envisage an overly enthusiastic tax advisor pitching this tax saving idea to him. The ‘ordinary’ taxpayer, in these circumstances, may have automatically been non-UK tax resident under the statutory residence tests and so taking advantage of his circumstances, by paying a large dividend, may have seemed sensible. After all, leaving the UK is a fairly standard piece of tax planning that many wealthy individuals will consider prior to receiving large capital gains and dividends.
Other issues
Below we set out other issues that he should have been advised about, had he not been a Lord.
Split year treatment
The special rules allowing a non-resident individual to disregard their UK source dividend income, are only available if they are non-UK tax resident for the entire tax year. Split year treatment cannot be relied upon for dividends, even if the dividend is paid after the individual had left the UK.
Temporary non-residence rules
These are anti-avoidance rules which prevent a taxpayer from avoiding UK tax by only losing UK resident status for a short period of time. They generally mean that a taxpayer must leave the UK for a minimum of five (and often six) tax years to avoid being taxed on that income when they return to the UK. As a proud member of the British establishment, perhaps Lord Sugar was not envisaging spending this long outside the UK and we are curious about what the plan was around this. We have seen some arguments that hinge around the terms of tax treaties but are not aware of there being any relevant terms in the UK-Australia treaty which can by-pass these rules. Of course, it is quite possible that he was considering emigrating to Australia. Who knows?
Forbes Dawson’s view
Although most people do not suffer the burden of being an MP or a member of the House of Lords, the case does serves as a good reminder of the complexities and intricacies of the UK statutory residence rules. These rules are very complicated for all tax payers, relying as they do on day counts and various ‘connection factors’ that they have to the UK. After wading through all that detail, they then have to ensure that they are not hit with a tax charge on their return to the UK. Also, if the exit is for tax reasons, then they need to ensure that they are not within the tax net of their destination country, or, if they are, that the tax is significantly lower than in the UK.
However, we think that we can predict with some confidence what Lord Sugar said to his tax advisors when he discovered the tax bill…
