Hankinson v HM Revenue and Customs (No. 3)
| Jurisdiction | UK Non-devolved |
| Judgment Date | 29 December 2009 |
| Neutral Citation | [2009] UKFTT 384 (TC) |
| Date | 29 December 2009 |
| Court | First Tier Tribunal (Tax Chamber) |
[2009] UKFTT 384 (TC)
John F Avery Jones CBE (Chairman), John Clark (Judges of the First-tier Tribunal)
Robin Mathew QC and Emily Gillett, counsel, instructed by Cowgill Holloway, for the Appellant
Ingrid Simler QC and Akash Nawbatt, counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs for the Respondents
Residence - capital gains tax - whether taxpayer working full-time abroad - no - whether dual resident - no - whether discovery assessment valid - yes - appeal dismissed
The tribunal held that a taxpayer was resident in the UK for purposes of calculating his liability to capital gains tax on the sale of shares in a family trust where, on the evidence, the tribunal was not satisfied that his circumstances had changed sufficiently to show that he had ceased to be resident or ordinarily resident in the UK.
The taxpayer was born in the UK. In 1982 he became the managing director of a UK company (Bison). In 1985 he arranged a management buy-out and in 1987 he transferred his shares in Bison to family trusts resident outside the UK. He became the chairman of Bison in 1992. In 1997 the family trusts sold their holdings in Bison to a venture capital fund, which gave rise to substantial capital gains. However, they retained an interest in Bison. In 1998, the taxpayer entered into a service agreement with a Netherlands subsidiary of Bison, although he continued to be chairman of Bison. In March 1999 the capital gains which the family trusts had realised in 1997 crystallised.
The taxpayer submitted a tax return for 1998-99 which stated that he had not been resident or ordinarily resident in the UK, but had been working in the Netherlands during that year. In 2004-05 HMRC issued a "discovery" assessment, giving rise to a charge to CGT of more than 30m on the ground that the taxpayer had been resident and ordinarily resident in the UK in 1998-99. The taxpayer appealed against the discovery assessment and a statutory determination of the taxpayer's ordinary residence in the UK for the relevant tax year.
Whether the taxpayer was resident or ordinarily resident in the UK in 1998-99; if so, whether under the double taxation agreement with the Netherlands, he was resident in the Netherlands; and, if he was resident for that purpose in the UK, whether the discovery assessment was valid.
The First-tier Tribunal (Dr John Avery Jones and John Clark) (dismissing the appeal) said that, on the evidence, the taxpayer had been resident and ordinarily resident in the UK in 1998-99 and his move to the Netherlands was no more than "occasional residence abroad", despite the fact that he had spent 130 days in the Netherlands and 82 days in the UK during the year.
In the present case, the question for the tribunal was not whether the taxpayer became resident in the Netherlands but whether his circumstances had changed sufficiently to show that he had ceased to be resident or ordinarily resident in the UK. With regard to the taxpayer's residence, in terms of ICTA 1988, Income and Corporation Taxes Act 1988 section 334s. 334, the tribunal was not satisfied that the taxpayer's move to the Netherlands amounted to anything more than occasional residence abroad. His work there was not full-time. As a result of the occasional nature of his residence in the Netherlands, s. 334 rendered him liable to assessment and charge to income tax on the basis specified in Income and Corporation Taxes Act 1988 section 334 subsec-or-para bs. 334(b). Section 334 related only to income tax. TCGA 1992, Taxation of Chargeable Gains Act 1992 section 9 subsec-or-para 1s. 9(1) did not in terms extend the application of s. 334 to capital gains tax; s. 9(1) simply adopted for capital gains tax purposes the meanings which the expressions "resident" and "ordinarily resident" had in the Income Tax Acts. As the assessment for 1998-99 related principally to tax on capital gains, by far the majority of the amount assessed fell outside s. 334, and chargeability therefore depended on the presence or absence of residence and/or ordinary residence examined under common law principles.
Moreover, for the purposes of the UK/Netherlands Double Tax Treaty, the taxpayer was resident in the UK. Applying the tests laid down in art. 4 of the Treaty, at the time of the capital gain the taxpayer was resident for the purposes of the Treaty in the UK alone. But even if he had been resident in both states the dual residence would have been resolved in favour of the UK under all of centre of vital interests, habitual abode and nationality.
As a result of newly discovered material in the form of information not made available in the taxpayer's 1998-99 tax return, the HMRC officer who made the discovery assessment did have evidential basis beyond mere suspicion in order to arrive honestly at the conclusion that, on balance, there was an insufficiency. In particular, it was inconsistent with being employed abroad under a full-time working contract of employment that he spent only 183 or 185 days in the Netherlands during the tax year, even taking into account the fact of his illness. Therefore, the officer was entitled to say, on the balance of probabilities, that there was an insufficiency as a result of newly discovered material in the taxpayer's case so that he was entitled to make a discovery assessment under TMA 1970, Taxes Management Act 1970 section 29s. 29. On the facts, both of the conditions referred to in s. 29(3) were fulfilled. Furthermore, since the taxpayer's return had stated that he was "employed abroad under a full-time working contract of employment", and it was not until later that HMRC discovered that he had in fact spent less than half the year in the Netherlands, his conduct in signing the return amounted to "negligent conduct", within Taxes Management Act 1970 section 29 subsec-or-para 4s. 29(4). Accordingly, the discovery assessment was validly made and Taxes Management Act 1970 section 29 subsec-or-para 2s. 29(2) did not apply in the taxpayer's circumstances.
1. These are appeals by Mr Derek William Hankinson against (1) a discovery assessment made on 24 January 2005 to income tax and capital gains tax for the year 1998-99 and (2) a statutory determination of ordinary residence dated 30 November 2006 (the reason for both is that the appeal against the assessment raised a dispute about the Appellant's ordinary residence, which has to be determined by the Board, which may also be appealed). A further appeal against a penalty assessment has been consolidated with these appeals and will be heard separately. The Appellant was represented by Mr Robin Mathew QC and Miss Emily Gillett, and the Respondents ("HMRC") by Miss Ingrid Simler QC and Mr Akash Nawbatt.
2. The issues in these appeals are:
(2) Whether the Appellant was resident or ordinarily resident in the UK in 1998-99;
(3) If he was, whether under the double taxation agreement ("the Treaty") with the Netherlands, he was resident for the purposes of the Treaty in the Netherlands;
(4) If he was resident for that purpose in the UK, whether the discovery assessment is valid;
(5) Making findings of fact requested by the High Court for the purposes of judicial review proceedings as explained in paragraph 114 below.
3. As we have said, these appeals relate to 1998-99. The delay is not the fault of the parties because it relates to a discovery assessment made on 24 January 2005. But the fact that we are dealing with events of over ten years ago has made our task difficult. This has been aggravated by the fact that the UK group of companies of which the Appellant was chairman has since been sold for nominal consideration and no documents are available, the Dutch company for which the Appellant worked during the year in question was sold after the events with which we are concerned and no documents are available from that company either, and his solicitors apparently destroyed routine correspondence after five years. Virtually the only contemporary documents are company minutes and the Appellant's own records of expenditure such as on credit cards. Since these have not been charged to either company there is a presumption that they represent personal expenditure.
4. Briefly, the Appellant's non-resident trusts sold their holdings in Bison Limited ("Bison") to Phildrew Ventures Fourth Fund ("Phildrew"), a venture capital institution, on 24 September 1997 but the trusts retained an interest in Bison. He entered into a service agreement with Monoliet Holding BV ("Monoliet"), a Dutch subsidiary that Bison has acquired in 1990, to work in the Netherlands from 23 February 1998 for a period of a minimum of 15 months, while remaining as non-executive chairman of Bison. On 2 January 1999 he became ill on a flight to Barbados where he had booked a holiday from 2 to 30 January 1999. He returned to the UK on 30 April 1999 but did not return to work in the Netherlands again, and retired from the service of Monoliet on about 15 August 1999 and from his non-executive chairmanship of Bison on 31 August 1999. Substantial gains realised in the non-resident trusts on the sale to Phildrew were crystallised in March 1999. These will be taxable on the Appellant if he were ordinarily resident in 1998-99, which is the main issue in these appeals.
5. We had 25 ring binders of documents and heard evidence from the following witnesses:
(2) The Appellant;
(3) Mr Sybrank Schrale, the director of Monoliet;
(4) Mrs Annette Pairman, retired Scottish solicitor who advised Bison and the Appellant and his trusts;
(5) Mr Frank Neale, partner in a firm of private equity advisers then called Phildrew Ventures;
(6) Mr Graham Hart, Director of Taxation, Cowgill Holloway LLP, chartered accountants, currently advising the Appellant;
(7) Mr Gordon Wright, Group Finance Director of Bison (by video link). We should mention that this was an internet-based video link for which we...
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