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Tests for non-resident status require "value judgements", tax exiles warned

23 February 2010

The Court of Appeal has rejected claims that HMRC has changed the rules on non-resident status and warned that “value judgements” are required, which will inevitably lead to disputes.

Businessman Robert Gaines-Cooper, who owns a plantation house on the Seychelles, claimed that he never spent more than 91 days a year in the UK to make sure he complied with the rules.

Delivering judgment in R (on the application of Davies and James) and R (on the application of Gaines-Cooper) [2010] EWCA Civ 83, Lord Justice Moses said Gaines-Cooper’s lawyers had “elicited the somewhat exhausting evidence of 150 days of flying, in one year”.

He went on: “Mr Gaines-Cooper contends that, in 1976, he left the UK permanently or for at least three years, and for the settled purpose of establishing himself as an international businessman.

“He was absent for at least a whole tax year and his return visits never exceeded the number of days specified in IR20.”

However, Moses LJ said the interpretation of tax guidance booklet IR20 by the Revenue (now HMRC) was correct.

“He needed to establish a distinct break from social and family ties and the Revenue asserted, and maintains its assertion that he did not make that break either in 1976, when he claims to have left permanently, or thereafter.”

Moses LJ said the “insuperable difficulty” for Gaines-Cooper was the findings of fact made by the special commissioners.

He said the commissioners found that England remained his “centre of gravity” and his chief residence was in the UK.

“As I have endeavoured to explain, the very terms of IR20 themselves often do not contain any binding assurance as to how the Revenue will treat a particular claim.

“The tests of full-time employment and permanent or indefinite absence will often require value judgements, which may respectably give rise to differences between taxpayers and the Revenue.”

Lord Justice Moses said that in the linked judicial review, Robert Davies and Michael James claimed they should be regarded as not resident during the tax year 2001-02.

They argued that they left for full-time employment in Belgium in March 2001, which lasted for a whole year, and so should be treated as non-resident under IR20. They later accepted that the employment itself did not start until after the month of April 2001.

Moses LJ said that under IR20 people would be treated as not resident if their “absence from the UK and employment abroad both last for at least a whole tax year”.

Counsel for Davies and Jones claimed this meant “at least a whole tax year but not necessarily the whole of the tax year in which the Revenue seek to charge the appellants to capital gains”.

Moses LJ rejected the approach. Dismissing the appeals in both cases, he said: “These appeals fail, in my view, not because of the jurisprudence in relation to residence, not because IR20 can be disregarded by the Revenue but because on a proper interpretation of that statement of practice, the taxpayers fell out with the circumstances which would have gained them non-resident status.

“The Revenue has not been shown to have altered its interpretation and application of IR20 to these appellants’ cases.”

Lord Justices Dyson and Ward agreed.

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