HMRC have interpreted the judgements in Gaines-Cooper as requiring an individual to as good as sever all ties to the UK for them to accept the individual has shaken off UK residence.
Two recent First Tier Tribunal decisions will be of relevance to any on-going disputes with HMRC for clients who sought to become non-UK resident under the previous “IR20” residence tests. With the enactment in FA 2013 sch 45 of the statutory residence test (SRT) codifying the way residence is determined for tax purposes, these decisions are of historic interest only.
In the case of James Glyn (link), the First Tier Tribunal rejected the way HMRC seek to apply Gaines-Cooper in deciding that the requirement that the individual make a distinct break was satisfied. Mr Glyn had significantly loosened his family and social ties, he had abandoned his former business life and his habitual abode was not in the UK. This case is particularly of interest as Mr & Mrs Glyn retained ownership of their family home in London, they did not let it out and when they visited the UK they stayed there. Furthermore, it was their intention at some point in the future to return to the UK and reoccupy the house.
Mr Glyn was the co-owner of a valuable property investment company. In 2005 at age 56 viewing his “hard working daily life as drudgery” he wished to retire. On 5 April 2005 he departed the UK for Monaco. In May 2005 he realised his investment with the investment company paying him a dividend of £29m (later reduced retrospectively to £22m) after which his shares became worthless. The tax at stake, if Mr Glyn was found to be still UK resident, was approximately £5.5m. Mr Glyn was well advised and assiduously followed the day counting in the now infamous IR20. For the whole of the following five years he spent at least 200 days per annum in Monaco. He spent 44 days in the UK in the tax year 2005/6 and roughly the same number in later years, invariably staying at their former home in London. Typically these visits were for family birthdays and Jewish holidays and lasted on average only two days. The Judgement goes into considerable detail comparing and contrasting his lifestyle before and after 5 April 2005, concluding that Mr & Mrs Glyn “were clearly resident, applying UK tests, in Monaco; that was for lifestyle and taxation reasons; and their periods of presence and their lifestyle make this conclusion a very clear one.”
As regards ties to the UK, the Tribunal held that he had severed virtually every active business connection, effected a very substantial loosening of ties with his friends; saw considerably less of their children and the family home was retained not for any settled purpose, being used as a convenient place to stay.
Taxpayers whose settled or continued abode remained in the UK
The Glyn case is to be contrasted with that of Mr & Mrs Rumbelow.
Mr & Mrs Rumbelow (link) claimed to be non-UK resident from 4 April 2001. They planned to wind down their UK businesses, involving selling assets thereby realising capital gains.
They had a brief stay in Belgium and then had a house constructed in Portugal. However there was little evidence of living expenses incurred in Belgium (costs were almost all the rent and property taxes on an apartment). The tribunal reviewed their solicitor’s client file. It contained notes of several meetings in the UK where the Rumbelows were present, despite these being days the Rumbelows asserted they were not in the UK. When they were out of the UK letters written by the lawyers referred to them being “away on holiday”. The Rumbelows did not maintain a diary (unlike the meticulous record keeping of Mr Glyn). The FTT found evidence pointing to many more UK visits than claimed. Only the Rumbelows occupied their UK home, and they kept a car there fully taxed and insured. They stayed there for at least two weeks over each of the Christmases during the four tax years they claimed they were non-resident. The FTT found that Mrs Rumbelow continued active involvement in the UK business after 4 April 2001.
The finding that their only home remained their UK home, the time they continued to spend in the UK and their activity when here, and the poor quality of evidence was fatal to the Rumbelows’ claim that they became non-UK resident.
Residence is a matter of fact
Decisions on residence turn on their own facts. Although the two cases may seem similar as in both ownership and use of their UK residence was retained, there was a clear change in the pattern of life in Glyn with the couple settling in Monaco and their success at the FTT was helped by amassing considerable detail to produce at the Tribunal.