Gaines-Cooper snub could spark 20-year residency probes

Robert Gaines-Cooper is licking his wounds again after High Court judges shot down his latest attempt to challenge the taxman about his residency status, and the ruling could have serious repercussions for others in the same boat.

Although the taxman has played down the significance of the Gaines-Cooper ruling, advisers are saying that the decision will adversely affect current cases in the taxman’s pipeline, even opening up the door to a potential 20 years of residency investigations.

Judges said HMRC was within its rights to go outside the IR20 rules, which say non-residents can only stay in the UK for 90 days, in its interpretation of the tycoon's status. The taxman was allowed to go beyond relying on its narrow distinction of non-residency because of Gaines-Cooper’s lifestyle – which showed he still had strong links with the UK.

“People think the ruling is a complete whitewash,” said one source close to the issue. “I think we will see more discovery assessments on people but how far back are they going to go? They have the ability to go back to 20 years.”

There has been a flood of clients anxious about non-residency in the run-up to the introduction of the 50% tax rate on 6 April, and advisers warned they will have to ensure they meet the taxman’s standards if they wish to avoid a similar fate to Gaines-Cooper.

Gary Heynes, head of the private client division at Baker Tilly, said: “A large number of people have been talking to us about going non-resident before the new tax rate starts. This case shows HMRC can say IR20 isn’t the be all and end all.

“They can go back 20 years if they think the individual has taken a fraudulent view, but we would hope for six.”

Legal experts say a major problem lies in case law for residency stretching back to the last days of the British Empire, where a “gentleman” might reside in a hotel for the shooting season or spend months sailing between the UK and India, which are clearly unsuitable when applied to the modern world.

“Until the government addresses the issue properly we may see many more cases like this, simply because there is such a gap between the legal precedents and modern life,” said Louise Somerset, tax director at RBC Wealth Management.

HMRC confirmed more cases were in the pipeline, but would not speculate on whether they would look at historic tax returns. “Each case is unique because every person has a particular set of circumstances. But we’re looking at more compliance cases across the board.”

With the rules having been in flux for years, the Treasury is looking to codify them with the introduction of statutory residence tests, which is the first concrete piece of legislation around residency, but no timescale has been put on its plans.

In Our View

HMRC has clearly gained the upper hand on non-residency and the ruling could not come at a better time for the taxman. It has successfully shifted the goalposts for non-residency leaving tax advisers stunned at the court victory. The game has changed and anyone looking at non-residency will have to make sure every box has been ticked if they don’t want a huge tax bill.

Further reading:

Gaines-Cooper loses another High Court battle