Does a recent judicial review really change the rules for ex-pats?
Much has been made of the recent publication of the findings of the Gaines-Cooper judicial review case and its effect on ex-pats. But is this really news, or have we known the effects for some time?
The background
Robert Gaines-Cooper is a wealthy businessman who spent much of his time in the Seychelles. In 2006 Mr Gaines-Cooper lost a tax case heard before the Special Commissioners (of Taxation) in which he was trying to argue that he had established a domicile of choice outside the UK. However, the major point to emerge from the case was the way that HMRC decided to count Mr Gaines-Cooper's days present in the UK.
Prior to this case, and as outlined in the HMRC guidance booklet IR20, the days of arrival and departure were ignored when calculating physical presence in the UK. This practice left the way open for so-called "Monaco Millionaires" who would arrive in the UK on a Tuesday, stay until Thursday, but would have only spent 1 day in the UK for tax purposes.
HMRC argued that using this method of counting days gave a distorted picture of Mr Gaines-Cooper's movements and that counting his presence at midnight gave a truer picture. This method of day counting became law shortly afterwards.
The judicial review
Mr Gaines-Cooper was actually unable to appeal his tax case any further, due to the way the legal system works. However, he was able to apply for, and subsequently receive leave to have a judicial review of the case.
Judicial review, in this case, was less concerned with the individual facts of the case as they related to Mr Gaines-Cooper, but rather whether the actions taken by HMRC were fair.
The original Gaines-Cooper decision had caused uproar within the tax profession as it was considered that HMRC had gone against its own published guidance in IR20 to change the method of counting days. If HMRC was not bound by its own guidance, how on earth could taxpayers rely on anything HMRC said. You may say that is the case anyway…
HMRC argued aginst the judicial review on two points; firstly that Mr Gaines-Cooper's circumstances did not fall within the remit of IR20 in the first place, and secondly that the guidance was exactly that, guidance, and that they had not changed their mind, simply looked more closely into the circumstances of individual cases.
The judicial review was heard in November, but the decision has only been published this month. The judges agreed with HMRC that Mr Gaines-Cooper was outside IR20, having never permanently left the UK, such that he had no grounds for claiming reliance on its provisions. Apparently Robert Gaines-Cooper, resident of the Seychelles (according to his website) is seeking leave to appeal to the Supreme Court.
Will this affect others?
The crucial points that came out of the judicial review will affect anyone seeking to leave the UK and lose their tax residency in this country.
The reason that Mr Gaines-Cooper was considered to be outside the provisions of IR20 was that he had not severed his UK ties sufficiently to render his absences from the UK anything more than temporary, and this position has been reinforced by subsequent tax cases such as the Grace and Shepherd cases.
Mr Gaines-Cooper refutes this assertion, and dismisses the evidence to the contrary such as his UK home, UK club memberships and UK (ex) wife and son. He also regularly returned to the UK (which is where the day counting came in).
A (tax) year in Provence
It has always been the opinion of tax professionals that the surest way to lose UK residence status (in the absence of overseas employment contracts) is to leave the UK for one complete tax year, i.e. 6 April one year to 5 April the next. If this is not achieved, then HMRC are entitled to look at the facts in determining whether UK residence has been lost. IR20 did not apply to temporary absences, i.e. when a clean break from the UK cannot be established.
So far, this is not really news then. Any ex-patriates wishing to lose their UK residence should have been advised that absences that do not cover a complete tax year are open to scrutiny. However, if such taxpayers have indeed genuinely left the UK, there should be no cause for concern…
The other main point that was established in the judicial review judgment is that the judges agreed that the taxpayer has a right to rely upon guidance published by HMRC, which would suggest that, had Gaines-Cooper fallen within the circumstances prescribed by IR20, the change in day counting method would have been inappropriate.
However, the judges went on to say that IR20 (and its successor HMRC6 - pdf file) begins with a large disclaimer that this guidance is not be be relied upon and that "You should bear in mind that the booklet offers general guidance on how the rules apply, but whether the guidance is appropriate in a particular case will depend on all the facts of that case", meaning that whether the guidance in IR20 was appropriate was dependent on the facts of individual cases.
Sounds like Game, Set and Match to HMRC to me.
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