Ingrid Simler QC, Akash Nawbatt and Christopher Stone succeed in the Supreme Court
The Supreme Court has delivered its judgment in Gaines-Cooper v HMRC; Davies & James v HMRC [2011] UKSC 47. The Supreme Court upheld the Court of Appeal's decision to dismiss the taxpayers' public law challenges to HMRC's determination that they were resident and ordinarily resident in the UK in the relevant tax years. The taxpayers argued that HMRC had misconstrued and failed fairly and properly to apply the Guidance on residence contained in its publication, IR20. Ingrid Simler QC, Akash Nawbatt and Christopher Stone all appeared for HMRC, alongside James Eadie QC.
The eagerly awaited judgment is the end of long running and widely reported litigation, which has seen the parties in the Court of Appeal three times already. The decision will have immediate implications for anyone seeking to bring similar judicial review proceedings against a determination of residence status, but will also have a wider impact upon the common law test for determining residence (applicable in the Tax Tribunal) and for the general approach taken to the construction of government guidance and the circumstances in which it can give rise to enforceable legitimate expectations.
Lord Wilson, delivering the main judgment, held that the taxpayers did not have a legitimate expectation, based upon either IR20 or any previously inconsistent practice of HMRC, that they would be treated by HMRC as non-resident. Neither the guidance nor the practice constituted a promise to that effect which was "clear, unambiguous and devoid of relevant qualification". In a passage that will have wide public law implications, Lord Wilson stressed the restricted circumstances in which a previous practice could give rise to a legitimate expectation.
Lord Wilson's judgment also included an extensive summary of the common law authorities on residence. He held unequivocally that a taxpayer is required to effect a distinct break in the pattern of his life in the UK in order to become non-resident. Any taxpayer who is UK resident and seeks to become non-resident for tax purposes must therefore "substantially loosen" any ties that they have with the UK (e.g. family, social or business). It is not sufficient for the taxpayer to acquire a home abroad and keep their visits to the UK within the "91 day" rule if they continue to retain significant ties and presence in the UK.
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