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Gaines-Cooper loss could open the floodgates

20th Oct 2011
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The landmark ruling against Seychelles-based billionaire Robert Gaines-Cooper could see thousands of British tax exiles chased for backdated tax.

Yesterday the Lord Justices found in favour of HMRC in its long-running battle with Gaines-Cooper over his high profile residency status.

The Supreme Court upheld the Court of Appeal's decision that Gaines-Cooper was a resident of the UK even though he has spent most of his time in the Seychelles.

Jason Collins, partner at McGrigors, said the ruling could “open the floodgates” for HMRC to pursue thousands of British tax exiles. “Tax exiles will urgently need to review their affairs in the light of this ruling,” he said. “Taxpayers will not be able to rely on following HMRC’s guidance to the letter to comply with the law.”

Gaines-Cooper claimed that he planned his residency status based on Inland Revenue guidance, document IR20.

Collins continued: “IR20 was intended to provide certainty over when HMRC would treat a taxpayer as UK resident. HMRC has signally failed to provide that certainty. The Government consultation on the introduction of a simple and transparent statutory residence test which taxpayers can derive certainty from is now more important than ever. The current regime is a lottery, which undermines confidence in the British tax system and makes the country less welcoming to internationally mobile wealth.”

Jeremy Cape, partner at SNR Denton, also commented on the ruling: “The judgment is not particularly surprising - although it would have been before the case started - but the Gaines-Cooper case in particular gave rise to widespread debate on the uncertain nature of the UK's tax residence test, and prompted a clarification of the rules for determining residence. 

“IR20 was replaced with new guidance, and the Government has recently concluded a consultation on a new statutory residence test which will replace the current HMRC guidance, HMRC6.”

Yesterday’s judgment brought to an end a long-running saga which started in 1976 when Gaines-Cooper left the UK and moved to the Seychelles.

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John Stokdyk, AccountingWEB head of insight
By John Stokdyk
25th Oct 2011 16:07

Comments from ICAS assistant tax director Donald Drysdale

In a post on the ICAS Tax News page, Donald Drysdale noted that the Supreme Court's interpretation differed from HMRC's guidance in IR20 ‘Residents and non-residents: Liability to tax in the United Kingdom’.

"The specifics of this case may be of little ongoing relevance since a new statutory test is likely to be introduced from 6 April 2012 to determine residence for UK tax purposes," he wrote. "However, the decision illustrates that HMRC guidance on any area of tax law does not have the force of law and cannot always be regarded as reliable."

The current guidance on UK residence for tax purposes is now available in HMRC booklet 6: HMRC6: Residents and non-residents: Liability to tax in the United Kingdom.

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