Wednesday saw the long awaited decision for Robert Gaines-Cooper
in the Supreme Court, where the appeal was dismissed by a 4-1
majority. This case was not only about the UK residence rules
(which by the Supreme Court's own admission are "very
poorly drafted" and "should have been much clearer")
but also about clarity in the UK tax system. Does the taxpayer have
a legitimate expectation to rely on HMRC guidance and settled
practice to determine UK residence?
Mr Gaines-Cooper's case contained a complex set of facts. A
British citizen, Mr Gaines-Cooper was born and educated and for
many years lived in the UK. By 1974 he had formed the view that the
tax regime in the United Kingdom was unfavourable and on that basis
he began to establish overseas interests. He did so first in Canada
and then in the Seychelles, where he purchased a house and he was
granted a residence permit in the Seychelles in 1976, where he has
had close links ever since.
Mr Gaines-Cooper was very careful never to stay more than 91 days
in the UK in any given year, a widely accepted measure of residence
in the UK. However, the Supreme Court concluded that in principle
the requirements of IR20 (HMRC's former guidance booklet on tax
residence, now replaced by HMRC6) demanded an overall evaluation of
Mr Gaines-Cooper's circumstances and that he also "had to
make a distinct break" from the UK (an underlying principle
established by UK case law). In Lord Wilson's view, IR20 when
read as a whole provides the following general requirements to
demonstrate a distinct break: that an individual "leaves"
the UK in a profound sense - namely permanently or indefinitely or
for full time employment; that an individual does more than take up
residence abroad: that an individual relinquishes his usual
residence in the UK; and that any subsequent returns on an
individual's part to the UK are no more than
"visits". Any property retained for use by an individual
who leaves the UK must be used for the purpose only of visits
rather than as a place of residence.
Lord Wilson concluded that Mr Gaines-Cooper (together with Mr
Davies and Mr James, joint appellants to this appeal) failed to
establish that HMRC had departed from an adopted settled practice
applying criteria different from case law or IR20 read as a whole
and consequently, there was no legitimate expectation to which the
Supreme Court could give effect.
However, as Lord Mance in the sole dissenting opinion points out,
it is remarkable that the requirements of a "distinct
break" were not more clearly expressed in HMRC's guidance.
As so many practitioners had believed, IR20 was intended to reflect
the "law and practice" and set out the "main
factors" of determining tax residence in the UK. This
was the taxpayer's intention when going abroad as to the
overall duration of his absence and counting the days of any return
visits). Although not binding in law and not affecting the
taxpayer's right of appeal, IR20 was (as everyone understood
it) intended to remove any need for a taxpayer to look
further.
It is important to note that HMRC accepted that an individual
would have a legitimate expectation of having his case appraised in
light of operative guidance, notwithstanding that such guidance
"failed to reflect the ordinary law". The point to take
away from this case is a reminder that HMRC's guidance on
residence was specifically expressed to be "general guidance
only". This was clearly stated at the preface to the
booklet. It appears therefore that such general guidance
cannot be relied upon as a substitute for proper professional
advice in complex areas of law.
Despite the revised guidance in HMRC6 having improved on IR20, the
Gaines-Cooper case has prompted the Government, for the first time,
to propose a statutory definition of tax residence for individuals
and is expected to be introduced in April 2012. No doubt the
importance of this case will reduce over time with the new
statutory test, though individuals will still need to be careful
when relying on HMRC's guidance.
For a copy of the judgment, please click here.
This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq
Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.
The original publication date for this article was 21/10/2011.