Taxation logo taxation mission text

Since 1927 the leading authority on tax law, practice and administration

Gaines-Cooper loses Supreme Court appeal

20 October 2011
Issue: 4327 / Categories: News , Gaines-Cooper , IR20 , Residence & domicile
Law experts warn tax exiles of pursuit by HMRC

Thousands of UK citizens living overseas could find themselves being chased by authorities for backdated tax following the latest development in the UK’s most high-profile residence case, according to a leading firm tax-law specialists

The long-running saga of Robert Gaines-Cooper appeared to come to an end yesterday, when the Supreme Court dismissed the claim by the Seychelles-based billionaire that he ceased to be UK resident around 20 years ago.

Jason Collins, partner at law firm McGrigors, which specialises in tax investigations, said the ruling ‘could open the floodgates for HMRC to pursue thousands of British tax exiles for backdated tax’ and ‘proves HMRC guidance is not reliable if it is badly drafted’.

Mr Gaines-Cooper’s case concerned the application by the Revenue of practice set out in the department’s IR20 booklet on residence (since replaced by guidance in the form of HMRC6).

He was found by the special commissioners in the summer of 2007 to be both resident and domicile of the UK, and an appeal against the decision on the matter of domicile was later rejected by the High Court. But the issue of residence was pursued through judicial review – the application for which has now been turned down by Supreme Court judges.

They held that IR20 contained sufficient information for ‘an ordinarily sophisticated taxpayer’ to come to the same conclusions as the taxman, in that there was a need to establish a distinct break with the UK in order to become non-resident. The correct interpretation of the guidance was that the 90-day residence test applied only to taxpayers who had clearly left the UK, and this did not apply in the Gaines-Cooper case.

Jason Collins added: ‘IR20 was intended to provide certainty over when HMRC would treat a taxpayer as UK resident. HMRC has signally failed to provide that certainty. The government consultation on the introduction of a simple and transparent statutory residence test… is now more important than ever. The current regime is a lottery, which… makes the country less welcoming to internationally mobile wealth.’

That the Supreme Court upheld the argument that HMRC were required to apply their published guidelines to taxpayers who clearly fell within them, even if that might give a different result than the detailed analysis required by the strict law, was a ‘crumb of comfort for taxpayers’, claimed KMPG tax partner Mike Walker.

‘In practical terms, [the overall] ruling reinforces the need for anyone currently attempting to demonstrate to the… tax authorities that they have made a distinct break from the UK,’ he said.

‘While the Gaines-Cooper decision is unwelcome news for people in this sort of position, it is not quite game over for them.’

A simplified, statutory residence test is set to be introduced next April, but taxpayers will not be entirely free of the old rules, warned Geoffrey Todd, private client and tax partner at law firm Boodle Hatfield.

He said, ‘The new test will retain some features where day-counting alone does not give a clear result, and periods of residence up to April 2012 will be determined under the old rules. Certainly, people will feel more cautious about relying on Revenue guidance, which is a shame.’

Issue: 4327 / Categories: News , Gaines-Cooper , IR20 , Residence & domicile
back to top icon