Administrative law – Capital gains tax – Income tax – Legitimate expectation

R (on the application of (1) Robert John Davies (2) Michael John James) v Revenue & Customs Commissioners: R (on the application of Robert Gaines-Cooper) v Revenue & Customs Commissioners: CA (Civ Div) (Lords Justice Ward, Dyson, Moses): 16 February 2010

The claimants (D, J and G) applied for judicial review of the defendant commissioners’ interpretation of the guidance in relation to the residence and ordinary residence of individuals published in the 1999 edition of their IR20 booklet.

D and J asserted that they had left the UK for full-time employment in Belgium in March 2001, and because they started that employment in the tax year 2001/02 and it lasted for at least a full year, they were entitled to be treated as non-resident and not ordinarily resident in the UK for the tax year 2001/02, in accordance with paragraph 2.2 of IR20; alternatively, they were entitled to such treatment, by virtue of paragraphs 2.7-2.9, because they left the UK indefinitely for a settled purpose. The commissioners did not accept that they had left the UK to work full-time abroad in March 2001, because they were not in full-time employment in April 2001. The commissioners determined that they were ordinarily resident in the UK and they sought judicial review of that decision. G’s contention that he had not been resident or ordinarily resident in the UK in the years 1993/94 to 2003/04 was rejected by the special commissioners in 2006. G contended that that determination did not preclude reliance on the legitimate expectation that IR20 would be applied, and that on its proper construction it gave a binding assurance that he would be treated as not-resident and not ordinarily resident since 1976 despite the conclusion of the special commissioners. D and J submitted that the commissioners’ interpretation of paragraph 2.2 was wrong and all the appellants submitted that the commissioners’ interpretation of paragraphs 2.7-2.9 was wrong and that they had applied that misconstruction after the appellants left the UK so that there had been an unannounced change of policy contrary to the appellants’ legitimate expectation.

Held: (1) A statement formally published by the commissioners to the world might safely be regarded as binding, subject to its terms, in any case falling clearly within them, R v Inland Revenue Commissioners Ex p MFK Underwriting Agents Ltd [1990] 1 WLR 1545 QBD applied. Thus, the commissioners could be bound, through the medium of judicial review, to honour statements made to the public as to how they would treat a taxpayer in particular, defined circumstances. Issues of residence could give rise to complex questions of fact. The principles depended on case law, not on statutory definition. Nevertheless, IR20 set out a limited number of specific situations in which a taxpayer would be treated as non-resident. If a taxpayer fell within the situation described, the commissioners had given an assurance that they would treat the taxpayer in accordance with the terms of the guidance and they would not be permitted to resile from that assurance.

(2) Properly construed, paragraph 2.2 did not entitle a person to non-resident status, for capital gains tax purposes, unless he left to work full-time either before or by the start of a tax year, in the instant case by 6 April 2001. To come within paragraph 2.2, a taxpayer had to leave for and remain in full-time employment throughout the relevant tax year. Full-time employment throughout any subsequent tax years did not affect the date when a taxpayer first attained non-resident status; that date was determined by reference to the date the taxpayer left to work full-time abroad. D and J did not work full-time in Belgium in April 2001 and that was fatal to their claim that they came within the terms of paragraph 2.2.

(3) If a taxpayer claimed to have left permanently or indefinitely under paragraph 2.7-2.9 of IR20, and thus to have ceased to be resident and ordinarily resident in the UK, he had to demonstrate a distinct break from former social and family ties within the UK. That was the force of the words ‘permanently or indefinitely’, which required consideration of the quality of the absence. Paragraph 2.9 had to be read in the context of paragraphs 2.7-2.9, all of which came under the heading ‘leaving the UK permanently or indefinitely’. A ‘settled purpose’ within paragraph 2.9 had to be consistent with a distinct break, sufficient to cut pre-existing ties. That was consistent with the decided cases, Levene v Inland Revenue Commissioners [1928] AC 217 HL and Inland Revenue Commissioners v Combe 17 TC 405 considered.

(4) If the specified number of return visits was exceeded, non-resident status would be lost, even if the taxpayer had gone abroad permanently. But the converse did not follow as a matter of logic or language: if the number of return visits was not exceeded, it by no means followed that the taxpayer had left or gone abroad permanently or indefinitely. If a taxpayer limited his return visits, that would not lead to acquisition of non-resident status. He had to leave to work full-time, or permanently or indefinitely.

(5) The evidence did not establish any change of policy on the part of the commissioners. On a proper interpretation of IR20 the taxpayers fell outside the circumstances which would have gained them non-resident status. The commissioners had not been shown to have altered their interpretation and application of IR20 to the appellants’ cases, namely that paragraph 2.2 required full-time employment abroad, but not the distinct break that was required under paragraphs 2.7-2.9.

Applications refused.

David Goldberg QC, Nicola Shaw (instructed by PricewaterhouseCoopers Legal) for the claimants in the first action; David Milne QC, Nicola Shaw (instructed by Squire Sanders & Dempsey) for the claimant in the second action; Ingrid Simler QC, Akash Nawbatt, Christopher Stone (instructed by in-house solicitor) for the defendant in both actions.