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Henkes v HMRC [2020] UKFTT 159 (TC) - a recent domicile case

A recent First-tier Tribunal (FTT) examined the extent and time at which a tribunal can make a binding decision as to domicile in a procedural hearing on HMRC enquiries.

In Henkes v HMRC [2020] UKFTT 159 (TC), the taxpayer claimed the remittance basis for the years 2014/15 and 15/16 having assessed himself to be UK resident but non-domiciled. HMRC enquired into those tax returns, focusing on his non-UK domicile status. The taxpayer sought resolution of the domicile query by applying to the FTT for a final closure notice (FCN) or a partial closure notice (PCN) in respect of the claim to be taxed on the remittance basis. Shortly after the taxpayer's application for closure, HMRC determined that he was UK domiciled, and issued an information notice (IN) requesting details of his worldwide income and gains. The taxpayer then also appealed against the IN.

The FTT had to consider whether HMRC had reasonable grounds for not issuing a PCN or FCN and whether the information requested in the IN was reasonably required. In order to answer those questions, the FTT needed to reach a conclusion on the taxpayer's domicile status but first needed to consider whether they could and should make such a decision. They concluded that they did have jurisdiction to conclude on a mixed question of law and fact and then went on consider the taxpayer's domicile status.

The taxpayer was born and raised outside the UK to non-UK parents and never held UK citizenship. However, he had lived in the UK for nearly 50 years, with only a few short gaps for overseas employment, and had no strong ties with other countries. His wife, children and grandchildren all lived in the UK and so the FTT concluded that he had acquired a UK domicile of choice at some point before the tax years in question. There had been some suggestion that he intended to retire to Spain where he had a holiday home, or elsewhere. However, he was already 75 and since retiring from full time employment in 2003 had held various roles which he was still actively pursuing, so there was some doubt about whether he would actually retire and in fact leave the UK.

In view of the domicile finding, the FTT reached the conclusion that it was reasonable for HMRC to have refrained from issuing the closure notices and to have issued the information notice. Further the FTT concluded that the doctrine of issue estoppel would prevent the parties from ignoring their domicile decision on any future appeal. In practice, an appeal of the decision on issuing the notices would therefore be of little use to the taxpayer as it had already been decided that he was domiciled in the UK in the years in question and so the remittance basis was not available to him.
This case highlights the need for taxpayers to take care to substantively determine and analyse their domicile status before claiming the remittance basis and to be prepared to answer a lot of questions. In order to avoid acquiring a domicile of choice in the UK, it is helpful for longer term residents to have strong ties to other countries and a clear exit strategy on retirement if that is the intention.

 

July 2020

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