A defining moment in tax residency

Advisers such as Sam Instone (pictured) believe the Gains-Cooper case will have profound implications for tax planning.

The case of Robert Gaines-Cooper, the British millionaire expatriate whose claim of non-residency was denied by the High Court, has already become a reference for tax advisers. And a new hearing before the Supreme Court has renewed focus on the issue.

Gaines-Cooper left the UK for the Seychelles in 1976 and claims to have accurately satisfied an HM Revenue & Customs (HMRC) document called IR20 (replaced by HMRC 6 in 2009) that covered residence, domicile and remittance. In particular, he spent no more than 90 days a year in the UK.

Questions over a 'distinct break'

However, in the time since he left he maintained a family home in the UK and frequently returned to take part in clubs and societies of which he was a member. HMRC argued he had failed to make a ‘distinct break’ from the UK.

‘There are two sides to the story,’ says Patrick Way, a barrister at Gray’s Inn Tax Chambers.

‘He first contended, based on strict law, that he was non-resident. Second, in a separate case, he argued that he had followed to the letter HMRC guidance that he was non-resident regardless of the legal position.’

The IR20/HMRC 6 guidance is not a legal document. However, the Court of Appeal said IR20 had some standing and could be relied on in appropriate circumstances, although not here.

Way argues that if the issue was purely about IR20’s relevance, Gaines-Cooper would win, but the facts don’t help.

‘A lot of tax advisers are asking, what is the point of IR20 if it isn’t law?’ says Way. ‘The Revenue has used IR20 as if it was law and many advisers have become lazy and have turned to the document as their first point of reference.’

Landmark ruling

Sam Instone, director of AES International, says it will be a landmark case, ‘because it would mean there is absolutely no certainty around the way non-residency status is determined. "What do I have to do to be a non-resident?" "We don’t know." There is complete lack of clarity.’