The vote upholding an earlier Court of Appeals decision was a 4 to 1, and came as the Government is preparing to issue, for the first time, a formal definition of what constitutes tax residency in Britain. This ruling is expected to come sometime towards the end of November or early December, according to tax industry sources.
At issue in the Gaines-Cooper case was whether Gaines-Cooper, a wealthy entrepreneur who moved to the Seychelles in 1976, was in fact still technically a UK resident. Although he was careful never to stay 91 days in the UK in any given year, a widely-accepted measure of residency, the Court of Appeals ruled in 2010 that his close connections with Britain even decades after he left showed that he was, in fact, still resident – and thus liable for years of back taxes.
Not a surprise
Tax experts said the Supreme Court’s ruling was not unexpected, and highlighted the hazards expatriate Britons may face when attempting to sever their tax obligations to the UK.
At the same time, the pending introduction of a statutory residence test for residency ultimately will reduce the importance of the Gaines-Cooper case, according to Gerry Brown, technical manager at Prudential, although "elements of the case…will prove of practical importance to advisers for many years to come".
Jason Collins, a partner at the McGrigors law firm, said the ruling was “a significant blow for taxpayers” that could “open the floodgates for HMRC to pursue thousands of British tax exiles for backdated tax”.
“Tax exiles will urgently need to review their affairs in the light of this ruling,” he added.
“Taxpayers will not be able to rely on following HMRC’s guidance to the letter to comply with the law.”
Collins noted that although Gaines-Cooper had sought to argue that HMRC’s "settled practice was more benevolent than the guidance", and the Supreme Court had even “accepted that HMRC would be bound if that were the case”, Gaines-Cooper had been unable to provide sufficient evidence to prove it.
Ronnie Ludwig, a partner in the private wealth group at accountancy firm Saffery Champness, said the decision demonstrated that “first and foremost, that when HMRC put out any guidance booklets, they have to be treated as just that – guidance, not a point of law you can rely on”.
He noted that an information booklet at the centre of the Gaines-Cooper saga, known as the IR20 booklet, had been "a very widely used and influential reference document".
Consequently, taxpayers “would be well advised not to put their faith completely in any current or future guidance document published by the tax authorities”, Ludwig said.
