The Supreme Court, by a majority of 4 to 1 in their judgment given on 19 October 2011, has dismissed the appeal of Robert Gaines-Cooper in a worrying decision for anyone who believes they have abandoned their UK residence and domicile.
The case revolved around the interpretation of HMRC guidance IR20. Robert Gaines-Cooper left the UK in 1976 and set up domicile in the Seychelles. He believed that he had followed the key principles of IR20 by ensuring that he never spent more than 183 days in any one tax year or an average of 91 days over four tax years in the UK.
Despite this, the HMRC argued that he failed to follow the overall principle of IR20 and did not make a “distinct break” from the UK. The court supported this view and stated that the UK had remained the centre of gravity of Mr Gaines-Cooper’s life. The result is that he is liable to pay back-dated UK tax.
This is a particularly worrying and tough decision, as nowhere in the IR20 is the concept of distinct break mentioned or explained. Although HMRC6 (replacing the IR20) refers now to a distinct break, it is still left very open to interpretation.
This decision will call into question all similar cases and UK leavers are encouraged to reassess whether they have made a “distinct break” from the UK and at what point did they do this.
For Mr Gaines-Cooper the following factors, amongst others, counted against his argument that he had made a “distinct break”:
- He owned an estate in Oxford (Old Place) where his wife and child resided.
- He had a string of valuable assets such as guns, vintage motor cars and paintings, all of which were kept at his Oxford estate.
- In June 1999, he executed a will drawn up under English Law.
Jerome Lussan, partner of Laven Legal Services says: “Not only will UK leavers need to follow the 183/91 days rules, but they will also need to reassess their day-to-day lives to see if they are tied to the UK in any way. What they will have to ask is whether they have UK property, are their spouse and/or children in the UK, do they still have memberships at UK associations and so on. This is a worrying case and raises the point that there is a need for, not only guidance, but a distinct statutory definition of non-residency.”
Charles Fox, Senior Associate in the Tax and Corporate Department at Laven Legal Services adds: “For hedge fund managers who have moved to Switzerland notably this raises many important and new issues that could also weaken their overall corporate structures. The attitude for many may be to cut off all ties with the UK which may mean moving children out of UK schools too. This is not easy to envisage when life style is often a key factor in redomiciliations.
Although Gaines-Cooper lost his appeal in the Supreme Court, he is considering taking his appeal to the European Courts.
