Was the taxpayer resident and ordinarily resident in the UK?

The taxpayer (Miss Karim) appealed an assessment to CGT for the year 2003/04 on the grounds that she was neither resident nor ordinarily resident in the UK in the year and was therefore not liable to CGT.

The taxpayer did not appear before the Court but evidence was tendered on her behalf by her representative Mr Evans. There were two issues which arose from the evidence provided to the Court that cast doubt on the taxpayers veracity or accuracy in connection with her tax affairs. The first issue concerned documents obtained by HMRC from the Bank of Scotland in which the taxpayer is reported to have said that the accounts were prepared “with the taxman” in mind. The Court also had an issue with the schedules showing the dates the taxpayer was in the UK in the years 2000 to 2006 and bank statements obtained by HMRC. The bank statement showed that transactions took place in periods on which the schedule showed her as being outside the UK.

Facts

The taxpayer moved to the UK in 1968 and took up employment in the UK until 1980 at which point she set up her own business. She sold that business in 1989 and acquired properties which were held by a company of which she was the owner and director. She sold these shares in 2003.

In 2000, the taxpayer entered into a contract to provide professional services to a third party. In the opinion of the Court, in order to carry out those duties, the taxpayer would need to be present in the UK at least twice a week and between January and May 2003 she was likely to have visited the UK at least once a week.

The taxpayer also had interests in other properties in the UK. She used one of the properties as accommodation when she was in the UK until it was disposed of in November 2003. Her other properties were also disposal of during 2003.

From the schedule of dates presented by the taxpayer, Mr Evans and HMRC calculated the number of days the taxpayer spent in the UK under the principles in HMRC's guidance; IR20. The guidance stated that days of arrival and departure could be ignored together with days due to unusual events. IR20 also focused particular attention upon whether the days spent by the taxpayer in the UK in any tax year exceeded 91 days on average or 183 days in total. Based on their calculations, the taxpayer had spent the following number of days in the UK; 85 in 200/01, 81 in 2001/02; 121 in 2002/03 and 84 in 2003/04. The Court also learned that the taxpayer had spent 47 days in the UK during the 2002/03 tax year because her mother had been ill.

The taxpayer claimed on her tax returns non-residence and non-ordinarily residence in the UK for 2001 and 2002. She claimed non-residence for 2003 and 2004.

HMRC submitted that until 2003 the taxpayer had an abode and business interests in the UK. She was also present in the UK. As a result she did not leave the UK permanently and remained resident there until at least 2003/04. HMRC relied on the guidance in IR20 and accepted that a person who left the UK to full-time work abroad and whose presence in the UK was, for subsequent years, less than 183 days in a year and less than 91 days on average, was non-resident. A person who left for a whole year and then did not return for more than 91 days on average became non-resident. Applying these tests, HMRC submitted that the taxpayer did not take up employment outside the UK until 2003.

Decision

Applying the principles established by the Special Commissioner in Gaines-Cooper v HMRC [2006] STC SPC 568, the Court concluded that on general principles the taxpayer was resident in the UK between 5 April and early November 2003. Considering the two grounds on which it might have been claimed that the taxpayer was in the UK temporary; firstly because of her mothers illness and second to wind up her affairs in the UK. In relation to the first, the Court found no proof that all the days in the UK were due to her mother's illness. In relation to the second, her presence in the UK was not a temporary purpose. The court therefore held that she was resident in the UK for the tax year 2003/04.

The Court also held that it was clear based on the factors which treated the taxpayer as resident; she was also ordinarily resident in the UK in 2003/04.

The text of the case is available at http://www.financeandtaxtribunals.gov.uk/Aspx/view.aspx?id=4668