Tax & Accounting News

Residency Issues In High Court Spotlight

09/10/2008

A millionaire businessman has launched a fresh legal bid to resolve a key residence and domicile issues, with potentially far-reaching implications for anyone leaving the UK to set up a home abroad.

Robert Gaines-Cooper originally appealed against HM Revenue & Customs (HMRC) tax assessments covering 1992-2004, during which time he claimed he was not domiciled, UK resident (usually defined as spending 183 days in a UK tax year here) or ordinarily resident (usually defined as spending an average of more than 90 days in the UK, over a four-year rolling period) in the UK.

Mr Gaines-Cooper, who was born to British parents, said that he had been domiciled – that is, had made his permanent home – in the Seychelles since 1976, although he visited the UK regularly and had interests here including annual visits for pheasant shooting and Royal Ascot. He also has a house in Henley-on-Thames, where he keeps collections of paintings, classic cars and guns.

The Special Commissioners, who rule in tax disputes, found in HMRC’s favour in October 2006 and Mr Gaines-Cooper’s subsequent appeal to the High Court, in November 2007, also failed. He launched a fresh High Court case in early October 2008, in which Mr Justice Lloyd Jones reserved judgment after a two-day hearing.

Key issues arising from the case include HMRC’s decision to count every night spent in the UK by Mr Gaines-Cooper, turning, for example, a Monday-to-Wednesday visit from one day in the UK to two days. This was confirmed in the latest version of IR20, HMRC’s guidance on residents and non-residents’ liability to tax, published in July 2008.

More significantly, it appears that even if someone leaves the UK, establishes a home overseas and spends less than 90 days in the UK, HMRC will not necessarily accept that they are non-resident. Rather, it seems that the taxman requires evidence of a clean break with the UK and a change in the pattern of the individual’s life that indicates they are no longer resident.

The IR20 booklet also makes it clear that the terms resident and ordinarily resident are not defined in the Taxes Acts but that their meanings are largely based on rulings in the courts. It adds that while IR20 “sets out the main factors that are taken into account…we can only make a decision on your residence status on the facts in your particular case.”

HMRC admits in the preface that the guidelines need updating and that full replacement guidance will be published “soon”. Meanwhile, the safest conclusion appears to be that when it comes to domicile and residence, assume nothing and proceed with caution, armed with the advice of a good accountant.