eFinancialCareers

There are ominous signs that the Inland Revenue is taking greater interest in what constitutes residency for tax purposes.

Like any ordinary multi-millionaire, Robert Gaines-Cooper believed sunning himself in the Seychelles and popping back to the UK for less than 90 days a year exempted him from UK tax.

But in a move that may make tax-massaging bankers wince, earlier this month the Inland Revenue ruled that although Gaines-Cooper lives in the Seychelles, he's domiciled in Britain for tax purposes.

Although the ruling isn't likely to impact bankers directly (given that most of them working out of London head offices spend more than three months of the year in the City), it could affect the likes of hedge fund managers working in the Bahamas.

More to the point, say tax lawyers, it's a sign that the revenue is taking a keener interest in residency: "The revenue are looking very, very carefully at their existing practices and everything around the residency issue," says David Kilshaw, tax partner at KPMG. "It's an area that needs to be approached with caution."

At the moment, says Kilshaw, many US and overseas bankers claim 'not ordinarily resident' status. Under this arrangement, people who spend less than three years living in the UK (and don't buy a house here), are taxed on UK income but not taxed on income earned overseas.

This leads to a two-tier tax regime, which can prove very lucrative indeed if bankers are able to avoid paying tax altogether for money earned on days spent working abroad.

The Gaines-Cooper ruling is far from spelling the death of the ordinarily resident tax advantage, but it's a sign the Revenue may be sizing up the coffin.