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The Inland Revenue (now HMRC) in the United Kingdom (UK) in the Gaines-Cooper case has clarified the rules in respect of determining tax residency in the UK.

The Decision

The case was not about the residence status of the taxpayers as such, but rather an application for judicial review on the basis HMRC had, in effect, “moved the goalposts” in the middle of the game by changing the rules for determining a tax payer’s residence status.

Over the years many taxpayers have relied on guidance set out in the Inland Revenue booklet 1R20. In Gaines-Cooper, the taxpayers argued that the Inland Revenue had, in effect sought to re-write these rules in their own favor upsetting what taxpayers had come to regard as established practice.

The Court of Appeal rejected this contention. The Court acknowledged that taxpayers were entitled to rely on 1R20:

“it does provide guidance as to particular circumstances in which the Revenue gives a binding and lawful assurance that it will treat a taxpayer, whose case falls within the circumstances described as not resident and not ordinarily resident.” (Per Lord Justice Moses).

However, the Court also held that while IR20 could be relied upon, the Inland Revenue had not sought to change how it interpreted the “rules” in IR20:

“The Revenue has not been shown to have altered its interpretation and application of IR20 to these appellants’’ cases.” (Per Lord Justice Moses).

There are thus three key points arising from this decision

(a) that I1R20 did have importance and could be relied upon by taxpayers (although I1R20 has now been replaced the same principles should apply to other HM1RC guidance of a similar nature).

(b) But I1R20 is only general guidance and has to be applied to the facts of a particular case. Each taxpayer has to satisfy himself he or she is within the ambit of the guidance (“unless the facts of the taxpayer’s case are beyond all reasonable dispute, the very terms of I1R20 provide no certainty of the outcome of any claim to resident or nonresident status” per Lord Justice Moses). I1R20 is not a substitute for professional advice.

(c) The Inland Revenue have not changed the law or practice.



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July 2024