Anybody reading the recent case of K McCabe v HMRC [2022] UKFTT 356 (TC) is likely to conclude that the statutory residence test is a blessing in disguise (although it’s pretty heavily disguised in my view).
The tax years in dispute all predated the introduction of the statutory residence test in 2013 and the case itself is perhaps unremarkable as it is typical of residence cases prior to 2013, where the most unbelievable amount of information had to be provided to HMRC and the FTT about practically every day (and item of expenditure) for a period of many years (at what must have been an eye watering cost to the taxpayer and HMRC). The result is that you simply drown in the facts.
For that reason, it is impossible to get into the detailed facts of the case, but in simple terms it concerned a taxpayer who left the UK to live in Belgium where he became resident for seven years – from 2006/07 to 2013/14. Be that as it may, HMRC was not precluded from arguing that he did not cease to be resident in the UK and remained liable to income tax and capital gains tax throughout the period.
The relevant tax years preceded 2013, so we are back in IR20 country and all the old common law rules. The FTT went to great trouble to provide a detailed summary of all the cases and principles involved in reaching a conclusion on residence for tax purposes prior to 2013. There is a useful summary or checklist, even if some of the elements have no greater authority than ‘what I say three times is true’.
The crucial part of the judgment was an explanation of Mr McCabe’s continuing connections to the UK which caused the FTT to conclude that there had not been a ‘substantial loosening of social and family ties’ by Mr McCabe which was necessary for him to have lost his UK residence – this being the test established by the Supreme Court in Gaines Cooper [2011] UKSC 47 in 2011.
However, in the FTT, the test seemed to get converted into the ‘sufficient’ loosening of social or family ties. The trouble with this test is its inherent uncertainty, because ‘sufficient’ means different things to different people so that the taxpayer can have no genuine understanding of what it means and therefore how the law applies to him. That is profoundly unsatisfactory having regard to the serious financial consequences which are inevitably involved.
It is possible that the judge intended ‘sufficient loosening of social or family ties’ to mean the same as ‘substantial loosening of social and family ties’, but that is not an easy conclusion having regard to the different words used. In any event, it introduces a further degree of uncertainty which is hardly welcome under the circumstances.
Although we are mainly (and mercifully) free of all this now, these old rules are still relevant when looking at various aspects of the statutory residence test – such as those which arose in E Batten v HMRC [2022] UKFTT 199 (TC) to determine whether the taxpayer was an arriver or a leaver, and therefore which of the day count tables applied to him – although the number of those cases is naturally going down now, as 2013 recedes into the distant past.
Anybody reading the recent case of K McCabe v HMRC [2022] UKFTT 356 (TC) is likely to conclude that the statutory residence test is a blessing in disguise (although it’s pretty heavily disguised in my view).
The tax years in dispute all predated the introduction of the statutory residence test in 2013 and the case itself is perhaps unremarkable as it is typical of residence cases prior to 2013, where the most unbelievable amount of information had to be provided to HMRC and the FTT about practically every day (and item of expenditure) for a period of many years (at what must have been an eye watering cost to the taxpayer and HMRC). The result is that you simply drown in the facts.
For that reason, it is impossible to get into the detailed facts of the case, but in simple terms it concerned a taxpayer who left the UK to live in Belgium where he became resident for seven years – from 2006/07 to 2013/14. Be that as it may, HMRC was not precluded from arguing that he did not cease to be resident in the UK and remained liable to income tax and capital gains tax throughout the period.
The relevant tax years preceded 2013, so we are back in IR20 country and all the old common law rules. The FTT went to great trouble to provide a detailed summary of all the cases and principles involved in reaching a conclusion on residence for tax purposes prior to 2013. There is a useful summary or checklist, even if some of the elements have no greater authority than ‘what I say three times is true’.
The crucial part of the judgment was an explanation of Mr McCabe’s continuing connections to the UK which caused the FTT to conclude that there had not been a ‘substantial loosening of social and family ties’ by Mr McCabe which was necessary for him to have lost his UK residence – this being the test established by the Supreme Court in Gaines Cooper [2011] UKSC 47 in 2011.
However, in the FTT, the test seemed to get converted into the ‘sufficient’ loosening of social or family ties. The trouble with this test is its inherent uncertainty, because ‘sufficient’ means different things to different people so that the taxpayer can have no genuine understanding of what it means and therefore how the law applies to him. That is profoundly unsatisfactory having regard to the serious financial consequences which are inevitably involved.
It is possible that the judge intended ‘sufficient loosening of social or family ties’ to mean the same as ‘substantial loosening of social and family ties’, but that is not an easy conclusion having regard to the different words used. In any event, it introduces a further degree of uncertainty which is hardly welcome under the circumstances.
Although we are mainly (and mercifully) free of all this now, these old rules are still relevant when looking at various aspects of the statutory residence test – such as those which arose in E Batten v HMRC [2022] UKFTT 199 (TC) to determine whether the taxpayer was an arriver or a leaver, and therefore which of the day count tables applied to him – although the number of those cases is naturally going down now, as 2013 recedes into the distant past.
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