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Gaines-Cooper decision highlights need for certainty on residence, say experts

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British tax exiles face substantial demands after Robert Gaines-Cooper, the British-born millionaire based in the Seychelles, failed in his latest bid to overturn court decisions in favour of HMRC.

Gaines-Cooper will now consider whether to take his case to the European Court of Justice, the Daily Telegraph reported.

The Supreme Court dismissed appeals by Gaines-Cooper and two other taxpayers who contended that HMRC’s booklet IR20, which provided general guidance on residence until it was replaced by HMRC6 in 2009, contained a more benevolent interpretation than the ‘ordinary law’ of the circumstances in which a taxpayer became non-resident and not ordinarily resident in the UK.

Gaines-Cooper, and Messrs Davies and James, claimed they had a ‘legitimate expectation’ that the benevolent interpretation would be applied. The Supreme Court held, by a a 4-1 majority, that the proper construction of IR20 did not support their contentions.

90 day test

Mike Walker, Tax Partner at KPMG, noted that the taxpayers argued that IR20 set out ‘a clear test that as long as a taxpayer limited days in the UK on average to no more than 90, then the right status was non-resident’. But the Supreme Court held that ‘the correct interpretation of the guidance was that the 90 day test applied only to those taxpayers who had clearly left the UK and that this did not apply in the two cases considered’.

Francesca Lagerberg, Head of Tax at Grant Thornton, said the case ‘highlighted how the absence of clear rules in the UK can lead to years of uncertainty for taxpayers’.

Alex Henderson, Partner at PwC, said the judgment was ultimately about whether taxpayers could rely on HMRC guidance.

‘Gaines-Cooper had followed what he thought were the rules on residency but HMRC had claimed its guidance was not binding. Yet it's always been the case that the underlying law needs to be considered as HMRC's guidance is exactly that – guidance,’ he said. ‘Clarification on this issue is welcome, even if it's come at the eleventh hour since we expect to have a statutory residency test next year.’

The case highlighted that ‘the century old tax code on residency has not kept pace with modern life’, he added.

Statutory residence test

The government’s consultation on a proposed statutory residence test closed last month, and draft legislation is expected before the end of this year.

A statutory test should provide greater certainty and ‘will hopefully result in fewer residency cases reaching court’, said Patricia Mock, a Director at Deloitte.

Peter Ashby of the Chartered Institute of Taxation said the Supreme Court decision made the case for a statutory test ‘even more compelling’.

Jason Collins, Partner at McGrigors, described the current regime as ‘a lottery, which undermines confidence in the British tax system and makes the country less welcoming to internationally mobile wealth’.

Lagerberg added that the proposed new rules were ‘a mix of objective tests (day-counting) and more subjective rules looking at a sliding scale of how close a taxpayer is linked to the UK’.

Henderson said he hoped there would be transitional measures to give certainty to ‘the internationally mobile, multinational businesses and their employees’.


The Supreme Court decision

Davies and James

Davies and James contended that prior to 6 April 2001 they left the UK for the settled purpose of establishing and working full-time for a Belgian company, the Court said.

‘Although their wives and Mr Davies’s daughters remained resident in the UK and although they returned frequently to the UK, albeit for short periods, they contend that they are entitled to be treated as non-resident and not ordinarily resident in 2001/02 by reference to paragraph 2.9 of IR20 since they had gone abroad for a settled purpose and had remained abroad for at least a whole tax year.’


It had already been determined by reference to the ordinary law, the Court said, that Robert Gaines-Cooper was resident and ordinary resident in the UK in the years relevant to him.

‘He contends, however, that his status should instead be determined by reference to paragraphs 2.8 and 2.9 of IR20 or to the alleged settled practice and that, on either basis, he was not resident in the UK from 1993 to 2004 nor ordinarily resident here from 1992 to 2004.’

‘A distinct break’

The majority (Lord Mance dissenting) held that the proper construction of IR20, when read as a whole, did not support the appellants’ contentions.

‘Although its exposition of how to achieve non-residence should have been much clearer, IR20, taken as a whole, informed the ordinarily sophisticated taxpayer that he had to leave the UK permanently, indefinitely or for full-time employment; had to do more than to take up residence abroad; and had to relinquish his “usual residence” in the UK.

‘It also informed him that any subsequent returns to the UK had to be no more than “visits” and that any “property” retained in the UK by him for his use had to be used for the purpose only of such visits rather than as a place of residence.

‘He will have concluded that such requirements in principle demanded, and might well in practice generate, a multifactorial evaluation of his circumstances and, in summary, that he had to make a distinct break. Alternatively, IR20 was so unclear as to communicate nothing to which legal effect might be given.’

Source: Supreme Court press summary