Financial Times October 19, 2011 8:03 pm
Tax exile loses appeal over residency
By Vanessa Houlder
Robert Gaines-Cooper, an international businessman, lost an appeal in
the Supreme Court on Wednesday in the culmination of a long-running
court battle over UK residency that is likely to result in hundreds of
other tax exiles facing bills for back-dated tax.
Mr Gaines-Cooper tried in 1976 to flee high taxes in Britain for the
Seychelles but has been embroiled in a dispute with Revenue & Customs
since 1998 over whether he ever shed his UK residency.
By highlighting widespread confusion over British residency rules, the
case has been the catalyst for a statutory residence test that is due
to be introduced next April.
The case revolved around the Revenue's guidance on residence, outlined
in a booklet called IR20. Mr Gaines-Cooper said he had stayed away
from Britain for enough days every year to qualify as a non-resident.
But the Revenue argued that counting days was irrelevant because Mr
Gaines-Cooper had not left Britain "permanently or indefinitely" by
making a distinct break.
The Supreme Court, by a 4-1 majority, dismissed the appeal on the
grounds that a "proper construction" of IR20 did not support Mr Gaines-
Cooper's case and the argument that the Revenue had departed from the
IR20 guidance was "far too thin and equivocal".
Although the guidance on how to achieve non-residence "should have
been much clearer", it considered that a sophisticated taxpayer would
have concluded that he had to make a "distinct break" from the UK to
But Lord Mance dissented, saying no requirement for "a distinct break"
had been expressed and other factors, including the day-count proviso,
pointed away from such a requirement.
Mr Gaines-Cooper said he planned to seek legal advice on whether to
appeal against the ruling: "The judgment I have received today is a
disappointment to me and to my family. I also consider it to be a blow
for all UK taxpayers who have relied on HMRC's published guidance when
planning their tax affairs."
Several advisers said they were not surprised by the victory for
Revenue & Customs, partly because Mr Gaines-Cooper had maintained
extensive social and domestic ties to the UK in regular visits that
included Royal Ascot and shooting parties.
"Tax exiles will
urgently need to review their affairs in the light of this ruling.
"This ruling does not give taxpayers the certainty that they need and
is fundamental to the fairness of the tax system. This case proves
that HMRC guidance is not reliable if it is badly drafted."
Mike Warburton of Grant Thornton, professional services firm, said the
Supreme Court ruling would affect the outcome of hundreds of cases
that were still in dispute.
"With a significant number of
enquiries still open into the affairs of internationally mobile
employees impacted by this judgment, we hope HMRC adopts a practical
approach in closing these enquiries down before the new rules come
into effect next April."
- posted 8 years ago