A first-tier tax tribunal has reviewed a case between Ian Charles Strachan and HM Revenue and Customs (HMRC) to discuss whether Strachan was domiciled in England or Massachusetts for self-assessment (SA) purposes.
Strachan completed his SA tax returns from 2011-12 to 2015-16 on the basis that he was a UK resident, domiciled in Massachusetts. HMRC did not agree and asked for a tax payment of around £420,000 ($527,000, €491,000).
The tribunal, heard in April, focused on Strachan’s domicile of origin, domicile of choice and whether he had been “careless” with some tax returns, resulting in the loss of tax.
The decision, released on 5 July, allowed his appeal against the assessments for 2011-2012 and 2012-2013. However, his appeal relating to the tax years 2013-14 through to 2015-16 was dismissed because he was domiciled in England during those years.
While it was found that Strachan was deemed to have been careless in completing the SA returns, the judge said that: “HMRC have not met their burden of proving that his carelessness caused the loss of tax.”
The total amount payable by Strachan was reduced to £321,333.14.
The domicile of the father
Gerry Brown, trust and estate-planning expert at QB Partners, said: “Strachan claimed on the remittance basis (a tax treatment that can be applied to those resident but not domiciled in the UK and who have foreign income) and paid the remittance-basis charge in respect of non-UK income and capital gains. HMRC disagreed with this analysis and the matter was eventually referred to the tax tribunal for a decision.
“In any domicile review, the starting point is to consider the domicile of the individual’s father as this will determine the individual’s domicile of origin.
“Strachan’s father, Charles, was born in Scotland in 1906. Charles’ parents were also born in Scotland and spent their lives there. In 1927 Charles qualified as a doctor and moved to England to become a general surgeon at Batley Hospital, West Yorkshire. In the mid-1930s he became a GP in Oldham, Greater Manchester.
“Charles married in 1939 and had three children, all born in Oldham. Strachan was born in 1943. Charles retired to Wilmslow, Cheshire and continued to live there until his death in 1991. His probate certificate records that he was domiciled in England and Wales at the date of his death. He left an English will. He did not own any property in Scotland. The tribunal concluded that Ian had an English domicile of origin.
“Having been born in Oldham, Strachan attended primary school in England, before going to Fettes College in Edinburgh at age 13. He later studied at Christ’s College, Cambridge. He then obtained a place on a Masters degree course at Princeton and later completed a PhD at Harvard. On graduation Strachan married his first wife, the daughter of the then governor of Pennsylvania.
“He got a job with Exxon and worked in New York, Japan and Thailand, living in rented accommodation. During this time he had become a US citizen. By signing the certificate of naturalisation, he confirmed that he intended to “reside permanently in the United States”. He subsequently obtained a US passport.
“In 1983, Strachan was left money by his aunt and used this to buy a property in London, which he let to tenants. He was divorced in 1987. Shortly thereafter he met, and subsequently married his second wife, Margaret. The couple then moved to London where he worked as chief financial officer for Rio Tinto Zinc (RTZ). A few months later they bought a house in London funded by the sale of his London investment property and his wife’s New York apartment. Shortly after the purchase the house was refurbished and in 2010-11 the couple spent £875,000 on a substantial renovation of the property.
“Strachan worked for RTZ until 1996 when he moved to BTR which later became Invensys. From about 2000 he retired from full-time employment but took on a number of part-time positions, serving on the boards of various public companies. These directorships all came to an end by 2015.
“His wife’s family have had a long-standing connection with Manchester in Massachusetts, with many of her relatives owning property there. From 1987 to 2006, Strachan spent an average of six days a year in Manchester, staying with his wife’s grandmother. In May 2006, Strachan and his wife purchased a property in Manchester for almost $3m.
“In July 2020, Strachan was diagnosed with Alzheimer’s disease. The couple left London in December 2021, having sold their London house and, in March 2022, he moved into an apartment with assisted living facilities in Lexington, Massachusetts.”
The relevant law
Brown added: “The tribunal judge reviewed the relevant law which states that: ‘Domicile of choice is a conclusion or inference which the law derives from the fact of a man fixing voluntarily his sole or chief residence in a particular place, with an intention of continuing to reside there for an unlimited time. This is a description of the circumstances which create or constitute a domicile, and not a definition of the term…’”
“The judge said that the courts had repeatedly endorsed the principle that a domicile of choice is only established if a person both voluntarily fixes their sole or chief residence in a particular place, and does so with an intention of continuing to reside there for an unlimited time. A person is not required to show that he has the intention of continuing to reside for an unlimited time in his domicile of origin, in order for that domicile to be retained.
“They reviewed the evidence and concluded that, in the relevant years, Strachan’s chief residence was in London. He spent the greater part of each year in London, and only some 10 weeks a year in Massachusetts. He gave his London address as his home address on official documents, including his IRS return, his wills, his power of attorney and his living will. “The couple kept their most valuable possessions in their London house, including paintings valued at over £637,000.
“The judge refused to comment on Ian’s domicile for periods after he moved in 2021 to Massachusetts but it seems reasonable to conclude that he would have then acquired a domicile of choice there.”
An HMRC spokesperson said: “We note the tribunal’s decision and are considering the next steps.”
