Tax Residence continues to be an interesting area – and an active one for HMRC challenge.
Having burned many years of their own guidance in taking Gaines-Cooper to the highest court in the land – thereby ignoring their own ‘safe haven’ guidance in IR20, HMRC have made another challenge in the case of James Glynn.  In this case, HMRC HAVE LOST, [at least at the First Tier Tribunal].  The verdict of the judges, over a lengthy(?) day hearing was [simplifying] that the taxpayer had done enough to demonstrate a ‘definite break’ in lifestyle, so was entitled to look at a ‘day counting’ approach to tax residence.
Interestingly, the long memories of HMRC appeared to consider the idea of ‘available property’ relevant – a concept which had been abolished, but is now re-emerging in the new statutory tests.
Pleasingly, the judges looked at the case based on its specific facts.  They took into account factors such as social life, family and religious tradition, changes in business and investment interests, the conduct of the taxpayer’s wife and her charity work etc., – in fact the whole picture of his lifestyle.  This resulted in the conclusion that Mr Glynn had deliberately altered his lifestyle to such an extent that there was a ‘definite break’.
Again, hopefully this gives clarity taxpayers can depend upon.  Further the court went on to say that the fact that part of the motivation was tax avoidance was irrelevant, because the question of motivation should not have an impact on what is (especially under the new statutory rules) a question of fact.  Often the question of fact may not be an easy one, but one to be weighed in the balance, based on the complete picture.
Lessons to be learned include:

  1. The importance of reviewing all the facts and assembling appropriate technical arguments.
  2. The great depth to which HMRC went in investigating detailed elements of the taxpayer’s lifestyle.

The Supreme Court recently upheld the Court of Appeal’s decision that Mr
Gaines-Cooper was a resident of the UK despite spending the majority of his
time in the Seychelles.

Mr Gaines-Cooper’s main argument centred on the application by HMRC of their guidance set out in the IR20 booklet on residence.  This has since been replaced by HMRC6.

Despite following HMRC’s guidance on residence, Mr Gaines-Cooper was found to be UK resident.  The case revolved around whether there was an ‘implied’ requirement for there to be a distinct break from the UK in order to become non-UK resident.

The case highlights the fact that HMRC guidance is not the law, and following it will not necessarily provide protection. Similar principles have applied in the taxpayers’ favour in recent cases on ‘reasonable excuse’ which have found HMRC’s guidance to be stricter than the actual wording of the legislation.

Going forward, the new statutory rules on residency should provide taxpayers with more clarity, however for prior years the case law principles will still apply.

The matter of UK residency is a common thread in the tax tribunal and courts over recent times.
The Gaines-Cooper case continues to be the main showpeice in relation to UK nationals leaving our shores.
However, professional advisors assisting overseas nationals coming to the UK should consider the case of Tuczka. Which has just been heard by the Upper Tribunal in favour of HMRC.
Tax residency remains a complex area and we will be glad to assist on 0113 2443502

HM Revenue and Customs have updated the guidance on residence, domicile and the remittance basis contained in HMRC6.

Since 6 April 2008, in determining how many days a person has spent in the UK for the purposes of the 183 day test and 91 day test, taxpayers have been able to exclude days in which they were not present at midnight.

However, the new guidance in HMRC6 suggests that where a person spends substantial time travelling to and from the UK, HM Revenue and Customs may seek to look at all the days in which a person was in the UK even where they were not present at midnight.   This appears to build on the recent case of Mr Gaines-Cooper.

The 91 day test is now discussed comprehensively in the coming to the UK section and rather limitedly in the leaving the UK section (in fact it is only referred to here where a person leaves to work abroad full-time), thus the implication is that HM Revenue and Customs now see the 91 day test as a way of bringing people within the UK tax net rather than a way of letting people out of it.

Please call Eaves & Co, Specialist Tax Advisors if you have any UK tax residence issues.