Introduction and Summary

The following summary is followed by a more detailed treatment of these issues.

On the basis of the comments of the Special Commissioners' and HMRC's responses in the matter of the preliminary appeal by Mr Gaines-Cooper (SpC 568; decision released 31 October 2006) the following summary of the position regarding the residence status of individuals should be noted:

• The guidance in HMRC booklet IR20 represents a mixture of law, practice and concession. The concessionary elements of the guidance cannot be relied upon in an appeal before any tribunal or court.
• The guidance in IR20 needs to be read very carefully in the precise context of the publication. Guidance under one heading (such as "Short-term visitors") cannot be adapted or applied in a more general way.
• Before trying to take advantage of any particular practice under IR20 (such as the way that days are counted) it is necessary to first determine an individual's residence status on general grounds.
• The count of days spent in the UK is only one of the factors that need to be considered when determining residence status. There is no general test for determining UK residence status.
• In order to establish non-UK residence status (in cases involving return visits to the UK) it is clearly very helpful to the case if the individual can establish residence (for tax purposes) in another jurisdiction at the time that UK residence status is to cease (the decision in the Shepherd case also seems to emphasise this point). The HMRC Guidance Note highlights this point where it states:
  "HMRC will continue to… treat an individual who has not left the UK as remaining resident here".
• Where an individual does appear to have an established non-UK residence status any visits to the UK must be managed with great care. If relying on the 90 day count - as based on the IR20 guidance - it is advisable to constantly review the individual's conduct to ensure that UK residence is not (re)acquired by some lifestyle changes. If it is then the "cushion" provided by a count which ignores days of arrival and departure will be lost and it may be difficult to re-establish non-UK residence status.
• There is no clear-cut method for establishing the number of days spent in the UK. In IR20, para. 1.2, HMRC uses a method that ignores days of arrival and departure in one very limited set of circumstances. The Special Commissioners appear to favour a method that uses the number of nights spent in the UK. They will not, apparently, countenance HMRC's concessionary method in any circumstances, neither will they necessarily ignore "exceptional" stays in the UK when considering the time spent in the UK as part of a review of a visitor's overall connections to the UK.

The guidance in IR20

Sometimes it is advantageous for an individual who undertakes some activities in the UK and some outside the UK to be able to establish that they are not resident in the UK for tax purposes. Occasionally such persons are extremely wealthy (sometimes referred to in the press as "Monaco Millionaires") but this is not invariably the case.

Arrangements to establish and ensure the continuance of non-UK residence status often take advantage of HMRC's booklet IR20 (Residents and non-residents: Liability to tax in the United Kingdom) to provide guidance on the number of days that can be spent in the UK without becoming UK resident for tax purposes; and how those days are to be counted. It has long been assumed that the instructions (referred to as a "rule" in the booklet) will be applied in all cases. However, it seems that the guidance deals with a more limited range of circumstances than might be assumed from a straightforward reading of the booklet.

The recent Special Commissioners' decision in the case of Robert Gaines-Cooper v Revenue & Customs initially appeared to mark a substantial change to HMRC's long-standing policies regarding the way in which the number of days that an individual spends in the UK is to be ascertained when determining residence status. Subsequent comments from HMRC seem to indicate that the decision is not quite as far-reaching as many first thought; but it does highlight some subtle differences in how particular cases may be decided.

HMRC issued a Guidance Note on 4 January (HMRC Briefs 01/07) that appears to confirm that for individuals who have clearly left the UK and are only temporary visitors to the UK the principles outlined in IR20 continue to apply; whilst confirming that those principles do not apply to anyone who has failed to lose their UK residence status for whatever reason.

The Gaines-Cooper case

The Special Commissioners (Dr Ann Brice and Charles Hellier) decided Mr Gaines-Cooper's UK residence, ordinary residence and domicile status as preliminary issues affecting his appeals against various assessments. He claimed to be not resident and not ordinarily resident in the UK for the years 1993-94 to 2003-04. He also claimed to be not domiciled in the UK from (at least) 1992-93 onwards. As is usual in this sort of case, it was agreed that the onus was on the taxpayer to demonstrate his residence etc. status for all the years involved.

Mr Gaines-Cooper was (and still is) a very successful businessman. He has set up and directed the activities of over 100 companies, over a 35-year period. He has also used sophisticated business structures, including overseas trusts and settlements. He claimed that he had taken up a new domicile (of choice) in the Seychelles in around 1992 and that he had been resident and ordinarily resident in the Seychelles and not in the UK, from 1993. However, he retained substantial property in the UK and had significant personal interests in the UK. His family (wife, son, mother) lived principally in the UK throughout the period. He travelled very extensively, for both business and personal reasons, some years taking flights on 150 separate days.

The Special Commissioners considered a large amount of factual evidence (the hearing took 10 days, including over 4 days of oral evidence from Mr Gaines-Cooper; the decision runs to 41 pages and 192 paragraphs) and considered a large amount of the case law that underpins the established principles regarding residence etc. Their decision, which went against Mr Gaines-Cooper on all issues, provides a very useful summary of much of the law in these areas. It might be also be noted that one of the Special Commissioners (Dr Brice) delivered a decision on another case involving residence status that is broadly consistent with the decision in this case, although it did not deal quite so explicitly with the matter of HMRC guidance (see Shepherd v Revenue and Customs. Sp C 484 (20 June 2005)).

Counting days spent in the UK

Determining the number of days that a taxpayer spends in the UK is clearly an important factor when deciding residence status. In HMRC Booklet IR 20 it states (Chapter 1 para. 2):

"The normal rule is that days of arrival in and departure from the UK are ignored in counting the days spent in the UK, in all the various cases where calculations have to be made to determine your residence position…" (emphasis in original)

It is important to note that this paragraph is part of the general introduction of essential terms, such as "residence". No comment is made to what "normal rule" actually means, although immediately after setting out the "normal rule" an exception is mentioned (relating to the 'split years' concession ESC A11) and so "normal" could be taken to simply mean any cases not involving the 'split years' treatment. It is also interesting that HMRC's Guidance Note (HMRC Briefs 01/07) does not refer to the general definitions in IR20: Chapter 1; rather it tends to focus on Chapters 2 and 3 (Leaving the UK and Coming to the UK: Short term visitors, respectively).

Mr Gaines-Cooper had calculated his days spent in the UK using this guidance in IR20. However HMRC had not applied it in their calculations. The principle reason that HMRC did not ignore days of arrival in and departure from the UK appears to be that they consider that the guidance at para. 1.2 (see above) only applies to individuals who have already left the UK (i.e. who have already established non-UK residence status) and who return periodically for what may be visits of reasonably significant duration (but not exceeding 90 days). Mr Gaines-Cooper's pattern of visits was that he had made numerous short visits to the UK: he often visited the UK to spend the weekend with his family, arriving on a Saturday and leaving on the Sunday. Using the official guidance at para. 1.2 (above) he treated such visits as comprising NO days spent in the UK (Saturday being his arrival day and Sunday his day of departure). HMRC, considering that he had never actually left the UK (by virtue of his overall lifestyle and UK connections: "the pattern of his presence in the UK compared to the pattern of his presence overseas") preferred to look at the number of nights spent in the UK and treated such weekend visits as comprising ONE day in the UK. Their view, expressed in the guidance note, is that in such circumstances: "it would be misleading to wholly disregard days of arrival and departure"; the Special Commissioners explicitly agreed with HMRC on this point.

For one year Mr Gaines-Cooper had also relied on IR 20, at para. 3.3 et al, where it stated:

You will be treated as resident for a tax year if…you visit the UK regularly and after four tax years your visits during those years average 91 days or more a tax year…

However - any days spent in the UK for exceptional circumstances beyond your control, for example the illness of yourself or a member of your immediate family, are not counted for this purpose." (emphasis added)

He had unexpectedly required surgery (heart bypass) in one year and had, accordingly, excluded the time taken for convalescence. Again, HMRC were not inclined to allow this exceptional period to be ignored when computing his days in the UK. It should be noted that this guidance is contained in a section of IR20 that is headed "Visitors to the UK", under the sub-heading "Short term visitors". By clear implication HMRC indicate that it should not be applied in any other circumstances. This particular point is not explicitly referred to in the 4 January guidance note.

The Special Commissioners agreed with HMRC on these issues. It would seem that a reading of the decided cases does not permit any days spent in the UK to be omitted from a count of days (either because they are days of arrival/departure or because they are beyond the taxpayer's control) if such a count is needed to help ascertain residence status. The Special Commissioners state (at para. 99)

"However, in this appeal we must apply the law rather than the provisions of IR20. We make findings about the time spent by the Appellant in both the United Kingdom and the Seychelles, as such time is one factor to be taken into account in considering domicile, residence and ordinary residence."

So, for example, when applying the law, the Special Commissioners held that he had spent 147 days in the UK in 1992-93 as opposed to just 47 days calculated by Mr Gaines-Cooper, using his reading of IR20.

Therefore the "normal rule" at para. 1.2 is not actually a general rule. It is, in fact, a relatively narrow concession that seems to apply only in the limited circumstance of a non-UK resident individual who makes a number of (relatively) short visits to the UK over a number of years; i.e. the "short-term visitors" of IR20 Chapter3. In the Gaines-Cooper Special Commissioners' decision itself there is no clear indication of the specific reason for HMRC's non-application of the "normal rule", apart from the number of flights into and out of the UK on successive days, this is possibly one reason for the widespread assumption that the case marked a major revision in official policy in this area.

It would seem that the Special Commissioners held Mr Gaines-Cooper to be UK resident because of his overall lifestyle (certainly this is HMRC's view). He had not shown a sufficiently significant break with the UK. In some years, for example, he spent more time in the UK than in the Seychelles, and he maintained throughout very considerable interests in and connections with the UK. The count of days was simply one element of the case that supported the contention that he was UK resident.

Mr Gaines-Cooper, according to HMRC and the Special Commissioners, had never (for the years under appeal) actually "left" the UK for tax purposes. He was always UK resident, partly because he had never clearly established residence for tax purposes anywhere else. Thus, he was never a visitor to the UK (since he had never actually left) and so he could not obtain the benefit of the favourable concessionary treatment for the count of days in IR20 paras. 3.3 and 1.2.

The HMRC Guidance Note puts it thus:

"In considering the issues of residence…the [Special Commissioners] needed to build up a full picture of Mr Gaines-Cooper's life. A very important element of the picture was the pattern of his presence in the UK compared to the pattern of his presence overseas. [They] decided that, in looking at these patterns, it would be misleading to wholly disregard days of arrival and departure. They used Mr Gaines-Cooper's patterns of presence in the UK as part of the evidence of his lifestyle and habits during the years in question. Based on this, and a wide range of other evidence, [they] found that he had been continuously resident in the UK…therefore, the '91-day test' was not relevant to the…case since Mr Gaines-Cooper did not leave the UK."