Robert Gaines-Cooper, the Seychelles-based millionaire entrepreneur, has lost his appeal in the Supreme Court against a High Court decision which found that he was a resident of the UK for tax purposes.
In February 2010, the judges ruled that Gaines-Cooper was liable to pay UK tax despite establishing a base in the Seychelles and spending less than 91 days a year in the UK because England had remained “the centre of gravity of his life and interests”.
The government announced in the Budget this year that it will impose a statutory residence test to prevent such cases in the future.
Here is expert reaction
James Johnston, a private wealth partner at law firm Bircham Dyson Bell
“To challenge a public authority that it has departed from its guidance is a brave thing to do. However it comes as no surprise that Mr Gaines-Cooper has lost his final appeal.
“Although the ruling will be a deep disappointment for Mr Gaines-Cooper personally, his case has helped to highlight to the government that you cannot operate a tax system satisfactorily now without a clear law on tax residence, and that it is essential that we have clarity on this matter.
“The proposed Statutory Residence Test is therefore welcome, but the first draft contained many problematic areas. It is to be hoped that the Government will take on board the comments from the recently closed consultation, and implement a test from April 2012 which is clear enough and fair enough to attract international business and foreign investment, at a time when it is sorely needed for the UK economic recovery.”
Piers Masters, partner in the Private Client team at Charles Russell
“The Supreme Court’s judgment in the Davies and Gaines-Cooper cases, handed down today, confirms that taxpayers who have taken a cautious approach to assessing their UK residence status have been right.It is bad news for those on the borderline of UK residence, who have only relied on former Revenue guidance and have not considered the common law position too. Today’s judgment may result in continuing uncertainty for those taxpayers.
“Going forwards, the statutory residence test which is expected to be introduced from 6 April 2012 should reduce substantially the uncertainties in determining UK residence status. And that is good news.”
Dhana Sabanathan from Harbottle & Lewis
“Whilst today’s Supreme Court’s judgment is mainly about residency, it also centres on an individual’s ability to rely on what HMRC say and do, which will always be of importance to taxpayers and their advisors.
“Lord Hope has made clear that to successfully contend HMRC adopt a practice requires evidence that is “so unambiguous, so widespread, so well-established and so well-recognised” as to carry a commitment to a group of taxpayers that they will be treated in accordance with it (interesting in light of the fact that many advisors would argue that IR20 and HMRC’s historic application was all of these things).
“Whilst it would be easy to take the Supreme Court’s dismissal of the appeals as a warning against reliance on HMRC’s statements and “settled practice”, it is important to remember that HMRC has accepted that an individual would have a legitimate expectation of having his case appraised in light of operative guidance, notwithstanding that such guidance “failed to reflect the ordinary law.”
“It would not be practicable for taxpayers to deal with their tax affairs on the basis of legislation alone, and the detailed HMRC guidance that contains practical examples that help a taxpayer understand the application of the law by HMRC is always to be welcomed. For example, many UK resident, foreign domicilaries are still grappling with the complexities of the 2008 legislative changes to the way they are taxed in the UK, and HMRC guidance in this area can be valuable.
“It is hoped that the new statutory residence test should simplify the law in this area, which as this judgment has highlighted is currently in an unsatisfactory state. The greater clarity should mean that international individuals can plan their tax and commercial affairs with more confidence.
“This long-running case has finally reached its conclusion. The lesson learned? When making decisions that effect your tax position, take the time to both obtain and (as importantly) follow expert advice. Mistakes can be very costly.”