We often hear about individuals such as Sean Connery or Mick Jagger who manage their time in the UK tax efficiently.  They, like their advisers may be paying particular attention to a recent case which makes planning time in the country tax efficiently more difficult

Gaines Cooper v HMRC, heard by HMRC Special Commissioners, dealt specifically with the concepts of residency, domicile and ordinary residency. 

The case rejected HMRC's guidance for taxpayers on these issues, which is found in the IR20 booklet – a booklet that outlines the ways in which tax laws apply to residents and non-residents of the UK.  This means that planning to manage residency in the UK will become more difficult.

Mr Gaines Cooper was born in England but during his life spent a great deal of time overseas and had obtained a residency permit, purchased a property and developed business interests in the Seychelles.  His second wife was also from the Seychelles.

For the tax years between 1992 and 2004, Mr Gaines Cooper argued that he was not resident or domiciled in the UK as he had obtained an overseas domicile, with the intention to reside permanently in the Seychelles and was therefore not domiciled in England during the tax years in question.

However, it was clear that he kept close connections with the South of England during these years as he kept in touch with a close circle of friends in the area; owned a property in England and retained British citizenship, never having sought citizenship of the Seychelles.

In their judgement, the Special Commissioners quoted other factors including his attendance at Royal Ascot and membership of the Rolls Royce enthusiasts club, and making a Will in the UK to be construed in accordance with English law, to support their case.

When examining the connection with the Seychelles, the Special Commissioners considered the actual amount of time Mr Gaines Cooper spent there and his social, religious and charitable connections.  For example, he intended to have his ashes scattered in the Seychelles.
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In accordance with the guidance found in IR20, Mr Gaines Cooper calculated the days spent in the UK during each tax year and sought to ensure that he was below the limits described in HMRC's guidance.  In accordance with IR20, he had not included in his calculation the days of arrival in and departure from the UK.   

The Special Commissioners, controversially, chose to ignore this guidance and instead applied the terms of the underlying law.  This meant that a more qualitative assessment of Mr Gaines Cooper's life was made.  The Commissioners were not convinced about the level of Mr Gaines Cooper's attachment to the Seychelles and preferred to consider him a UK resident. 

The relevant law does not specify the amount of days required to be considered non resident and the rejection of IR20 will no doubt cause many individuals to think again about their tax planning.

The Commissioners also rejected Mr Gaines Cooper's contention that he was not domiciled in England.  They were not satisfied that he had rejected England in favour of the Seychelles.

The impact of this decision is two-fold.  Firstly individuals should not rely on HMRC guidance issued in IR20 to plan their time in the UK.  HMRC will no doubt revise its guidance to take into account this judgement. Secondly, if individuals do intend to manage their affairs so that they avoid UK tax, then these must be properly planned to ensure a closer association with another jurisdiction and the broad rejection of the UK as home.

Chris McGill is a solicitor specialising in advising Private Clients with law firm Shepherd and Wedderburn
0131 473 5262

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