HM Revenue and Customs v Grace
| Jurisdiction | England & Wales |
| Judge | THE HONOURABLE MR. JUSTICE LEWISON,Mr. Justice Lewison |
| Judgment Date | 11 November 2008 |
| Neutral Citation | [2008] EWHC 2708 (Ch) |
| Docket Number | Case No: CH/2008/APP/0195 |
| Court | Chancery Division |
| Date | 11 November 2008 |
[2008] EWHC 2708 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
The Honourable Mr. Justice Lewison
Case No: CH/2008/APP/0195
Approved Judgment
Hearing dates: 4 th November 2008
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Mr. Justice Lewison:
Introduction
Mr Lyle Grace is an airline pilot who works for British Airways. He pilots long haul flights between the United Kingdom (from either Gatwick or Heathrow) to South Africa and elsewhere. He has a home in Cape Town. He was assessed to income tax under section 19 (1) of the Income and Corporation Taxes Act 1988 (“the Act”) for the years 1997/8 to 2002/3 on the ground that during those years he was resident and ordinarily resident in the United Kingdom. He appealed against that assessment. On 29 January 2008 the Special Commissioner (Dr Nuala Brice) allowed his appeal. The Special Commissioner held that Mr Grace was neither resident nor ordinarily resident in the United Kingdom during the years of assessment. She held also that Mr Grace was entitled to the benefit of section 336 of the Act. HMRC now appeal. The appeal is limited to questions of law. It is common ground that whether a person is resident or not is a question of fact. In addition it is common ground on the facts of this case that the Special Commissioner's decision on the questions of residence and ordinary residence stand or fall together. However, HMRC say that the Special Commissioner misdirected herself; and also that when one considers how she applied the principles that she said she had derived from the cases, the only possible conclusion is that she must have made a hidden error of law.
The legal framework
Section 19 of the Act provides, so far as material:
“19(1) The Schedule referred to as Schedule E is as follows:
SCHEDULE E
1. Tax under this Schedule shall be charged in respect of any office or employment on emoluments therefrom which fall under one or more of the following Cases- …
Case I any emoluments for any year of assessment in which the person holding the office or employment is resident and ordinarily resident in the United Kingdom …
Case III any emoluments for any year of assessment in which the person holding the office or employment is resident in the United Kingdom (whether or not ordinarily resident there) so far as the emoluments are received in the United Kingdom.”
There was considerable agreement about the law between Ms Simler QC, appearing with Mr Nawbatt for HMRC, and Mr Gordon appearing for Mr Grace. For the moment it can, I think, be sufficiently summarised for the purposes of this case as follows:
i) The word “reside” is a familiar English word which means “to dwell permanently or for a considerable time, to have one's settled or usual abode, to live in or at a particular place”: Levene v Commissioners of Inland Revenue (1928) 13 TC 486, 505. This is the definition taken from the Oxford English Dictionary in 1928, and is still the definition in the current on-line edition;
ii) Physical presence in a particular place does not necessarily amount to residence in that place where, for example, a person's physical presence there is no more than a stop gap measure: Goodwin v Curtis (1998) 70 TC 478, 510;
iii) In considering whether a person's presence in a particular place amounts to residence there, one must consider the amount of time that he spends in that place, the nature of his presence there and his connection with that place: Commissioners of Inland Revenue v Zorab (1926) 11 TC 289, 291;
iv) Residence in a place connotes some degree of permanence, some degree of continuity or some expectation of continuity: Fox v Stirk [1970] 2 QB 463, 477; Goodwin v Curtis (1998) 70 TC 478, 510;
v) However, short but regular periods of physical presence may amount to residence, especially if they stem from performance of a continuous obligation (such as business obligations) and the sequence of visits excludes the elements of chance and of occasion: Lysaght v Commissioners of Inland Revenue (1928) 13 TC 511, 529;
vi) Although a person can have only one domicile at a time, he may simultaneously reside in more than one place, or in more than one country: Levene v Commissioners of Inland Revenue (1928) 13 TC 486, 505;
vii) “Ordinarily resident” refers to a person's abode in a particular place or country which he has adopted voluntarily and for settled purposes as part of the regular order of his life, whether of short or long duration: R v Barnet LBC ex p Shah [1983] 2 AC 309, 343;
viii) Just as a person may be resident in two countries at the same time, he may be ordinarily resident in two countries at the same time: Re Norris (1888) 4 TLR 452; R v Barnet LBC ex p Shah [1983] 2 AC 309, 342;
ix) It is wrong to conduct a search for the place where a person has his permanent base or centre adopted for general purposes; or, in other words to look for his “real home”: R v Barnet LBC ex p Shah [1983] 2 AC 309, 345 and 348;
x) There are only two respects in which a person's state of mind is relevant in determining ordinary residence. First, the residence must be voluntarily adopted; and second, there must be a degree of settled purpose: R v Barnet LBC ex p Shah [1983] 2 AC 309, 344;
xi) Although residence must be voluntarily adopted, a residence dictated by the exigencies of business will count as voluntary residence: Lysaght v Commissioners of Inland Revenue (1928) 13 TC 511, 535;
xii) The purpose, while settled, may be for a limited period; and the relevant purposes may include education, business or profession as well as a love of a place: R v Barnet LBC ex p Shah [1983] 2 AC 309, 344;
xiii) Where a person has had his sole residence in the United Kingdom he is unlikely to be held to have ceased to reside in the United Kingdom (or to have “left” the United Kingdom) unless there has been a definite break in his pattern of life: Re Combe (1932) 17 TC 405, 411.
These principles were conveniently described in argument as the common law of residence and ordinary residence. But in addition to the common law there are two specific statutory provisions dealing with residence which bear on a person's liability to pay tax.
Section 334 of the Act provides so far as material:
“Every Commonwealth citizen or citizen of the Republic of Ireland-
(a) shall, if his ordinary residence has been in the United Kingdom, be assessed and charged to income tax notwithstanding that at the time the assessment or charge is made he may have left the United Kingdom, if he has so left the United Kingdom for the purpose only of occasional residence abroad; and
(b) shall be charged as a person actually residing in the United Kingdom upon the whole amount of his profits or gains, whether they arise from property in the United Kingdom or elsewhere, or from any … employment … in the United Kingdom or elsewhere.”
In order for section 334 to apply a number of conditions must be fulfilled. First, the person in question must be a Commonwealth citizen or citizen of the Republic of Ireland. Second, that person must once have had his ordinary residence in the United Kingdom. Third, he must have left the United Kingdom. Fourth, if he has left the United Kingdom, he must have left it for the sole purpose of occasional residence abroad. It follows that if a person has not “left” the United Kingdom at all, section 334 will not apply to him. Where the cases consider whether there has been a “distinct break” in the taxpayer's life (e.g. Re Combe (1932) 17 TC 405 and Reed v Clark (1985) 58 TC 528, 556) they have done so in considering the fourth of these conditions. It may be, however, that at least in a case in which the taxpayer is physically present in the United Kingdom for part of the year of assessment, the question really arises in considering the third of the conditions; i.e. whether the taxpayer has “left” the United Kingdom at all. It was common ground that section 334 did not assist HMRC either because (according to HMRC) the section did not apply because Mr Grace never “left” the United Kingdom; or because (according to Mr Gordon) although Mr Grace did leave the United Kingdom he did not do so for the sole purpose of occasional residence abroad. Ms Simler accepted that if Mr Grace had left the United Kingdom by reason of having set up home in Cape Town, he had left for more than occasional residence abroad. I need not, therefore, consider it further.
Section 336 provides, so far as material, as follows:
“(2) For the purposes of Cases … III of Schedule E, a person who is in the United Kingdom for some temporary purpose only and not with the intention of establishing his residence there shall not be treated as resident in the United Kingdom if he has not in the aggregate spent at least six months in the United Kingdom in the year of assessment, but shall be treated as resident there if he has.
(3) the question whether- …
(b) for the purposes of subsection (2) above a person is in the United Kingdom for some temporary purpose only and not with the intention of establishing his residence there,
shall be decided without regard to any living accommodation available in the United Kingdom for his use”
Mr Gordon says that section 336 provides an exemption for a taxpayer if he would otherwise be held to be resident in the United Kingdom. Thus even if (contrary to the Special Commissioner's decision)...
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