Haworth v HMRC: Court of Appeal Clarifies Place of Effective Management Test

The Court of Appeal's judgement in Geoffrey Richard Haworth & Ors v The Commissioners for HMRC ([2025] EWCA Civ 822) provides crucial clarification on the interpretation of "place of effective management" (POEM) in determining trust tax residency under double taxation treaties. The July 2025 decision addresses the strategic manipulation of trustee appointments to avoid capital gains tax liability.

Case Background and Strategic Planning

The appellants—Geoffrey Richard Haworth, Ian Francis Lenagan, and SG Kleinwort Hambros Trust Company (UK) Limited—challenged HMRC's assessment of CGT on gains from share disposals by family trusts. The dispute centred on whether the trusts were resident in the UK or Mauritius under the relevant double tax treaty at the time of disposal.

At the millennium's turn, both Haworth and Lenagan family trusts held shares in companies approaching merger. Legal advisers identified potential CGT avoidance opportunities if the trusts could establish Mauritian tax residency during critical disposal periods. The strategy involved appointing Mauritian trustees immediately before significant share disposals, then reverting to UK trustees within the same financial year—a carefully orchestrated sequence designed to exploit treaty provisions whilst maintaining practical control.

The POEM Analysis

The First-tier Tribunal and Upper Tribunal initially determined that POEM remained predominantly in the UK, resulting in CGT liability. This finding prompted the appellants' challenge, which required the Court of Appeal to examine where substantive management decisions were actually made rather than merely identifying trustees' physical locations.

The appellants contended that during the relevant period, management decisions were genuinely influenced and directed by Mauritian-based trustees, establishing effective management in Mauritius. HMRC maintained that real control remained with UK parties, negating any claim to Mauritian residency.

Drawing extensively on Wood v Holden, the court emphasised that effective management encompasses strategic decision-making rather than administrative functions. The judgement distinguished between routine trustee duties and the locus of genuine managerial control.

Strategic Control Versus Administrative Function

Lord Justice Newey's analysis focused on management realities rather than formal statutory definitions. The court found that whilst Mauritian trustees performed administrative responsibilities, overarching operational strategy remained with UK-based settlors. This distinction between day-to-day administration and strategic direction proved decisive.

The judgement clarified that POEM requires examination of where real management occurs, not merely where documents are signed or meetings held. The court concluded that higher-level management actions influenced by UK stakeholders indicated continued UK tax residence throughout the relevant period.

Implications and Precedential Value

The unanimous dismissal of the appeals reinforces that effective management extends beyond documentation and formal appointments. The decision establishes that strategic managerial control cannot be artificially relocated through temporary trustee changes whilst substantive decision-making remains elsewhere.

This ruling significantly impacts international trust planning, particularly arrangements attempting to exploit treaty provisions through tactical residency changes. The judgement indicates courts will scrutinise the substance of management arrangements rather than accept formal structural changes at face value.

The case demonstrates the limitations of mechanical approaches to POEM determination and emphasises the importance of genuine transfer of management functions when seeking to establish foreign tax residency. Future trust structures must ensure that claimed management locations reflect operational reality rather than administrative convenience.

The Haworth decision thus provides essential guidance on POEM interpretation whilst highlighting the judicial approach to arrangements perceived as primarily tax-motivated rather than commercially driven.