Offshore Services - United Kingdom

Gaines-Cooper v Revenue and Customs Commissioners [2006] STC SpCD 568 is a special commissioners' decision that has attracted much interest and comment.

Facts

Mr Gaines-Cooper is a UK-born individual who appealed against a number of assessments raised by Her Majesty's Revenue and Customs (HMRC) for the tax years 1992 to 1993 and 2003 to 2004. Gaines-Cooper was born and raised in England. He is a successful businessman who has set up and run many different businesses. He first visited the Seychelles in 1973. In 1975 he purchased a home and set up a business there and in 1976 he was granted a residency permit. In 1993 he married a Seychelles citizen. He retained a home and many connections in England; his son was educated there and his wife lived there during term time, although holidays were spent in the Seychelles. Gaines-Cooper appealed against HMRC's assessments on the grounds that he was neither resident nor domiciled in the United Kingdom for the years in question, but was resident and domiciled in the Seychelles.

Residency Test

The special commissioners held that Gaines-Cooper was resident, ordinarily resident and domiciled in the United Kingdom for the years in question. HMRC's guidance in its IR20 booklet states that a person is non-UK resident if he or she spends fewer than 183 days in the United Kingdom and his or her visits to the United Kingdom average fewer than 91 days a year over a period of four years. The reason for the added interest in this case was that in deciding whether Gaines-Cooper was resident in the United Kingdom, the special commissioners looked at the number of nights which he had spent there - in most years this was more than 90 - and ignored the principle laid down in IR20 which states that days of arrival in and departure from the United Kingdom are generally disregarded when calculating the number of days under the 91-day test.

Practitioners have queried whether the basis on which the 91-day rule is calculated has been changed. In February 2007 HMRC published guidance on the decision in Gaines-Cooper, stating that it had not changed the rules, but that:

"The 91-day test applies only to individuals who have either left the United Kingdom and live elsewhere or who visit the United Kingdom on a regular basis. Where an individual has lived in the United Kingdom, the question of whether he or she has left the United Kingdom has to be decided first."

HMRC said that in Gaines-Cooper "a very important element of the picture was the pattern of [Gaines-Cooper's] presence in the United Kingdom compared to the pattern of his presence overseas"; in light of this, it was relevant to consider the number of nights spent in the United Kingdom. On the basis of this and other factors, it was decided that Gaines-Cooper had never ceased to be a UK resident; therefore, the 91-day test was not relevant to him.

Domicile

It was also found that Gaines-Cooper had not abandoned his English domicile of origin in favour of a Seychelles domicile of choice. Factors which the special commissioners considered relevant in reaching their decision included the strong connections Gaines-Cooper had retained in England - particularly in a relatively small area of England - where he had friends, family and business and social connections. Gaines-Cooper had retained his British citizenship and had not applied for citizenship in the Seychelles. He had married in England, his wife had applied for British citizenship and his son was educated in the United Kingdom. The special commissioners noted that, in order for a person to lose his or her domicile of origin, "there must be an intention to reside in a certain territory indefinitely", and that "a person who retains a residence in his or her domicile of origin can acquire a domicile of choice only if the residence established in the new country is his or her chief residence".

The special commissioners did not feel that this was Gaines-Cooper's position. Although they believed that the Seychelles was a very important part of his life, he had not shown that he had "wholly rejected England". As the burden of proof was on Gaines-Cooper to demonstrate this, he was judged not to have abandoned his domicile of origin.

Comment

HMRC has confirmed that it will continue to apply the 91-day test where it is satisfied that an individual has actually left the United Kingdom, and that it will normally disregard days of arrival and departure. However, before doing so, it will consider "all the relevant evidence, including the pattern of presence in the United Kingdom and elsewhere, in deciding whether an individual has left the United Kingdom". The message is that in order for UK residents to become non-resident, they must ensure that they have left the United Kingdom in reality. If they continue to spend regular periods in the United Kingdom - and particularly if they retain a home in the United Kingdom - they may be affected by the decision.

The ruling indicates a more aggressive approach on the part of HMRC; it had been thought that a rigid adherence to the letter of the law would enable individuals to take maximum advantage of the residence and domicile principles in order to reduce their exposure to tax. It now appears that HMRC intends to look at the substantial facts of individuals' residency and will seek to charge tax accordingly.

This is one of the first cases in which HMRC has challenged the domicile of someone who is alive, rather than raising the question on his or her death - this also suggests a greater willingness to investigate cases which previously might have gone unchallenged.

Gaines-Cooper is appealing the decision.

International Law Office