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Graceful presence

13 October 2009 / Ximena Montes Manzano
Issue: 4227 / Categories: Comment & Analysis , Tax cases , Residence & domicile

XIMENA MONTES MANZANO reports the recent hearing of Grace v CRC before the Court of Appeal

The only contemporary case in which an unrepresented taxpayer successfully established that he was not resident in the UK for tax purposes has reached the Court of Appeal.

For readers who have not read about Lyle Grace’s victory before a Special Commissioner in late 2007, Mr Grace is an airline pilot employed by British Airways on long-haul flights arriving and departing from Heathrow and Gatwick airports.

He owns a house in Horley which he uses effectively as a hotel in between flights. He has no other social or family ties in the UK, apart from an ex-wife and two children whom he has not seen for over 30 years.

Mr Grace set up home in Cape Town, South Africa in 1997 and now commutes to the UK for work. He owns a house, a car and a private plane in Cape Town as well as having family and a well-structured social network there.

HMRC argued that he was resident and ordinarily resident in the UK and taxed him accordingly. An appeal was successful in front of Special Commissioner, Dr Brice.

This was appealed to the High Court by HMRC. Mr Justice Lewison decided that not only had the commissioner made an error of law in reaching this conclusion, but that such error justified overturning her decision.

Issues for the Court of Appeal

Lord Justices Dyson, Waller and Lloyd heard arguments from Malcolm Gammie QC and Keith Gordon on behalf of Mr Grace and by Ingrid Simler QC and Akash Nawbatt on behalf of HMRC.

Mr Gammie led his submissions by categorising the issues to be considered as twofold. First, did the commissioner make such a perverse finding on the facts that no other commissioner in that position would have reached the same conclusion? In that case the decision ought to be overturned.

Second, did the commissioner make an error or misdirection of law? In that case the decision may stand (if the error does not affect the final conclusion) or may be remitted to the Commissioners for redetermination (if the error might have led to the final conclusion).

Dealing with the issues in turn, Mr Gammie relied on Dr Brice’s ‘impeccable’ decision in the case of Shepherd (SpC 484) and on appeal by Mr Justice Lewison [2006] STC 1821 to argue that only the commissioner was in a position to reach a decision on the events of 1997 in Mr Grace’s case.

This was because she heard the evidence tested in cross-examination and had the benefit of the arguments made by HMRC on the law. Day count, he added, was plainly a question of degree which was a matter for the commissioner to determine.

Mr Gammie considered each of the errors that the judge had alleged that the commissioner had made. To each, he explained why Dr Brice was in fact right or that the issues had ceased to be relevant in the case.

Miss Simler started by reminding the court that it was accepted that there was an error of law in the commissioner’s approach to employment as a temporary purpose.

She explained to the court that the intention of staying in a place was irrelevant, that there could be no doubt that employment was considered a settled purpose and that a ‘real home’ test must not be conducted when considering the issue.

She argued that that error together with other identified issues amount to such an error of law which vitiates the decision and warrants overturning.

Miss Simler further challenged the commissioner’s decision on residence as ignoring the principle of dual residence.

She argued that Dr Brice had erred in finding similarities with noted case law, in particular CIR v Zorab 11 TC 289 and CIR v Brown 11 TC 292 which, she argued, were cases where the subjects were never resident in the UK prior to the relevant period.

Lord Justice Waller did not seem persuaded by this line of argument as he noted that Dr Brice is a very experienced Special Commissioner and that such an error would make her seem ‘ridiculous’.

Miss Simler asked if she could ‘ride on two horses’ and explained that while she saw the force of Lord Justice Waller’s argument and did not suggest that the commissioner was ‘ridiculous’, she had dealt with dual residence and TA 1988, s 336 in the same paragraph of her decision, as such her conclusion was flawed.

In reply, Mr Gammie highlighted that most of the authorities that HMRC relied on concerned the question of ‘ordinary’ residence. If someone is said to be ‘ordinarily resident’ it does not necessarily follow that he is ‘resident’.

He concluded by referring the court to Lysaght where the Court of Appeal had sought to treat someone’s employment differently from the other factors that should be considered when determining residence.

This attempt had been rejected by the House of Lords who held that residence was a matter for the commissioner to consider in light of a person’s attachment with a place.

Judgment was reserved.

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