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TaxationWeb by Malcolm Finney

Malcolm Finney examines the Special Commissioners decision in Gaines-Cooper v HMRC SpC 568 relating to the taxpayer’s domicile.

Introduction

So far most of the Press comment on the case has centred on the approach taken by the Commissioners in deciding the UK residence status of Mr Gaines-Cooper in which they counted nights spent in the UK in order that days of arrival and departure were thus not in fact totally ignored as is the usual position.

The decision of the UK Special Commissioners of Income Tax handed down on the 31st October in respect of the affairs of Robert Gaines-Cooper regarding his domicile status seems unsurprising.

In short, Mr Gaines-Cooper, currently aged 69, possessed an English domicile of origin but had tried to argue that for the period 1992/93 to 2003/04 he had in fact acquired a domicile of choice in the Seychelles. The Commissioners disagreed holding that he had never abandoned his domicile of origin and thus remained for this period English domiciled ie a Seychelles domicile of choice had never been acquired.

Whilst appreciating that hindsight is a wonderful thing, given the extent of Mr Gaines-Cooper’s UK links during the above period it does seem unlikely that he would have been able to successfully argue that he had acquired a Seychelles domicile of choice. To have planned his UK tax affairs, if in fact he did, on the basis of having lost his English domicile of origin would seem to have been a high risk strategy.

Losing a domicile of origin

As every UK tax advisor is aware, losing a UK domicile of origin is probably one of the most difficult things for a client to achieve, albeit not impossible. Perhaps the most recent ‘success’ in this regard is the case of Morgan v Cilento [2004] (see below) not apparently discussed in the Gaines-Cooper case.

Prima face, Mr Gaines-Cooper appeared to do ‘all the right things’. He bought a house in the Seychelles; he expressed the wish that his ashes be scattered there; he married a Seychellois woman; and in his wills he stated that he lived there and his domicile status was that of the Seychelles.

Special Commissioners’ decision

Unfortunately this, according to the Commissioners, was not enough to have resulted in a domicile of choice in the Seychelles having been acquired.

Connections in the UK

Without doubt the strong connections Mr Gaines-Cooper retained with the UK were fatal. Perhaps of decisive impact was the acquisition and retention of significant properties in the UK in which he and his family lived albeit that for certain periods the properties were rented out to third parties. In this regard the Commissioners said that:

“We regard as significant the fact that nearly all of the Appellant’s connections with the UK were located in a comparatively small area of the contiguous counties of Berkshire and Oxfordshire…..born there…….went to school….mother lived there….married twice….purchased two houses….business offices….attended Royal Ascot…son went to school …….We also regard the 1999 will…….to be of significance. It was prepared by English solicitors; it is to be construed and take effect according to English law; and the….guardians of [the son] live in the UK……………retained his British citizenship and did not apply for citizenship in the Seychelles……………”

It might, in any event, be thought that it is in fact impossible to acquire a domicile of choice outside of the UK if a UK property is retained. This, however, is not so:

“…..loss of domicile of origin…is not inconsistent with retention of a place of residence in that country if the chief residence has been established elsewhere.” [Plummer v IRC [1987]].

Acquisition of a non-UK domicile of choice requires both residence in the overseas country and an intention of permanent or indefinite residence; one without the other is insufficient. “Residence” for this purpose means:

“physical presence in [a] country as an inhabitant of it [as opposed to someone who is in a country as a traveller or casually]” [IRC v Duchess of Portland [1982]].

Where two residences occur it seems that it then becomes necessary to determine which of them is the person’s “chief residence” (unfortunately a term not defined in the judgements in which the term appears; Udny v Udny [1869]).

In the current case the Commissioners not only felt that Mr Gaines-Cooper’s chief residence remained that of the UK and not the Seychelles but in any event he also lacked the “intention” to reside in the Seychelles indefinitely. He thus failed to satisfy either of the two legs of the test.

The evidence

Whilst not referred to in their decision it is perhaps interesting to note that the Commissioners did comment on Mr Gaines-Cooper’s evidence given over four and a half days of the ten day hearing:

“….the Appellant did his best to be truthful and honest but…..he made mistakes…….much of the oral evidence of the Appellant was digressive and discursive and unsupported by any documents……..the Appellant also seemed to confuse one of his business ventures with another………….For these reasons we approach the oral evidence of the Appellant with some caution………….”[italics added]

A number of other high ranking witnesses from the Seychelles were also called to give evidence on Mr Gaines-Cooper’s behalf all of whom:

“spoke very highly of the help given by the Appellant to charities and good causes in the Seychelles”.

However, the Commissioners appeared to give short, but polite, shrift to their evidence simply stating that:

“….[their evidence was] of relevance to the Appellant’s attachment to the Seychelles rather than establishing the place of his principal attachment.”

Morgan v Cilento

It is interesting to contrast this case with that of Morgan v Cilento [2004] decided by the High Court. The Morgan case was one relating to a claim made by a Ms Minutolo who had had a relationship with Mr Shaffer during the latter part of his life and sought to claim under the Inheritance (Provision for Family and Dependents) Act 1975 (which required for it to be viable that Mr Shaffer had died domiciled in England).

Mr Anthony Shaffer, the playwright, possessed an English domicile of origin. He died aged 75 in late 2001 in England having spent a significant amount of time in Australia. However, he was held to have acquired a domicile of choice in Queensland, Australia. In his findings the judge stated that the facts which were of weight included:

• marriage to an Australian citizen and matrimonial home in Queensland

• the bulk of his personal possessions were in Queensland

• he had sold most of his UK assets

• he had no home in the UK

• his bank account and credit card were Australian

• he exercised the write to vote in Queensland

• majority of his time spent in Australia

• will made in Queensland

• he never stopped talking of Queensland as his home

The contrast between the two cases could not perhaps be much greater and the different decisions are not perhaps surprising. Arguably the affairs of Mr Shaffer were far less complex than those of Mr Gains-Cooper and certainly the “UK taint” significantly less in Mr Shaffer’s situation albeit it that he died in the UK.

Conclusion

So, has the Gaines-Cooper case added anything material to the issues associated with domicile determination for UK tax purposes?

Probably not.

What it does do is to reinforce the fact that the loss of a UK domicile of origin requires, for all intents and purposes, a severing of virtually all UK ties, in particular, including the sale of all UK properties which might be used as residences and the sale of significant UK based businesses. Perhaps to a lesser extent wills should be drawn up under the law of country of the hopeful domicile of choice (ie not be subject to UK law) by local lawyers and acquisition of local citizenship must be helpful.

However, as always, each decision turns on its own particular facts and the respective weights to attach to each fact (as is evident from a study of past decisions where the same facts have often nevertheless produced different decisions). Furthermore, decisions of a lower court are often overturned on appeal (see IRC v Bullock [1976]; Winans v A.G [1904]; Aguilian & Anr v Cyganik [2006]) making the whole area of tax planning based on domicile status a very tricky and risky business indeed in particular when it is also appreciated that the burden of proof alleging the acquisition of a domicile of choice falls fairly and squarely on the client (as applied to Mr Gaines-Cooper).

Bottom line is to advise clients that any tax planning based on a loss of a UK domicile of origin is likely to be vigorously fought (often after their deaths as in the Morgan v Cilento case) either by HMRC and/or disgruntled ex-spouses/mistresses and simply buying a foreign grave plot and making a foreign will just simply doesn’t work (if it ever did)!!

Malcolm Finney
November 2006

About Malcolm Finney

Malcolm Finney MSc (Bus Admin) MSc (Org Psych) BSc MCMI C Maths MIMA is an international tax and management consultant and runs many bespoke tax and management seminars in particular in the field of high net worth planning for individuals. He was formerly head of tax at the London law firm Nabarro Nathanson and at the international accountancy firm Grant Thornton. He also currently lectures at one of London's leading accountancy colleges and is a visiting lecturer in taxation at the University of Greenwich. His book "UK Taxation for Students: a Simplified Approach" is available by clicking here.