Analysis
The first appellants were property developers who were resident in the UK until 2001 when, with the benefit of professional advice designed to bring about a cessation of their ordinary residence here, they moved to Belgium to take up employment with a Belgian company of which they had become directors and shareholders. They claimed to rely on the general guidance published by the Revenue entitled ‘Residents and non-residents – Liability to tax in the United Kingdom’, known as IR20. Later that year they realised chargeable gains in respect of which they were liable to capital gains tax unless they were not resident and ordinarily resident in the UK. The Revenue did not accept that they had established the necessary distinct break with family and social ties in the UK, and determined that they had been resident and ordinarily resident here for the tax year 2001-02. The second appellant, who had a domicile of origin in England and Wales, became an international entrepreneur with business and property interests overseas, notably in the Seychelles. However, the centre of gravity of his life and interests remained there because he lived in Henley more than anywhere else, and because of his many other ties to Berkshire and Oxfordshire. The Revenue determined, and the Special Commissioners confirmed, that he had been resident and ordinarily resident in the UK for the tax years from 1993-94 to 2003-04. Each of the appellants sought judicial review of those determinations, contending that, on its proper construction, the guidance in IR20 contained a more benevolent interpretation of the circumstances in which an individual becomes non-resident and not ordinarily resident in the UK than is reflected in the ordinary law and that they had a legitimate expectation, to which the court should give effect, that that interpretation would be applied to the determination of their status for tax purposes. Alternatively, they contended that even if properly construed the guidance did not contain a more benevolent interpretation than is reflected in the ordinary law, it was the settled practice of the Revenue to adopt such an interpretation of it and that that practice was such as to give rise to a legitimate expectation, to which the court should give effect, that the interpretation would be applied to the determination of their status. Permission to apply for judicial review was initially refused but allowed on appeal, the Court of Appeal listing them to be heard together. This took place on 4-6 November 2009 before Ward, Dyson and Moses LJJ, and by judgments handed down on 16 February 2010, the Court of Appeal dismissed the applications. The appellants appealed.
Held (dismissing the appeal by a majority, Lord Mance dissenting)
As there was no statutory definition of ‘residence’ and ‘ordinary residence’, taxpayers and their advisers had to rely on the interpretation given over the years by the courts to the piecemeal contributions to the law made by Parliament. The Revenue, whose primary duty was to collect taxes properly payable under the legislation, was also responsible for managing the tax system, and it was within the context of the wide discretion thereby conferred that the Revenue had chosen to make concessions by providing guidance to taxpayers as part of a cost-benefit analysis. As regards IR20, the Revenue accepted that were it to have made the representations about the circumstances necessary for the achievement of non-residence for which the appellants contended, this would have been within its powers, and, so long as they remained operative, an individual would have had – and been able to enforce – a legitimate expectation that it would appraise his case by reference to them notwithstanding that they failed to reflect the ordinary law. However, a case would only fall within them if the representations were clear, unambiguous and devoid of relevant qualification made to an ordinarily sophisticated taxpayer. The purpose of IR20 was to reflect the law and practice. Paragraphs 2.7 to 2.9, entitled ‘Leaving the UK permanently or indefinitely’, were poorly drafted but, when read compendiously in conjunction with the other parts of the general guidance on how the rules applied, did not amount to clear representations of the types for which the appellants contended. When considered together, it informed the ordinarily sophisticated taxpayer that to achieve non-resident status he was required (a) to ‘leave’ the UK in a more profound sense than that of travel, namely permanently or indefinitely or for full-time employment; (b) to do more than to take up residence abroad; (c) to relinquish his ‘usual residence’ in the UK; (d) to ensure that any subsequent returns to the UK were no more than ‘visits’; and (e) to use any ‘property’ retained by him in the UK for the purpose of visits only rather than as a place of residence. In summary, he would be informed of the need for a ‘multifactorial evaluation’ of his circumstances and for ‘a distinct break’ in the pattern of his life in the UK. Even if this were wrong, the appeals would still not succeed because one would only be driven to the conclusion that the treatment of the means of achieving non-resident status was so unclear as to communicate nothing to which legal effect could be given. As for the alternative contention, clear evidence was required of a practice so unambiguous, widespread, well-established and recognised to elevate it into an assurance to taxpayers from which it would be abusive for the Revenue to resile and to which it should be held under the doctrine of legitimate expectation. The appellants’ evidence was too thin and equivocal to show that it was the settled practice of the Revenue to adopt a more benevolent interpretation of the rules for achieving non-resident status than was reflected in the ordinary law and its own guidance. Consequently the appellants failed to establish that, by its inquiries and determinations in respect of them, the Revenue was departing from a settled practice such as to found a legitimate expectation.
JUDGMENT LORD WILSON: A. Introduction [1] In 1999 the Inland Revenue, as it was then known and to which I will refer as the ‘Revenue’, published a revised version of a booklet known as IR20 and entitled Residents and non-residents – Liability to tax in the United Kingdom. The 1999 version of the booklet, which …Continue reading "R (Davies & anr) v HMRC; R (Gaines-Cooper) v HMRC [2011] UKSC 47"