Lyle Dicker Grace loses residence case at Tribunal

‘So (largely) the question before me is not whether Mr Grace was resident in the UK because of his presence here when he was working but whether he was resident in the UK because of his presence here when he was not working.’ ‘Taking into account all factors but giving greatest weight to his employment and home here in the UK and the amount of time actually spent here together with the frequency of his short visits, I am in agreement with Lewinson J that in September 1997 Mr Grace went from being a person resident in one country to a person resident in two.’

Tribunal Judge Barbara Mosedale

The First-tier Tax Tribunal have recently announced their decision that Lyle Grace, an airline pilot who worked for British Airways and who made long haul flights between the UK and elsewhere was resident in the UK for UK tax purposes.

Background

Mr Grace appealed against a notice of determination that he was ordinarily resident in the UK for the six years from 1997–98 to 2002–03 inclusive. He was an airline pilot who worked for British Airways flying long-haul flights out of Gatwick or Heathrow. He had to be in England for some days before any outward flight and sometimes between inward and outward flights. He started work as a long-haul pilot in 1987 for British Caledonian, who were later taken over by BA. From 1986 to 1997 he was resident in the UK when he owned and lived in a house in Horley. In August 1997 he rented an apartment in Cape Town and later bought a house there. He contended that, since that time, he has not been resident in the UK and he regards his house in Cape Town as his home. He spent as much time there as he could, consistent with performing his duties as a BA pilot and intends to spend his retirement there in due course. He had strong connections with South Africa as he had family there and in fact he had been born there.

HM Revenue & Customs (HMRC) argued that his continued presence in the UK being the base from which he did his work showed that he was still resident in the UK just as he was before 1997. A Special Commissioner gave a decision in favour of Mr Grace that he was neither resident nor ordinarily resident in the UK. HMRC appealed to the High Court and they concluded that the Special Commissioner had made errors of law in arriving at her decision and that the only possible conclusion from the facts found was that Mr Grace was resident and ordinarily resident in the UK. He appealed to the Court of Appeal who unanimously concluded that the Special Commissioner had misdirected herself although they did not agree with the judge that there was only one possible conclusion on the question of residence. The Court of Appeal therefore remitted the case back to the First-tier Tax Tribunal for further deliberation.

Issue

Whether the taxpayer was resident in the UK for the relevant years of assessment.

Decision

The First-tier Tax Tribunal said that physical presence in a particular place did not necessarily amount to residence in that place where, for example, a person’s physical presence there was no more than a stopgap measure. In considering whether a person’s presence in a particular place amounted to residence it was necessary to consider the amount of time that the individual spent in that place, the nature of their presence there and the connection with that place. Residence in a place connoted some degree of permanence, some degree of continuity or at least some expectation of continuity. However, short but regular periods of physical presence might amount to residence especially if they stemmed from the performance of a continuous obligation such as business obligations. Although a person could have only one domicile at a time he might simultaneously reside in more than one place or in more than one country. They stated that it was wrong to conduct a search for the place where a person had his permanent base or centre adopted for general purposes; or, in other words to look for his ‘real home’. Although residence had to be voluntarily adopted, a residence dictated by the exigencies of business would count as voluntary residence. Where a person had had his sole residence in the UK he was unlikely to be held to have ceased to reside in the UK or to have left the UK unless there had been a definite break in his pattern of life. The existence of a home outside the UK was not decisive because of the possibility of simultaneous residence in several places.

A person who had previously been a UK resident needed to demonstrate that they had lost that status, which was something a non?UK resident did not have to do in order to demonstrate that they were not UK resident. Cases on the common law meaning of residence have not held that it was essential that a distinct break is shown. However, it would be difficult to show that UK residence had been lost unless a distinct break in the taxpayer’s pattern of life had occurred. The question in this case was whether the change in the taxpayer’s circumstances in September 1997 was sufficient to change his resident status to non-residence which meant in practice the taxpayer would have to show a sufficient break in his pattern of life.

Although the taxpayer had a home in South Africa that fact alone was far from decisive on the issue of whether he was resident in the UK. The tribunal should not search for the ‘real’ home as that was a search for domicile. It was clear from the House of Lords’ decision in earlier tax cases that a person could be resident in the UK even if the only reason they were present was for the purposes of their employment or business.

It was for the taxpayer to demonstrate to the Tribunal that having been resident in the UK for some years up to September 1997 he then ceased to be resident. Mr Grace’s view was that he was only physically present in the UK for the purpose of his job and considered that in September 1997 there had been a wholesale relocation of his life to South Africa. However, an important part of his life, his employment, remained in UK. In the Tribunal’s view, when staying in the UK he was much more than a visitor because he had a settled and regular presence and he stayed in his own house that had been his only home up to September 1997 and which continued to be a home after that date. In the opinion of the Tribunal Mr Grace had not demonstrated a sufficient break so, taking into account all factors but considering his employment and home in the UK and the amount of time actually spent in the UK together with the frequency of his short visits, he went from being a person resident in one country to being a person resident in two.

Accordingly, they ruled that Mr Grace was resident and ordinarily resident in the UK for the six years under appeal.

Decision announced 5 January 2011.

Comment

This is an important decision and one in a series of recent cases on residence that have been decided in favour of HM Revenue & Customs. These cases demonstrate the attention HMRC now pay to claims for non-residence for those leaving the UK and emphasise the need for careful planning.

If you have any questions in relation to this article or would like advice then please contact Steve Dumper at SRD Tax Management Limited who will be happy to review your position and advise in detail.

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