Lord Sugar, a business icon known for his “You’re fired!” catchphrase on TV’s “The Apprentice,” now faces a different kind of challenge: navigating the complexities of tax investigations. Recent allegations of his tax-savings strategies have some wondering if he (or his tax advisers) are actually the “Apprentice.”
In a bid to dodge a hefty £186 million tax on a dividend, Lord Sugar relocated to Australia. Revealed through an investigation by The Bureau of Investigative Journalism and The Sunday Times, grabbed headlines and even had tax enthusiasts at Gransnet chiming in with their opinions.
Many individuals often explore the possibility of changing their tax residency status to non-UK resident. Changing tax residency is a means of avoiding UK tax. However, tax law is extremely complex and there is a raft of anti-avoidance legislation to catch the unwary or ill-advised. Occasionally, some individuals test the limits, often leading to their downfall when scrutinised by HMRC via a tax investigation.
Leaving the UK for tax purposes has become challenging, with the statutory residence test in play. Lord Sugar sought professional advice before attempting to avoid £186 million tax bill resulting from a 2021 dividend by Amshold. Plans like this can go wrong when failing to follow advice to the letter, assuming the fine print doesn’t matter. But in Lord Sugar’s case, there was a different twist.
Lord Sugar’s strategy involved establishing Australian residence and renouncing UK tax residency. While this had the potential for savings at the UK’s expense, investigative journalists suggest that the guidance given to Lord Sugar was as standard as his no-nonsense boardroom critiques.
In tax law, individuals spending 183 or more days in the UK during a tax year are automatically deemed tax residents. Full-time overseas employment and fewer than 91 days in the UK makes them a non-resident. However, Lord Sugar would have needed to maintain this arrangement for five consecutive tax years. This was presumably the advice given to Lord Sugar and this would usually have been sound advice. But….
The Constitutional Reform and Governance Act 2010 (CRGA 2010) introduced a wild card: members of Parliament, are automatically deemed to be UK residents, regardless of where they actually reside. Therefore, despite Lord Sugar’s formal leave of absence from the House of Lords, and residency in Australia, he was indisputably a UK tax resident when the dividend was paid, and the £186 million tax bill was due to HMRC. Fair dinkum as they say in Oz!
Reports suggest he may take legal action against his professional advisers with reference to this tax investigation, alleging incorrect advice. While the advisers might hope their liability is limited to professional fees, this may not be the case. Lord Sugar’s claim is he'd have given up his House of Lord’s membership if he'd known it would tax. Sounds simple, right? Thanks to the House of Lords Reform Act 2014, it’s a one-way ticket – once you resign, there’s no turning back.
When the CRGA was introduced several peers quickly packed their bags following the implementation of the new act to dodge UK tax residency – there was even a 3-month window for members to resign. Lord Sugar’s impending legal battle could be epic. Only time, and perhaps the quintessential “You’re fired!” catchphrase, will decide if his threat of legal action and retrospective resignation was genuine.
For certain The Twelve Days of Christmas this year, Lord Sugar won't be any of the Ten Lords A Leaping.
At ETC Tax, we have a wealth of knowledge in residence and domicile and Tax investigation related queries, and a wealth of experience assisting clients with their concerns. If you have any concerns, please get in touch.
