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Gaines-Cooper ruling puts nail in coffin for non-doms

18th Feb 2010
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A crackdown on wealthy tax exiles could be on the cards after a landmark victory for HMRC at the Court of Appeal yesterday over its interpretation of residency laws.

The court decided that HMRC had used the correct interpretation of the UK’s non-resident policy, IR20, meaning that British-born entrepreneur Robert Gaines-Cooper is liable to pay UK tax, despite spending less than 91 days a year in the country. He may now have to pay taxes dating back to 1993, the total of which is estimated at some £30m.

Gaines-Cooper had appealed on the basis that he moved to Seychelles in 1976, but it was ruled that he never qualified for exemption from British taxes as a non-resident since he had not cut ties with the UK.

The businessman owns an estate in Oxford, where his second wife and son had resided for some time. In addition, Gaines-Cooper’s son went to an English school in 2002 and his will was drawn up under English law.

Gaines-Cooper insisted that he had adopted Seychelles as his permanent residence. Acting as a witness in the case, ex-president of the Seychelles James Mancham argued: “I think of Robert as being domiciled in the Seychelles. He belongs here and is regarded by all as Seychellois.”

A new residency test
The case has raised concerns among tax advisers over the issue of UK residency. “Retention of ties to the UK can seriously jeopardise residency status and many individuals, including those who have already left and think they are no longer resident here, need to reassess their lifestyles and take professional advice,” Ronnie Ludwig of accountancy firm Saffery Champness told the Financial Times.

"There's no doubt residency rules as they stand are confused", Richard Murphy, director of Tax Research LLP told AccountingWEB. "IR20 is not now consistent with court decisions and there is some uncertainty in complex cases about whether people are or aren't resident in the UK", he added.

"We need to have something which is based on parliamentary law, not on case law so that the vast majority of people can resolve whether they are a resident or not very straightforwardly. The guidance on what needs to be taken into account needs to be very clear", said Murphy.

According to a report in the Guardian this week, the Treasury is currently in talks with the country's top wealth advisers and accountants to introduce a new law on residency. The report indicated that a working party is soon to conclude its study and the law could be introduced next year if Labour retains power at the next election.

What this case proves, argues Murphy, is that any possible new rules will not be based on the number of days individuals are resident in the UK, although that could play a part.

Despite Gaines-Cooper's high profile case, any new laws will not just affect wealthy citizens. "The majority who come into or leave the UK are doing so for employment and need to know how they will be taxed from day one. High net worth individual cases are actually in the minority. The real clarification is needed for those actually in employment", said Murphy.

An HMRC spokesperson told us the Revenue was "pleased that the Court of Appeal has confirmed that HMRC’s interpretation of its guidance on residency in booklet IR20 was correct and that the Court has agreed with HMRC that there has been no unannounced change of that interpretation".

"It is also useful that the Court of Appeal has acknowledged that HMRC can increase compliance activity in an area so that it can ensure it catches those who may have previously not paid tax that is due".

He added that HMRC remained "committed to ensuring that all those who are resident in the UK pay the tax that is due and this judgement will aid that effort.

"HMRC will study the judgement in detail before making any further comment."

Replies (12)

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By carnmores
18th Feb 2010 19:06

well the lords of appeal apparently said that they had some symp

i hope that this goes to and is clarified by the supreme court

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By Simon Sweetman
19th Feb 2010 09:44


In fact I think you will find if you read the case that they had some sympathy for the other two appellants, whose position was rather different.

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By User deleted
19th Feb 2010 10:35

Ties to the UK

I think that there's some logic in saying that ties to the UK should mean tax in the UK. After all, folk like Sir Philip Green, the Candy brothers and the Barclay brothers derive substantial income from the UK. And Mr Gaines-Cooper presumably relies on the taxpayer-funded Thames Valley police to protect his estate from incursion by riff-raff such as you and me.

But even more clearly, there should be legislation that makes it certain who's in and who's out for tax purposes, and what rights and privileges attach to the two statuses. For example should a non-resident be entitled to have his will administered under UK law?. I wonder what Messrs Brown, Cameron and Clegg (they do sound a bit like dodgy north-country estate agents don't they?) have to say about that?

On a lighter note, I wonder if Mr Gaines-Cooper considered naming his son and heir 'Capital'?

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By GaryHorswell
19th Feb 2010 10:42

A wave of professional indemnity claims could hit on the back of

The BBC reported that 6m UK citizens live overseas and this case has the potental to have a profound impact on the cost of professional indemnity insurance. Non-doms have the means to pursue advisers for tax advice that proves to be ineffective. Insurers won't like it, but firms probably ought to consider whether they should be notifying 'circumstances that may give rise to a claim' now in the knowledge of this case. 

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By philfromleeds
19th Feb 2010 11:10

Fantastic, Tax the Rich till the Pips Squeak


I think it adds credibility to the tax system to make sure that every one pays the tax they should pay. Take Phil Green as an example. He earns his money from us so he should pay tax to us (the UK). The Revenue should direct an uplift in Salary where applicable if taken as Dividends. I am also in favour of the National ID card, I feel it will save a fortune in benefit fraud at the other end of the income scale.

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By Paul Soper
19th Feb 2010 11:11

Don't confuse...

Much of the comment on this case, or really cases, as three taxpayers were included in the judicial review, have confused non-doms with non-res's.  There are characteristics which are shared between these two states, settled place of abode etc, but they are fundamentally different in law.  Gaines-Cooper's domicile status has already been the subject of appeal from the Special Commissioners to the High Court and Court of Appeal.  This judicial review is concerned with residence alone and the application of IR20.  The Court of Appeal seem to have regarded IR20 as a body of rules to follow, and yet we still see cases like Genovese and in the last couple of days the Tucska case, where issues of residence and ordinary residence have been determined by the commissioners using the concepts as they are encountered in common law, ie case law, where the individuals have tried to follow IR20 but the commissioners have not considered it.  The taxpayer's then have the problem, as did Gaines-Cooper, that a finding of fact, which is what residence and ordinary residence is, is then almost impossible to overturn.  Gaines-Cooper arguably suffered in his residence arguments in the judicial review precisely because the 'facts' had been determined by the Special Commissioners.

Now I must add that I think the decision in all three cases, all five taxpayers, are right, but it is worrying that whilst the Court of Appeal are quite happy to approve the revenue applying IR20 principles the Tribunal is deciding cases on rather different principles.  A statutory determination of what residence means is therefore to be welcomed if it can bring a degree of certainty to what ius clearly an uncertain area.

I would also suggest that politicians could do a lot of good by adopting the recommendations of the Law Commission 21 Years ago to modernise the principle of domicile for all legal purposes, not just taxation, which would then have avoided the current nonsense of the special tax status of the long-term non-domiciled taxpayer, and produce, in revenue terms, a lot more than the £30,000 pa which the very wealthy can now escape with.  The Gaines-Cooper judicial review made reference to the Al Fayed case where he was prepared to pay £1/4million pa to achieve what some non-doms now get for £30,000pa!

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By elansea
20th Feb 2010 07:06


The article is right. We need parliamentary legislation. HMRC continue to make their own legislation "on the hoof" and it is simply inequitable that they do so. Case law is helpful where there is strong fundamental legislation. In residency matters, there is not and there should be.

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By abelljms
22nd Feb 2010 13:34


hopefully his son was nicknamed Mini when young, then when he got to 17 his dad could have given him a car?

or maybe he was called Brewer (more subtle)






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By abelljms
22nd Feb 2010 13:51

international tacks

100% of my clients who have overseas income hate declaring it on their uk return, so they don't despite the injunctions on the return. They all find x2 tax impossible to grasp so they ignore it and hope hmrc won't pick it up. And of curse because x2 tax treaties conveniently ignore NIC it is difficult.

i suspect Mr. M Assive  Gaines-C similarly did not enter all his worldwide income on his return to HMIT (Seychelles). IF he had he might have had a stronger piece of fig leaf to fob off HMRCy.

I am fed up with explaining to my un-educatable clients that if it's not taxed here, then it's taxed somewhere else - there is no magic gap where no one taxes it.

Of course the matter of attributing residency to Mr. CG just because his wife/child live here seems a bit keen. One could argue that he asked them to live with him in the sun-drenched tropical paradise, but somehow they preferred London in a rainy February. The sub-text here seems to be that HMRCy just don't believe the old boy was only here 90 days or less each year. My wife probably thinks she sees me less than that and we allegedly live/work in the same city.




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By mikewhit
22nd Feb 2010 15:03

Heard it before

"there should be legislation that makes it certain who's in and who's out for tax purposes" - just like IR35 !!

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By raycad
22nd Feb 2010 23:55

Not non-doms

I'd like to applaud and support Paul Soper's incisive posting.  I get irritated when I see the lay press refer inaccurately to Non-doms but it is really unpardonable for AWeb editors and even respected contributors like Simon Sweetman use the same sloppy language.  "Non-doms" is one of those trendy 21st Century pieces of journalese which was originally coined to describe people like Abramovich and Al-Fayed, that is to say foreign-born individuals who have made their home in Britain.  Unfortunately, in the last few years it seems to have morphed, by misuse, into a term describing what Gina Dyer calls "wealthy tax exiles" (but under the heading "Nail in the coffin for Non-doms").  Gina (and others): wealthy tax exiles are nearly always "Doms" - that is, they are Brits who have moved abroad, often for tax reasons.  They are the polar opposite of Non-doms!

Having got this off my chest, there is unquestionably a pressing need now for legislation to determine a person's residence.  HMRC seem to focus on indivividuals who go abroad to work on a full-time contract of employment that lasts a complete tax year.  (Where is that in the legislation, by the way?)   But I have had clients who go abroad for less than that but whose tour of duty is extended and they do end up being abroad for a full tax year.  But are they entitled to claim split year treatment back to when they first left?  You tell me - I can't find a Revenue officer who can.  And this is without considering the vexed question of NICs.

I had another client who really was a non-dom and who used to spend over 6 months a year in the UK.  But over the years her visits gradually declined so as to be less than 91 days on a rolling four average (again, where do 91 days and 4 years come from?!)  I treated her as NR/NOR from 6 April in the first tax year that she went under the 91 days average.  I disclosed this in her return and it wasn't challenged by HMRC but I'd be a bit worried repeating that, post Gaines-Cooper, as she never really left the UK "for a settled purpose".

The so-called rules in HMRC6 and, before that, IR20, are merely the Revenue's interpretation of ancient tax cases where, for example, a wealthy American would cross the Atlantiuc by liner and stay 6 weeks in his shooting lodge.   The old midnight rule (when both days of arrival and departure were ignored in the days counting test) was another such interpretation, now superseded by legislation.   With the ease of transport and modern communications people are living much more multi-national existences than they used to and tax law needs urgently updating to reflect this.

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By mikewhit
01st Mar 2010 15:54

Goosey gander

Take Phil Green as an example. He earns his money from us so he should pay tax to us (the UK).

I thought it was his wife (resident in Monaco) who "trousered" ('skirted'? makes sense if you skirt the UK tax system !) the large BHS divi payment ?

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