Interesting case on UK residence

This is a very interesting case that was held before the Special Commissioners and then appealed to the high court relating to whether a pilot was non UK resident or not. Facts The taxpayer was a British Airways pilot and received income from that employment which was paid into his bank in the UK.Key points are:

He was born in South Africa and regarded himself as domiciled in South Africa (ie a non dom). He travelled on a British Overseas Citizens passport which he renewed in October 1998.

He had been living in the UK since 1986. He had purchased a house in South Africa in 1997 but retained a house in UK for use before and after flights.

He claimed that he had departed from the UK in 1997 to live outside the UK permanently and that thereafter he was not resident in the UK.

He had removed the centre of his life to South Africa in 1997 since when he had kept his visits to the UK to a minimum. He had relatives in South Africa. His former wife lived in the UK with their children but he saw them very rarely.

He kept private aeroplanes in South Africa and did no private flying in the UK.

He had retained a house in the UK as an investment but could have stayed in hotels. He did not agree that the South African house was in the nature of a holiday home.

His visits to the UK were short and only on three occasions in the relevant period were they longer than seven days. He argued that he was a temporary resident in the UK and that he had not spent more than six months in aggregate in the UK during any of the years in question. The Revenue argued that he was a Commonwealth citizen who had been ordinarily resident in the UK and that in the absence of a distinct break, any periods of residence abroad were to be treated as for the purpose only of occasional residence abroad. The Commissioners Decision The Commissioner sided with the Pilot and taking into account all the evidence and the facts found, especially having regard to the his past and present habits of life, the reasons for his visits to the UK, the temporary nature of his ties with the UK, the more permanent nature of his ties with South Africa, and the distinct break made in 1997, the conclusion was that from 1 September 1997 he ceased to be resident and ordinarily resident in the UK. After that date the UK was neither where he dwelt permanently nor where he had his settled or usual abode which was in South Africa. Residence in the UK did not have a settled purpose and the taxpayer was not ordinarily resident in the UK. They found that all the factors pointed to the conclusion that after September 1997 the taxpayer was in the UK for temporary and occasional purposes only. There is a specific statutory provision in S336 ICTA 1998 which provides that person in the UK for only a temporary purpose with no intention of establishing residence here would not be taxed on foreign salary income. You would think that this is pretty much in accordance with the current rules on residence, but when it went to the High Court the judge sided with HMRC and overturned the Commissioners decision. High Court Decision One of the key issues was that the High Court found he was not a temporary resident in the UK. They said that the adjective 'temporary' was descriptive of the taxpayer's purpose, i.e. the reason why he was in the UK. So the question for the special commissioner was whether the reason for the Pilots presence in the UK was casual or transitory. He had been in the same employment since 1987, and had thus been in that employment for a decade before the first of the relevant years of assessment. Performance of his duties under his contract of employment was part of his settled pattern of life. Presence in the UK in order to fulfil duties under a permanent (or at least indefinite) contract of employment could not be described as casual or transitory. Standing in any of the tax years the objective observer would have known that the taxpayer would continue to be present in the UK to fulfil those duties in subsequent years, unless and until he changed jobs or retired. The recurrent nature of his regular presence in the UK led to the conclusion that his purpose for being here was not casual nor transitory and therefore not 'temporary'. In addition the Judge held that there was no 'distinct break' in the pilots life when he set up home in South Africa. This was based on the fact that the Pilot had retained the house which remained furnished; continued the same employment both before and after the supposed distinct break, and continued to be present regularly in the UK for the purposes of that employment in the very same house that had been his only home. All that happened after he set up home in South Africa was that he acquired another home there. From being a man who resided in one place, he became a man who resided in two. They therefore found that the Pilot was UK resident for the period in question. This case therefore reinforces the nature and extent of ties to the UK.If you have regular and pretty fixed return visits to the UK you should carefully review your residence status. You'll find it more difficult to argue that you are only a 'temporary resident' and may be caught under the provisions that treat your absence as just 'occasional residence abroad' unless you can show a distinct break with the UK.