Female entering the building.

Gaines-Cooper – the end of the road for the taxpayer

25 October 2011. Published by Adam Craggs, Partner

The Supreme Court, by a majority of four to one, has dismissed both appeals in the jointly heard judicial review cases of R (Davies and another) v HMRC; R (Gaines-Cooper) v HMRC [2011] UKSC 47 on 19 October 2011.


These were appeals against an earlier decision by the Court of Appeal to refuse applications for judicial review in relation to HMRC's interpretation of what was IR20 Guidance on Residence.

The lead judgment

The lead judgment was given by Lord Wilson.  Lord Wilson began by setting out the facts of the two cases.  Mr Davies had challenged HMRC's finding that he had been resident and ordinarily resident in the UK for the tax year 2001/2002.  Mr Gaines-Cooper had challenged the decision that he had been resident and ordinarily resident from the tax year 1993/1994 to 2003/2004.  Mr Davies' situation was different in that there had been no hearing of his case before the Special Commissioners (as they then were) unlike Mr Gaines-Cooper where the issue of residence had been thoroughly tested at a 10 day hearing.  At that hearing, the Commissioners held that Mr Gaines-Cooper had been domiciled, resident and ordinarily resident during the years in issue.

Both taxpayers argued that, on its proper construction, IR20, which contained HMRC's view on the law of residence, ordinary residence and domicile and also their prevailing practice, contained a more benevolent interpretation of the circumstances in which an individual became non-resident than was reflected in the ordinary law; and moreover that this construction could give rise to a legitimate expectation that the interpretation would be duly applied.  A secondary argument, if they were wrong, was that HMRC's settled practice had been to apply a more benevolent interpretation so that a legitimate expectation arose in any event.

Lord Wilson dismissed all the arguments raised by the taxpayers.  His Lordship began by recapping the relevant law on residence as it appears in cases such as Levene v Inland Revenue Comrs [1928] AC217.

His Lordship was of the view that IR20 should inform "the ordinarily sophisticated taxpayer as follows:

  • he was required to "leave" the UK in a more profound sense and matter of travel, namely permanently or indefinitely or for full time employment;
  • he was required to do more than to take up residence abroad i.e. he was required to relinquish his "usual residence" in the UK;
  • any subsequent returns on his part to the UK were required to be no more than "visits"; and
  • any property retained by him in the UK for his use was required to be used for the purpose only of visits rather than a place of residence.

At the end of the day, Lord Wilson's view was that all IR20 did was to set out certain factors which HMRC had to take into account and could in no way be construed by the taxpayer as constituting a more generous treatment of him under the ordinary law.

The taxpayers' second argument

Lord Wilson also had little difficulty in dismissing the taxpayers' second contention that, even if IR20 did not provide for a more generous treatment than under the ordinary law, HMRC's settled practice was nevertheless to determine claims to non-residence on that basis, and that this practice continued until a date shortly after all the years of assessment i.e. 2004/2005.  It was only after that date, the taxpayers contended, that the practice changed.

In this respect, Lord Wilson stated that the taxpayers, in order to make good their case, would need evidence "beyond the generalised, anecdotal understanding of their witnesses however highly regarded".  The one hard piece of evidence relied on by the taxpayers was a letter, unrelated to the cases before the court, from a Revenue Inspector, Mr Wilkes, to an accountant, Mr Sawyer, dated 7 July 1999 which was never published.  This letter was not sufficient to reflect a settled practice to depart from the law and from IR20.


The final outcome of these appeals will be a huge disappointment for all those taxpayers who relied upon what they perceived to be a more generous interpretation of the law contained in what was IR20.  It is also a salutary warning to taxpayers that they should proceed with extreme care when relying on HMRC published guidance unless that guidance is in the clearest and most unambiguous terms.  Where possible, it might be preferable for taxpayers to obtain an advanced ruling on the tax treatment in question from HMRC.