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Mr Robert-Gaines Cooper may be up to £30 million poorer after the Court of Appeal ruled that the HMRC were justified in considering whether he had properly severed his links with the UK when assessing whether he was a UK resident for the purposes of paying tax.

Mr Gaines-Cooper is based in the Seychelles and, on average, has not spent longer than 91 days a year in the UK since 1976.  However, he has a house in Henley-on-Thames (where his second wife and son spent a considerable amount of time living and his collection of paintings, cars and guns are kept), his son was educated in an English school, he is a regular at Ascot, he often spends Christmas in the UK and his will was drawn up under English law.  All of this led HMRC to believe that Mr Gaines-Cooper did not qualify for exemptions from British taxes as a non-resident.

HMRC issued a number of assessments, amendments to self-assessments and notices to Mr Gaines-Cooper for the tax years 1992/3 – 2003/4 on the basis that he was not a non-resident of the UK for the purposes of paying tax.  Mr Gaines-Cooper disputes this and claims that, on the true construction of IR20 (a booklet designed by the Revenue (now HMRC) to provide general guidance in relation to the residence and ordinary residence of individuals), he was not a resident of the UK during those times.   

Mr Gaines-Cooper made a number of appeals against HMRC’s assessment, all of which failed.  Mr Gaines-Cooper then sought permission for a judicial review of whether HMRC unfairly changed the status and interpretation of IR20.  IR20 (which has since been replaced) provided, amongst other things, that whether someone was to be considered a UK resident for the purposes of paying tax depended on whether, on average, they spent fewer than 91 days each tax year in the UK.  Many individuals (including Mr Gaines-Cooper) relied on this when assessing their non-residency for tax purposes.  However, HMRC say that in addition to not being in the UK for more than a specified period of time, a distinct break from ties in the UK must be made.  Mr Gaines-Cooper argues that introducing the requirement to have a distinct break from ties in the UK was an unannounced change in HMRC’s policy that was made in 2004/5, and that HMRC should not be allowed to apply this unannounced policy change retrospectively.  HMRC deny any such change in policy occurred.

After being refused permission for a judicial review by the Administrative Court, Mr Gaines-Cooper was granted leave to appeal against this decision. The Court of Appeal heard the application last November, and on Tuesday handed down their judgment in which permission was refused.  Lord Justices Moses, Dyson and Ward held that the 91 day rule did not establish non-residency and that under IR20 it was necessary for any tax exiles to illustrate that they had actually left the UK.  Moses J said that the appeal failed “because on a proper interpretation of [IR20], the taxpayers fell outwith the circumstances which would have gained them non-resident status. The Revenue has not been shown to have altered its interpretation and application of IR20 to these appellants’ cases“.  Ward J further stated that “the Revenue are entitled to construe [IR20] in such a way as to require the tax payer to show that he has severed social, domestic and family ties in the United Kingdom“.   

The Court said that the UK had remained the “centre of gravity” of Mr Gaines-Cooper’s life and interests, and that no “clean break” had ever been made from him family and ties in the UK. The ruling is likely to result in Mr Gaines-Cooper being pursued by HMRC for tax bills estimated at around £30 million. 

The ruling could have an enormous impact on wealthy individuals who have kept connections with the UK despite spending the majority of their time abroad.  It appears that it will no longer be possible to enjoy status as a non-resident unless ties with the UK genuinely are severed.  Grant Thornton’s Senior Manager for National Tax Investigations, Frank Strachan, commented that “Taxpayers who believe that they have truly cut their ties with the UK need to be absolutely certain that they have achieved this aim. It is so easy to fall foul of the rules associated with cutting your residency that taxpayers should consider taking professional advice to assist them“.

David Milne QC, Mr Gaines-Cooper’s counsel, accused HMRC of reinterpreting their own guidance and “playing games” with his client. Mr Gaines-Cooper is seeking leave to appeal to the Supreme Court.  It will be interesting to see whether permission to appeal is granted, and if so, what the Justices of the UKSC will decide.  If they were to overturn the decision of the Court of Appeal, it wouldn’t be the first time.

Two other businessmen also lost their appeals concerning their non-resident status at the Court of Appeal on Tuesday.

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