Following HMRC’s long line of victories in tax residence cases over the last few years, HMRC have now lost a case at the First-tier Tribunal. The case James Glyn [TC03029] – published on 17 November – concerns a taxpayer who, following tax advice, left the UK to become non-UK residence and subsequently received a sizeable dividend of £29 million.
HMRC contended that Mr Glyn remained UK resident during the period so that the dividend was subject to UK tax. Their main arguments were that:
- Mr Glyn had not shown a ‘distinct break’ from the UK because he had not shown a sufficient loosening of his family and social ties.
- Mr Glyn’s visits to the UK were for a ‘settled purpose’.
These arguments centred on the fact that Mr Glyn retained a six bedroomed family home in North London. He frequently returned there to observe Friday night family dinners and certain other Jewish holidays with his wife and UK resident adult children and the emphasis placed by HMRC on these points even though Mr Glyn had…
- severed his UK business ties
- taken up ‘quality’ residence in Monaco
- saw very little of his friends in the UK; and
- had only 44 days of UK presence (excluding travel days) during the tax year in question.
…was criticised by tribunal, viz:
“In this case, the attention that [HMRC] gave to the 15 family dinners and the presence, with their family, at the three main Jewish festivals was said to rank as the Appellant’s fatal “settled purpose”. We find this both unrealistic and almost offensive. It comes close to a contention that [Mr Glyn] should bury the traditions of a lifetime, and virtually cease to remember the events that are doubtless as important to Jewish families, as Christmas is to everybody else. More significantly, however, it leaves one questioning what HMRC considered that a person who had left the UK might actually be visiting the UK for (indeed for up to 90 days a year on average) if the visits had to be for purposes that were essentially of no importance to the person in question. Surely it must follow as a matter of common sense that if a person has left the UK, and he then makes periodic visits back to the UK those visits are likely to be for some special event or some purpose that is of some significance to him. It cannot be envisaged that the person making the visits must make them for some purpose that he considers trivial and incidental. The suggestion for instance that a visit would be acceptable only if the visitor refrained from meeting family and friends but returned to the UK simply to go and see Stonehenge because he had never seen it whilst formerly living in the UK is ridiculous. Surely visits will inevitably only be made for some purpose that is of real significance to the visitor. It therefore seems strongly arguable to us that the sort of purposes that are fatal, as “settled purposes” are those that are the occasioning cause of all the visits. Thus playing the life of the Scottish laird, and setting up life at the hunting lodge, having to be in the UK for employment reasons, and reverting to the UK to be with one’s wife and family are plainly settled purposes of real significance. But it must be distinctly questionable whether the Jewish tradition of inviting the close family to share the traditional Friday night dinners can rank as a “settled purpose”, when there may have been several quite distinct reasons for a visit to London in the first place.”
As to the retention of the UK family home, the Tribunal stated that:
“…the notion that it was critical to [Mr Glyn and his wife] to live there, allegedly then demonstrating that it was a settled abode for a settled purpose is totally unrealistic……we have little doubt that [Mr Glyn] would have been perfectly prepared to stay in hotels and eat at restaurants on the other 15 Fridays had he thought that significant”
The Tribunal therefore found that Mr Glyn had made a ‘distinct break’ and was not resident in the UK. The Tribunal specifically distinguished this case from earlier recent well-known residence cases – Gaines Cooper, Shepherd and Grace – all of whom left the UK to break UK residence but returned to visit the UK. Unlike Mr Glyn, their visits were longer and, it was found, were for a settled purpose. Mr Gaines-Cooper came to the UK because his wife and son lived here. Shepherd and Grace lived in their respective houses because it was close to their work and the…
“…neighbours would hardly have observed that either of them was just “visiting”, when they were at their respective houses”.
Interestingly, a few days earlier, a second residence case – Rumbelow ( UKFTT 637 (TC)], published on 11 November)was also heard by the First-tier Tribunal. Like the Mr Glyns, Mr and Mrs Rumbelow left their home in the UK to, inter alia, break UK residence to avoid UK tax. Unlike Mr Glyn, Mr and Mrs Rumbelow lost their case – raising the question: what made their case so different?
Applying the above ‘neighbour test’ it is perhaps unlikely that the Rumbelows’ neighbours in Northwich, Cheshire would have thought that they were merely visiting. Following their departure from the UK, their links to Northwich remained strong, particularly because the couple’s 15 year old daughter remained in Northwich while the couple lived overseas. In contrast, the Mr Glyn’s children were much older and very much getting on with their own lives.
Perhaps most importantly of all was the credibility of Mr Glyn as a witness. The Tribunal stated:
“An enormous amount of work had gone into [his witness statement’s] preparation and naturally airline boarding cards, bank statement, credit card statement and diaries, had had to be scrutinised in order to prepare the statement. We consider that its accuracy somewhat reflected our comment on the personality of [Mr Glyn], namely that he was meticulous and straightforward.”
The key lesson learned here is to never underestimate the importance of keeping detailed accurate records.
Gabelle can offer advice on cases under enquiry and review the fact set to determine avenues of argument. To discuss these issues, the statutory residence test or issues of residence and domicile generally, contact the TaxDesk on 0845 4900 509 and ask for Priya Dutta.