Grace v HM Revenue and Customs

Whether an individual is resident in the United Kingdom for tax purposes is primarily a question of fact and degree for the specialist tribunal. The tribunal must evaluate all relevant circumstances, including the duration, frequency and nature of the individual’s presence, living accommodation, personal connections and connections with other countries.

Regular presence required by continuing employment may constitute residence even where the individual has a home abroad. Business necessity does not prevent residence, but employment-related presence is not conclusive and must not be treated as a trump card.

Presence under an indefinite employment arrangement is not presence for a temporary purpose within section 336(2) of the Income and Corporation Taxes Act 1988. Failure to satisfy that statutory exception does not itself establish residence under the general law.

An airline pilot employed by British Airways had formerly lived in the United Kingdom. From 1997 he maintained a home in Cape Town but retained a fully equipped house near Gatwick and regularly stayed in England before and between long-haul flights.

The Special Commissioner held in (2008) SPC 00663 that he had ceased to be resident and ordinarily resident in the United Kingdom. On HMRC’s appeal, Lewison J held in [2008] EWHC 2708 (Ch) that the Commissioner had misdirected herself and that residence was the only possible conclusion.

The pilot appealed. The principal questions were whether the Commissioner’s treatment of his employment-related presence involved an error of law and, if so, whether the court should determine residence itself or remit the question for reconsideration.

1. Appeal allowed to the extent of remittal. The Special Commissioner had misdirected herself, but the High Court should not have substituted a finding that the appellant was resident. The residence question, and ordinary residence so far as necessary, was remitted to the First-tier Tribunal (Tax Chamber). Lloyd LJ gave the judgment, with which Dyson and Waller LJJ agreed.

2. Residence under the general law is primarily a question of fact and degree for the specialist tribunal. It must assess all relevant circumstances together. These include the duration, regularity and frequency of presence in the United Kingdom, the nature and purpose of that presence, available accommodation, connections with this country and connections with other countries. A home abroad is relevant but cannot be decisive because a person may reside in more than one country.

3. The Special Commissioner erred by treating the appellant’s repeated presence for employment as temporary and occasional. Regular presence required by an indefinite contract of employment formed part of his settled pattern of life. Business necessity did not deprive that presence of its capacity to constitute residence. The contrary approach repeated the error identified in Lysaght.

4. Section 336(2) of the Income and Corporation Taxes Act 1988 required both presence for a temporary purpose only and an absence of intention to establish residence. The appellant could not properly be described as present for a temporary purpose only. His recurrent stays arose from continuing employment based in the United Kingdom. The Commissioner’s error under section 336 affected her assessment under the general law.

5. Failure to satisfy section 336 did not itself establish residence. Employment-related presence may be a strong indication of residence, but it is not a trump card. It must be balanced against all other circumstances, including the individual’s connections of choice with another country.

6. The primary facts permitted, and perhaps made likely, a finding of residence. They did not compel it. Appellate courts should be particularly cautious before replacing the specialist tribunal’s evaluative conclusion. Because a properly directed tribunal could weigh the competing connections, reconsideration rather than judicial substitution was required. No order was made for the costs of the appeal.

1. Court of Appeal (Civil Division): In [2009] EWCA Civ 1082, unanimously allowed the taxpayer’s appeal to the extent that the residence and, if necessary, ordinary-residence questions were remitted to the First-tier Tribunal (Tax Chamber).
2. High Court, Chancery Division: In [2008] EWHC 2708 (Ch), Lewison J allowed HMRC’s appeal, held that the Special Commissioner had misdirected herself and substituted the conclusion that the taxpayer was resident.
3. Special Commissioners: In (2008) SPC 00663, Dr Brice held that the taxpayer had ceased to be resident and ordinarily resident in the United Kingdom from 1 September 1997.