Robert Gaines-Cooper’s five year dispute with HM Revenue & Customs (HMRC) has ended in defeat in the UK Supreme Court.
He had originally challenged an HMRC decision that he was resident, ordinarily resident and domiciled in the UK for various years up to and including 2003-04. Having lost before the Special Commissioners, he appealed unsuccessfully to the High Court.
Gaines-Cooper then adopted a different approach. He applied for judicial review but this application was rejected. Undeterred, a final appeal was made to the Supreme Court.
In 1999, the Inland Revenue – as it was then known – published a revised version of a booklet known as IR20, entitled ‘Residents and non-residents: Liability to tax in the United Kingdom. The appeal to the Supreme Court required the court to interpret the guidance in the booklet. Gaines-Cooper argued that the guidance contained a more benevolent interpretation of the circumstances, in which an individual becomes non-resident and not ordinarily resident in the UK, than is reflected in the law as determined by the High Court. He had a “legitimate expectation” that the more benevolent interpretation be applied to the determination of his status for tax purposes. His alternative contention was that it was the settled practice of the HMRC to adopt such a benevolent interpretation and, again, he had a “legitimate expectation” to have such treatment applied to the facts of his case.
Gaines-Cooper argued that following IR20, he would be regarded as not resident or ordinarily resident if he went to live abroad for at least three years and kept his visits to the UK following departure to less than six months in any tax year and less than 91 days on average. HMRC contended that he additionally had to demonstrate a “clean break” with the UK.
The leading judgement in the Supreme Court came from Lord Wilson. He said that IR20 should be looked at in the round. On that basis, it informed the “ordinarily sophisticated” taxpayer:
(a) he was required to "leave" the UK in a more profound sense than that of travel, namely permanently or indefinitely or for full-time employment
(b) he was required to do more than to take up residence abroad
(c) he was required to relinquish his "usual residence" in the UK
(d) any subsequent returns on his part to the UK were required to be no more than "visits", and;
(e) any "property" retained by him in the UK for his use was required to be used for the purpose only of visits rather than as a place of residence.
These requirements could be summarised in three words – a distinct break.
Gaines-Cooper also lost on his alternative argument; there was no evidence that HMRC had departed from its settled practice in his case.
There was one dissenting judgement to the effect that IR20 was, at least in part, so badly written as to be positively misleading in relation to a clean break test.
Although this is undoubtedly a “leading case”, the expected introduction of a statutory residence test will reduce its importance. Nonetheless, there are elements of the case which will prove of practical importance to advisers for many years to come.
