In the recent case of Glyn v Revenue and Customs Commissioners the Upper Tribunal has allowed an appeal by HMRC and has found that the First Tier Tribunal made errors of law in its judgment considering whether Mr Glyn became non-UK resident in 2005. The case concerns the application of the pre-statutory residence test rules governing residence, but may still be relevant where a taxpayer needs to determine whether he or she was resident in the UK in the years before 2013.
Mr Glyn is a British citizen who had been UK resident throughout his life. In 2005 he decided to retire from his property investment business and following the sale of the properties owned by the business he received a dividend of £24.5 million. Ahead of receiving the dividend payment Mr Glyn decided to move to Monaco and become non-resident in the UK for tax purposes. He retained his London house and visited the UK 22 times during 2005/06 for family birthdays, social occasions and to take flights from Heathrow, on every occasion staying in his London property. HMRC argued that he had not lost his UK resident status and should have paid tax on the dividend payment. The First Tier Tribunal found for Mr Glyn and ruled that he had successfully become non-UK resident.
On appeal by HMRC, the Upper Tribunal found that the First Tier Tribunal had applied the wrong tests in finding that Mr Glyn had not been resident in the UK throughout 2005/06 and the case has now been returned to the First Tier Tribunal.
The Upper Tribunal held that the First Tier Tribunal were mistaken in finding that the opportunity for Mr Glyn to use his London house as a base on his return visits to London was not a significant reason behind his retention of the London house. Further, the Upper Tribunal ruled that the First Tier Tribunal was, as a matter of law, wrong to focus on the reasons behind the retention of the house rather than the frequency and nature of his visits.
The First Tier Tribunal had also given weight to the fact that Mr Glyn's visits to the UK were not in the course of a "settled purpose". The Upper Tribunal found that in considering whether Mr Glyn had a settled purpose in returning to the UK the First Tier Tribunal had applied a legally irrelevant criterion, and that following the judgment in R (Gaines-Cooper) v HMRC the existence or otherwise of a settled purpose is not relevant in determining if an individual has become non-resident in the UK (although it may be relevant in determining if an individual has become UK resident).
Finally, the Upper Tribunal agreed with HMRC's submission that in considering whether Mr Glyn had made a distinct break with the UK in April 2005 the First Tier Tribunal had taken irrelevant considerations into account which had led the Tribunal to discount relevant considerations. In particular these irrelevant considerations included the reasons for Mr Glyn’s visits to London, his use of day counting to ensure he was non-UK resident and speculation regarding actions he might have taken had he received different legal advice. The Upper Tribunal also found that the First Tier Tribunal had been influenced by HMRC's previous guidance IR20 although since the decision of the Supreme Court in Gaines-Cooper it is now clear that a person's residence status must be determined by the reference to the common law tests without reference to IR20.
This decision of the Upper Tribunal provides further guidance as to factors which the First Tier Tribunal can and cannot take into account when deciding residence cases, and demonstrates how the common law tests should be applied when determining whether a person has ceased to be resident in the UK.
Although, since 2013, the statutory residence test will apply, the common-law test will remain relevant for years before that date. This will be particularly relevant in assessing whether, under the new proposals for non-doms, they have been "resident in the United Kingdom" in at least 15 of the previous 20 tax years. So cases like Glyn may continue to be relevant until 2033!
For further information, please contact John Barnett.