In Kevin McCabe v HMRC [2024] UT 280, a taxpayer’s plan to move abroad to avoid UK tax failed when the Upper Tribunal ruled him UK resident according to the tie-breaker clauses in a Double Tax Agreement (DTA).
Mr McCabe sought to avoid exposure to Capital Gains Tax (CGT) on the disposal of his shares in Scarborough Property Group Plc (Scarborough), by establishing residence abroad for more than five years.
- S.10A TCGA 1192 required him to be non-resident for at least five full tax years. He sought tax advice from several sources to plan the steps needed to ensure that he could arrange his relocation in a manner sufficient to make him non-resident.
- He moved to Brussels to develop and grow the European business.
- He moved offshore in 2006, leaving his wife in sole ownership of their UK home. He acquired accommodation and worked in Belgium, holidayed in Spain and spent minimal nights in the UK. He also incorporated a Belgian personal service company which worked on contracts with the UK.
- HMRC assessed him to CGT on the share sale on the basis that he had never lost his UK tax residence.
- He appealed to the First Tier Tax Tribunal (FTT).
The year in question pre-dates the arrival of the Statutory Residence Test (SRT), as a result, the FTT applied the common law principles that applied at the time. It then worked through the Double Tax treaty ties-breakers and found him a UK resident.
Mr McCabe had a long battle with HMRC in trying to obtain information to disclose documents from a ‘mutual agreement procedure’ made between HMRC and the Belgium tax authorities, under the terms of the DTA which can be used to determine tax residency.
He challenged the FTT's findings and appealed to the Upper Tribunal.
The UT worked its way through the tie-breakers in Article 4: a so-called waterfall test.
Mr McCabe had a permanent home (within the meaning of the DTC) available to him in Belgium and he also had his wife's home in the UK 'available' to him, even though he chose not to stay overnight there. The UT did not allow Mr McCabe to introduce two German court decisions into his appeal.
His centre of vital interests, i.e. the State with which his personal and economic relations were closest was the UK. Although his social contacts with UK friends diminished when he left, he continued to attend numerous Sheffield United matches in the UK and also continued to conduct a 'substantial' amount of Scarborough Group business from the UK.
Finding that his centre of vital interests remained in the UK, the UT found that the FTT had not erred in law on this point. There was no need to make any real finding on the next leg of the test, the one on habitual abode.
Having confirmed the FTT's findings, the UT dismissed the taxpayer's appeal.
Useful guides on this topic
SRT: Statutory Residence Test
What is the statutory residency test? Why is it important and how does it work?
SRT: Statutory Residence Test Toolkit
This is an interactive tool to determine 'At a glance' whether you are UK resident or not in a tax year for 2013/14 onwards.
Tax treaties & EU: where do you live?
In 2017 the EU introduced new rules to facilitate the resolution of cross-border tax disputes.
Non-residents’ tax toolkit
This toolkit covers the key UK tax issues for non-UK resident individuals holding UK assets and property and working in the UK.
How to Appeal
What type of decision can you appeal? What are your different options when you disagree with HMRC? What are the key steps in making an appeal?
External link
Kevin McCabe v HMRC [2024] UT 280
Return to Ross Martin Tax: SME Tax News 26 September 2024
