Out-Law News 1 min. read

Tax exile loses his high profile appeal over his UK tax residency status


The Supreme Court yesterday ruled by a 4 to 1 majority that a tax exile was not entitled to rely on HMRC guidance to support his contention that he was non-UK resident for tax purposes. The decision leaves the tax exile facing a huge bill for unpaid UK tax dating back several years.

HMRC contended that Mr Gaines-Cooper was resident in the UK from 1993 to 2004 and ordinarily resident in the UK from 1992 to 2004, even though he had moved to the Seychelles in 1976. Due to the absence of a statutory definition of residence or ordinary residence, HMRC's determination was based on common law principles and established case law.

Gaines-Cooper did not deny that by reference to the common law he was resident and ordinary resident in the UK in the years relevant to him, but he argued that he could rely on HMRC's guidance in "IR20", which offered general guidance on the word “residence” and the phrase “ordinary residence,” to support a more benevolent approach to the common law.

The Supreme Court did not agree with Gaines-Cooper's contention. The Court admitted that the guidance in IR20 could have been "much clearer" but it ruled that taken as a whole the ordinarily sophisticated taxpayer should have realised that he had to make a "distinct break" from the UK, something which Gaines-Cooper was unable to show.

"This case highlights the need for great care when seeking to rely on HMRC’s guidance materials" says Chris Thomas, tax expert at Pinsent Masons, the law firm behind OUT-LAW. "In particular, it emphasises that statements made in such guidance must be considered in the round, in light of their wider context, and that attempts to rely on the guidance are likely to fail where there is any ambiguity."

"Taxpayers should also remember that, whilst HMRC’s guidance can be a useful reference point helpful, it should never be considered a substitute for properly reviewing the underlying law," said Thomas.

Mr Gaines-Cooper has said that his next step is to seek the views of his legal advisers with a view to referring his case to the European Court.

A new statutory residence test is expected next year which it is hoped will clarify the rules on tax residency which critics have long accused of being complex and subjective, based on a large volume of sometimes contradictory case law and guidance from HMRC.

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