Close International Asset Management, part of the UK banking and investment group Close Brothers, has come out to urge UK expats to re-assess their domicile, following the recent collapse of the Gaines-Cooper case.

UK-born businessman Robert Gaines-Cooper lost his bid to win a judicial review of a dispute with the UK tax authorities which refused to accept he had really left the country when he moved to the Seychelles in 1976.

The case hinged on whether Mr Gaines-Cooper had sufficiently severed his ties with the UK. Lord Justice Ward, sitting in the Court of Appeal in London, said HM Revenue & Customs, the UK tax authority, was entitled to see a “clean break” with the UK when it came to deciding if a person had genuinely ceased to be a resident.

The case has highlighted a degree of ambiguity over how non-resident status is classified, prompting much discussion about which factors should be taken into account. Despite calls for clarification, HMRC has said that it will not introduce a statutory residence test in the Finance Bill.

One area of particular concern, according to Close, is that individuals who change their domicile to simplify their tax affairs following a move abroad may still have UK pensions – and it could be the case that having pension assets in the UK may be taken into account when an assessment of non-residency is being made.

Following the outcome of the Gaines-Cooper case, Close Asset Management said it is seeing renewed interest in Qualifying Recognised Overseas Pension Schemes (QROPS) from UK expats and their advisors. Following the introduction of new regulations in 2006, those leaving the UK can transfer UK pensions into recognised foreign pension plans without tax deduction and can ultimately draw them without a UK tax liability.

“For many expatriates the move to a different country is followed by the change of domicile in order to simplify their tax affairs. However, it would seem that many expats still have UK pension contracts; be these defined benefits or defined contribution schemes,” said Rex Cowley, head of marketing at Close International Asset Management.

“Certain sectors within the advisory community believe that the extent to which many clients have gone with regards to shaking off their UK domicile is not significant enough - particularly if they still have pension assets in the UK.”

According to Close, QROPS provide a neat solution to this problem, along with the additional benefits of not having to purchase a life annuity after the age of 75, or the high levels of taxation which can be associated with alternatively secured pensions on the death of the member.