Revenue & Customs v Grace

Residence is a question of fact and degree. A person may reside, and be ordinarily resident, in more than one country at the same time. The court must assess the whole pattern of life, including physical presence, its nature, regularity, purpose and the person’s connections with each place. It must not search for a single permanent base or “real home”.

For Income and Corporation Taxes Act 1988, section 336, “temporary purpose” concerns the purpose for which the person is present, not merely the length of presence. Regular attendance in the United Kingdom to perform duties under an indefinite employment contract is neither casual nor transitory. A specialist tribunal’s factual decision may be overturned for an error of law where the primary facts permit only one conclusion.

The respondent was an airline pilot employed by British Airways. He lived in Cape Town but retained and regularly used a furnished house near Gatwick, from which he travelled to perform long-haul flights.

The Special Commissioner allowed his appeal against income-tax assessments for 1997/98 to 2002/03, finding that he was neither resident nor ordinarily resident in the United Kingdom and that section 336 applied. HMRC appealed on questions of law, arguing that the Commissioner had misunderstood “temporary purpose”, treated residence in South Africa as excluding residence in the United Kingdom, and wrongly discounted the respondent’s employment-related presence.

1. Appeal allowed. The Special Commissioner had made errors of law. The primary facts established that the respondent was resident in the United Kingdom during the relevant years. It was common ground that, if resident, he was also ordinarily resident.
2. Section 336 is a deeming provision. The word “temporary” describes the taxpayer’s purpose for being in the United Kingdom, namely whether it is casual or transitory. It does not describe the duration of physical presence, which is dealt with separately by the six-month aggregation rule. Attendance in the United Kingdom pursuant to duties under a permanent or indefinite employment contract, performed as part of a settled pattern of life, could not be regarded as casual or transitory. Section 336 therefore did not assist the respondent, but its inapplicability could not itself establish residence in HMRC’s favour.
3. The Commissioner incorrectly reasoned that residence in South Africa meant that the respondent could not also have a permanent residence or settled or usual abode in the United Kingdom. The law permits simultaneous residence in more than one place. The correct inquiry is not which country contains the taxpayer’s “real home”.
4. The Commissioner also wrongly treated the United Kingdom house as a substitute for hotels and discounted the respondent’s employment as the only reason for his regular presence. The house was retained, furnished, available throughout the year, used regularly before or after flights, and connected with predictable performance of his continuing employment. There is no separate legal test of “homeliness”; hotel accommodation may itself amount to residence where stays are regular and attributable to a continuous business obligation.
5. The “distinct break” concept had developed in the context of section 334 and questions whether a taxpayer had left the United Kingdom for occasional residence abroad. It was not necessary to decide the appeal on that basis, although the facts fell well short of those previously treated as constituting such a break.

• High Court (Chancery Division): The appeal from the Special Commissioner was allowed. The court held that the respondent was resident and ordinarily resident in the United Kingdom during the relevant years.
• Special Commissioner: On 29 January 2008, the respondent’s appeal against the assessments was allowed. The Commissioner held that he was neither resident nor ordinarily resident and that section 336 applied.