This site uses cookies. By continuing to browse the site you are agreeing to our use of cookies. To find out more about cookies on this website and how to delete cookies, see our Cookie Policy.
Analytics

Tools which collect anonymous data to enable us to see how visitors use our site and how it performs. We use this to improve our products, services and user experience.

Essential

Tools that enable essential services and functionality, including identity verification, service continuity and site security.

Where Taxpayers and Advisers Meet
Residence: Failure to Establish Cessation of Residence and Ordinary Residence in the UK
07/01/2006, by Mark McLaughlin CTA (Fellow) ATT TEP, Tax Articles - General
7222 views
3
Rate:
Rating: 3/5 from 1 people

Capital Tax Review by Matthew Hutton, MA, CTA (Fellow), AIIT, TEP

Matthew Hutton MA, CTA (fellow), AIIT, TEP author of Capital Tax Review, comments on the recent Special Commissioner’s decision in Shepherd v HMRC.

Context

The issue in this case was whether the appellant airline pilot had done sufficient to become both not resident and not ordinarily resident in the UK for tax purposes.

Shepherd v HMRC; the facts

Mr Shepherd was a British subject, an airline pilot employed by a British company flying long haul flights which started and ended at Heathrow. In 1987 Mr and Mrs Shepherd purchased a house in the UK in their joint names where they lived with their son. Mr Shepherd and his wife subsequently separated, albeit they both continued to live in the same house. Mr Shepherd, who had to retire on 22 April 2000, decided to retire overseas and in October 1998 rented a flat in Cyprus and stayed in rented accommodation there until he purchased an apartment in 2002. Mr Shepherd continued to pay the mortgage on the family home, where he remained on the electoral roll, and paid all the household bills and had his correspondence sent there. He still stayed in the family home before and after each flight. On 22.4.00 Mr Shepherd retired.

In May 2003 HMRC issued a notice of determination that for the year of assessment 1999/2000, Mr Shepherd was ordinarily resident in the UK. Mr Shepherd appealed, arguing that in October 1998 he had deliberately set up a separate house in Cyprus, where he lived with a sufficient degree of continuity, and thereafter there was a material change in the character and quality of his presence in the UK as he ceased to be resident here and became a visitor, only visiting the family home for work purposes. HMRC contended that there was no distinct break in October 1998; Mr Shepherd remained in the UK for a settled purpose, namely to perform the duties of his employment and to continue to see his wife, family and friends.

The decision (SpC: Dr Nuala Brice)The Special Commissioner found on the facts that after October 1998 the appellant's presence in the UK was substantial and continuous, and there was no distinct break.

Mr Shepherd continued to work in the UK, stayed in the family home and visited friends. His presence in Cyprus after October 1998 was, at the most, for occasional residence abroad. At least until 5 April 2000 he continued to be resident and ordinarily resident in the UK, despite voluntary absences to fly in the course of his employment, or to go to Cyprus, or go on holiday. Accordingly, he was liable to income tax for the year 1999/2000. The appeal was dismissed.

(Shepherd v HMRC SpC 484 20.6.05 [2005] STI Issue 29)

KPMG comment

It seems that Mr Shepherd spent 180 days in the tax year out of the UK on flights, 77 days in Cyprus where he rented a furnished flat and 80 days in the UK in the family home. Because he had not made a distinct break with his former life, he remained resident for UK tax purposes. That is, the 90-day rule cannot be assumed to be the only relevant factor.

The observation from Narinder Paul, tax partner at KPMG Birmingham is: ‘There is no doubt that this is the next stage of the Revenue’s clampdown on those individuals who are benefiting from favourable tax rates by basing their claim on the 90-day rule. With increasing ease of travel and homes overseas becoming increasingly common, it is likely that more people may be considering that they could be a non-UK resident for tax. Many may have been led by Inland Revenue guidance notes into thinking that the important thing is to count days. However, as this case shows, this on its own is not enough to exempt an individual from paying tax within the UK.’

(KPMG tax press release 14.7.05)

Comment

Mike Truman wrote a very useful article on the case in Taxation of 1.9.05, noting in particular that application of the 90 day test in IR 20 assumes that the relevant individual is not UK resident.

The upshot therefore is that this is not really a very surprising decision. Mr Shepherd had failed to become neither resident nor ordinarily resident in the UK, essential preconditions for the IR 20 tests. Against this background, the KPMG comment rather loses its force. Had proper professional advice been given to Mr Shepherd before he attempted his ‘fiscal flit’ from the UK, the outcome might have been rather different. Maybe, however, given his ongoing obligations to the airline before he retired, it might have been difficult to achieve the result he wanted. Still, at the very least, when going to a jurisdiction which has a treaty with the UK, one needs to be able to establish treaty residence in that other country ASAP.

October 2005

Matthew Hutton MA, CTA (fellow), AIIT, TEP

More Information

The above article has been taken from Matthew Hutton’s Capital Tax Review, a quarterly update for professional advisers of private clients. For more information, visit http://www.taxationweb.co.uk/books/capital_tax_review.php.

About the Author

Matthew Hutton is a non-practising solicitor (admitted 1979), who has specialised in tax for over 25 years. Having run his own consultancy (latterly through Matthew Hutton Ltd) until 30th September 2000, he now devotes his professional time to writing and lecturing.

About The Author

Mark McLaughlin is a Fellow of the Chartered Institute of Taxation, a Fellow of the Association of Taxation Technicians, and a member of the Society of Trust and Estate Practitioners. From January 1998 until December 2018, Mark was a consultant in his own tax practice, Mark McLaughlin Associates, which provided tax consultancy and support services to professional firms throughout the UK.

He is a member of the Chartered Institute of Taxation’s Capital Gains Tax & Investment Income and Succession Taxes Sub-Committees.

Mark is editor and a co-author of HMRC Investigations Handbook (Bloomsbury Professional).

Mark is Chief Contributor to McLaughlin’s Tax Case Review, a monthly journal published by Tax Insider.

Mark is the Editor of the Core Tax Annuals (Bloomsbury Professional), and is a co-author of the ‘Inheritance Tax’ Annuals (Bloomsbury Professional).

Mark is Editor and a co-author of ‘Tax Planning’ (Bloomsbury Professional).

He is a co-author of ‘Ray & McLaughlin’s Practical IHT Planning’ (Bloomsbury Professional)

Mark is a Consultant Editor with Bloomsbury Professional, and co-author of ‘Incorporating and Disincorporating a Business’.

Mark has also written numerous articles for professional publications, including ‘Taxation’, ‘Tax Adviser’, ‘Tolley’s Practical Tax Newsletter’ and ‘Tax Journal’.

Mark is a Director of Tax Insider, and Editor of Tax Insider, Property Tax Insider and Business Tax Insider, which are monthly publications aimed at providing tax tips and tax saving ideas for taxpayers and professional advisers. He is also Editor of Tax Insider Professional, a monthly publication for professional practitioners.

Mark is also a tax lecturer, and has featured in online tax lectures for Tolley Seminars Online.

Mark co-founded TaxationWeb (www.taxationweb.co.uk) in 2002.

Back to Tax Articles
Comments

Please register or log in to add comments.

There are not comments added