By Ian Maston, solicitor, Chiltern plc, London


Home away from home



Determining an individual's residence status for UK tax purposes has always been a complex matter. This is more so than ever following the Special Commissioners' decision in Gaines-Cooper v Revenue and Customs Commissioners [2006] STC SpCD 568.



In this case, Mr Gaines-Cooper appealed against a number of assessments raised by Revenue & Customs relating to the tax years 1992/93 to 2003/04. His appeals were based on his claim to have abandoned his UK domicile status well before this period, with the acquisition of a 'domicile of choice' in the Seychelles. He also claimed to have been a non-UK resident from 1993/94 onwards.



Mr Gaines-Cooper was born and brought up in the UK, as were his parents. His 'domicile of origin' was therefore the UK. He had owned a property in the UK since 1964 and in the Seychelles since 1975. Between 1979 and 1986, Mr Gaines-Cooper lived in California with his first wife. In 1993, Mr Gaines-Cooper married his second wife, who was Seychellois. She lived in Mr Gaines-Cooper's UK property, but used the house in the Seychelles when visiting there. Mr Gaines-Cooper had a son who was born in the UK and was registered to attend Eton from the age of 13.



In 1958, Mr Gaines-Cooper launched a successful business in the UK supplying juke-boxes, and went on to set up further businesses around the world. He founded a plastics manufacturing company in the Seychelles in 1975. This was confiscated in around 1989, but he continued to conduct some of his business in the Seychelles. One of Mr Gaines-Cooper's main business ventures involved a company that was based in Cyprus, but which had a manufacturing arm in the UK.



The commissioners held that Mr Gaines-Cooper was not able to prove that he had acquired a domicile of choice in the Seychelles. He was found not to have severed all ties with the UK, and nor to have lived in the Seychelles with the intention to reside there permanently or indefinitely.



Given that it is notoriously difficult for an individual to shed a 'domicile of origin' and Mr Gaines-Cooper retained significant links to the UK, this aspect of the decision was not that surprising.



The more interesting aspect of the decision concerns Mr Gaines-Cooper's tax residence. Revenue & Customs' guidance on the taxation of UK residents and non-residents is published in its booklet IR20, which for many years tax practitioners have relied on for guidance when advising their clients on residence issues.



This guidance states that an individual will always be treated as a UK resident if he spends 183 days or more in this country in any one tax year. It goes on to say that if a 'short-term visitor' to the UK spends less than 183 days here, he can still be resident in the country for tax purposes if he visits regularly and spends on average 91 days or more in the UK over a four-year period.



The incorrect assumption sometimes drawn from IR20 is that as long as an individual spends on average fewer than 91 days in the UK, he cannot be treated as resident here; however, this was shown not to be the position most recently in the case of Shepherd v Revenue & Customs Commissioners [2006] STC 1821.



Here, a British airline pilot was held to be UK resident even though he spent fewer than 91 days on average in the UK. The commissioner found that, based on the facts of the case, Mr Shepherd retained a substantial and continuous presence in the UK, as he continued to perform duties of employment and to visit his friends and family in the UK. There had been no distinct break from his former lifestyle, and he was therefore seen not to have left the UK. Broadly, because he had not left the UK, he was not a short-term visitor and could therefore not rely on the 91-day rule.



In Gaines-Cooper, once again the commissioners did not just look at the number of days that Mr Gaines-Cooper spent in the UK, but considered all the facts to establish whether he had ever established a non-residence status or had remained UK resident during the years in question. They confirmed that there was a difference between considering the case of a UK resident who then had absences from the UK and an individual who had never previously resided in the UK.



Highlighting the fact that there is no statutory definition of 'residence' in the UK and that it should therefore be given its ordinary and natural meaning &150; namely 'to dwell permanently or for a considerable time, to have one's settled or usual abode, to live in or at a particular place' &150; the commissioners stated that the following factors should be taken into account:

l The time spent in the UK;

l The regularity and frequency of visits, and the nature of these;

l The birth place;

l Family and business ties; and

l The availability of living accommodation in the UK (regardless of whether there is another home abroad).



Having considered all the facts of the case, the commissioners held that Mr Gaines-Cooper was UK resident during the whole period under review.



One notable aspect of the case was the way in which the commissioners calculated the number of days that Mr Gaines-Cooper spent in the UK. The guidance in IR20 specifies that the days of arrival and departure from the UK will not normally be included in counting the number of days spent in the UK. However, in calculating where Mr Gaines-Cooper spent the majority of his time - so as to gain an 'in-the-round' understanding of his residence in determining whether he had ever left the UK &150; they did not ignore days of arrival and departure, as they ruled that this would give an inaccurate picture of the taxpayer's residency position.



Instead, the commissioners ruled that the number of nights that the appellant spent in the UK should be used and, from their calculations, they found that Mr Gaines-Cooper spent more time in the UK than in any other jurisdiction.



The fact that the commissioners used a method to calculate the number of days spent in the UK that differed from that specified in Revenue & Customs' IR20 guidance notes has caused serious doubt among tax practitioners as to the extent that IR20 can now be relied on. However, Revenue & Customs has recently issued a brief on the subject, in which it confirms that there has been no change to its practice with regard to residence and that, as has always been the case, the 91-day test only applies to taxpayers who have already become non-UK resident.



Therefore, the implications of this case may not be as far-reaching as many practitioners thought. It seems that days of arrival and departure can continue to be ignored when conducting the 91-day residency test for taxpayers who have either not previously been resident in the UK or where it is clear that they have left the UK, that there has been a distinct change in their lifestyle, and that they only visit the UK sporadically, for example, to visit friends or for holidays.



However, Revenue & Customs may take days of arrival and departure (or, as in the Gaines-Cooper case, nights spent) into account when it is looking at a taxpayer's 'pattern of presence' in the UK in determining whether he has actually left the UK. This may affect individuals where it is less clear that they have left the UK - perhaps where they continue to spend regular periods of time in the UK - and particularly where their spouse remains in this country and continues to live in the UK family home.