[2009] UKFTT 368 (TC)

			
							        	 TC00306
						Appeal number TC/2009/11650

CGT – Section 9 TCGA – Chargeable if resident or ordinary resident – Was Appellant resident – Held: yes. Section 9(3) – Relief if taxpayer only temporarily resident – Held: not temporarily resident. Section 29 TMA: Was there neglect? Appeal dismissed

FIRST-TIER TRIBUNAL
TAX CHAMBER

	NAZIM KARIM	Appellant

	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S
	REVENUE AND CUSTOMS (CGT)	Respondents

				TRIBUNAL: 	 CHARLES HELLIER (Judge)
						 ELIZABETH BRIDGE (Member)

Sitting in public in Cambridge on 9 September 2009

Roger Evans of Chartwell Corporate & Financial Advisors, for Miss Karim 

Duncan Tebbet, advocate, for the Respondents

© CROWN COPYRIGHT 2009

DECISION

1.	Miss Karim appeals against an assessment to CGT for the year 2003/04 of about £112k.  The assessment was made in respect of her disposal in that year of two properties, 1 Leopold Terrace and 8 Holly Lodge, and of her shares in Tudor Peak Homes Ltd.  Miss Karim appeals on the basis that she was neither resident nor ordinarily resident in the UK in that year and was thus not liable to CGT on the disposals.  She also disputes the computation of the gains.
The Evidence before us
2.	The only witness evidence tendered on behalf of Miss Karim was given by her representative Mr Evans.  Miss Karim did not appear in person.  Mr Evans told us his understanding of the facts and explained that his evidence as to Miss Karim’s affairs was based upon conversations he had had with Miss Karim.
3.	We heard oral evidence from Mr Wallace, HMRC’s officer responsible for the assessment. We also had before us copies of correspondence between HMRC and Miss Karim and her advisers and of other documents.  The correspondence included copies of part of a report prepared by Miss Karim’s advisers in response to an investigation into her affairs under HMRC’s Code of Practice 9 begun in 2002.
4.	Where a taxpayer appeals against an assessment and the facts and information relevant to whether or not that assessment has been correctly made are naturally those known to or possessed by the Appellant, the onus is on the Appellant to show, by producing evidence of the relevant facts that the assessment is incorrect.
5.	This tribunal is not limited in the nature of the evidence it may receive but it must weigh the quality of the evidence it admits in reaching its conclusions.  Second hand evidence, such as the evidence given by Mr Evans as to what he was told by Miss Karim, is generally of poorer quality than first hand evidence because it is not always possible to assess its source.  Thus while we considered that Mr Evans gave an honest account of what he had gleaned from Miss Karim, we were unable directly to assess the honesty, accuracy or completeness of Miss Karim’s account; nor was it possible to seek her explanation for matters deriving from the documents before us which cast doubt on the account she had given Mr Evans.
6.	There were two particular issues which arose from the documentary evidence which cast doubt on Miss Karim’s veracity or accuracy in connection with her tax affairs.
7.	First, during HMRC’s enquiry into her affairs, they obtained documents from the Bank of Scotland.  These documents included a note of a discussion between an officer of the Bank of Scotland and Miss Karim in which the accounts of Tudor Peak Homes Ltd (a company of which she was the only director and in which she held all the shares) were discussed.  Miss Karim is reported as saying that those accounts were prepared “with the taxman” in mind and that substantial sums, some £30k-40k pa were undeclared and diverted to her.  (We refer to the detail later.)
8.	Second, as the result of his conversations with Miss Karim, Mr Evans prepared schedules showing the dates on which she was in the UK in the years 2000-2006.  In response to a request from HMRC Miss Karim provided bank statements.  These statements showed that in 2000 (the only year investigated by HMRC) there were transactions which took place in the UK (and which would ordinarily have required her presence in the UK) in periods on which the schedule showed her as being out of the UK.
9.	(We shall return to consider these schedules later, but note here that, whilst we accept that the evidence of Mr Evans indicates that she was probably outside the UK for significant periods in the relevant years, we did not find that evidence tendered showed that she had been in the UK only for the numbers of days shown in the schedules.)
Our Findings of Fact
10.	Miss Karim was born in Tanzania in 1953.  She came to the UK in 1968 to attend school.  She then attended a university here and qualified as a pharmacist.  When she left university in 1977 she went to work for Boots until 1980 when she went on to run her own pharmacy in the UK.
Tudor Peak Homes
11.	She later sold that business and, in 1989, with the proceeds, a bank loan and other funds, acquired two buildings at Wainford House in Beccles which she operated as care homes under the name Tudor Homes.  In 1991 that business was transferred to Tudor Peak Homes Ltd, of all of whose shares Miss Karim was the owner, and of which she was director.  In November 2003 Miss Karim sold her shares in Tudor Peak Homes Ltd for £250,000.
12.	From a date before 1996 until November 2003 Miss Karim arranged the diversion of income from Tudor Peak Homes Ltd to her own account.  Certain cheques written by or for residents to pay for their accommodation were paid into a Nationwide account of Miss Karim rather than into the company’s bank account.  Over that period at least £600,000 was so diverted.
13.	Until 2000 Miss Karim’s management of the Tudor Peak Homes business had been direct.  In April 2000 Nonagon Estates Limited entered into an agreement with Tudor Peak Homes to provide professional services.  In April 2000 Mrs Karin entered into an agreement with Nonagon under which she would be employed by Nonagon.  The duties which Miss Karim was to perform were those of the senior management, direction and control of the homes owned by Tudor Peak Homes. 
14.	A schedule to the contract set out Miss Karim’s job description.  In our view the proper execution of those duties would have required weekly attendance at the homes.  At a meeting with HMRC in December 2002 Miss Karim indicated that she visited the homes twice a month.
15.	Mr Evans told us that in 2003 Miss Karim’s attention to the homes (and her duties under the contract) had been inadequate.  Her attention had moved to Portugal.  The management of the homes had been so bad that the Local Authority had threatened to close them down.  This had led in about May 2003 to the appointment (in Miss Karim’s and Nonagon’s stead) of another company, Carebase, to manage the homes.
16.	Whilst we are willing to accept that Miss Karim’s interest in and attention to Tudor Peak Homes’ business waned in the period up to May 2003, we find that in the period 2000 to December 2002 she was likely to have visited the homes at least twice a week, and that between January and May 2003 she was likely to have visited them at least once a week or 10 days.  We accept that she may have performed a monitoring role remotely from her home in Portugal, but the nature of the duties imposed by her contract were such that they could not have been performed without regular personal presence, and the lightweight evidence of her change of focus was not enough to convince us that she did not visit regularly and frequently to attend to their management.
Other Property Interests
17.	In 1987 Miss Karim purchased 1 Leopold Terrace, Wimbledon.  Throughout the relevant period until her disposal of it in November 2003 it was let out.
18.	In 1997 Miss Karim purchased 8 Holly Lodge.  We believe that she used it as her accommodation in the UK when she was here until it was let out a few weeks before it was disposed of in November 2003.  Correspondence was addressed to her at this address in 2003/04 before the sale.
19.	Miss Karim had interests in Flat 2, 62 Worple Road, and 20 Bay Court.  The extent of her beneficial interest in these properties was not clear.  Until April 2003 Miss Karim had a bank account at Nationwide, Wimbledon, and until May 2003 a bank account at Barclays Bank, Sutton.  She had bank accounts also at banks in Portugal.
Presence in the UK
20.	As we have noted above, Mr Evans produced schedules based on his conversations with Miss Karim showing the dates on which she was present in the UK in the years 2000-2006.  He explained that he had questioned her on the dates many times and had been told by Miss Karim that in giving her answers she had consulted her diaries, although he had neither seen those diaries nor seen Miss Karim consulting them.
21.	From the dates of Miss Karim’s arrival and departures Mr Evans and HMRC had calculated how many days she had spent in the UK.  These calculations were based on the principles in HMRC’s publication “IR 20 Residents and Non Residents – liability to tax in the United Kingdom” as applicable at the relevant time and ignored days of arrival and departure.  That guidance also states that unusual events may be ignored as well.
22.	The guidance in IR20 places particular significance upon whether the number of days spent by the taxpayer in the UK in any tax year – as computed in accordance with the guidance – exceeds 91 days on average or 183 days in total.  It seems to us that the number of days spent in the UK is but one factor we must take into account in considering whether Miss Karim was resident or ordinarily resident, and that the reasons for a person’s presence can affect whether or not the days of arrival or departure are important.
23.	The exercise completed by HMRC on the basis of IR20, and the most recent dates of arrival and departure provided by Mr Evans, gave the following results, which we believe to have been accurately computed from that information and on that basis:-
Year ended			Actual Days in UK
5 April 2001				  85
5 April 2002				  81
5 April 2003				121
5 April 2004				  84

24.	We have noted above that the evidence in relation to the dates of arrival and departure is second hand and may be inaccurate.  We conclude that the figures for the number of days spent in the UK are lower bounds for the numbers of complete days spent in the UK in each of the relevant years.  We also note that the dates indicate physical presence in the UK after November 2003 as well as before that date.
The dates of arrival and departure indicate that her visits to the UK were frequent and generally of at least several days’ duration.

25.	Mr Evans told us that Miss Karim had told her that between 1 September 2002 and 18 January 2003 Miss Karim had spent 47 days in the UK because her mother, who lived in the UK, had been ill.  On that basis he argued that those days should be excluded from the calculation.  We accept that if Miss Karim had been present in the UK for those 47 days solely because of her mother’s illness then, on the IR20 basis it may have been correct to exclude them.  However we were not able to conclude that all those 47 days related to that illness, and even if they were their subtraction from the day count for that year would not on its own cause us to conclude that Miss Karim was not resident in that year.

Relatives and Family ties

26.	Miss Karim’s mother and sister lived in the UK in the period 2000-2004.

Portugal

27.	In about 2000 Miss Karim started living in Portugal where she resided with her partner in a flat in the Algarve rented by her partner.  She and her partner had both formerly been resident in the UK only and started residing together in Portugal at this time.
28.	Miss Karim had no other family relatives in Portugal.

29.	From 2003 Miss Karim started work for or with a Portuguese enterprise.
From 2000 onwards some of her bank statements were addressed to her Portuguese address.

The Hirgi Trust

30.	Miss Karim is a beneficiary of a trust established by her aunt.  Miss Karim’s sales of her shares in Tudor Peak Homes, 1 Leonard Terrace, and 8 Holly Lodge were to the trustees of the trust.  Miss Karim’s Algarve flat is rented from the trustees.

Tax Returns

31.	Miss Karim completed tax returns for each of the years ending 5 April 2000 to 2004.  The 2000 return (as originally submitted) made no claim to non-residence or non-ordinary residence but claims were made in the 2001, 2002, 2003 and 2004 returns.  In 2001 and 2002 she claimed non-UK residence and that she was not ordinarily resident in the UK; in 2003 and 2004 she claimed non-UK residence but indicated that she was ordinarily resident in the UK.

Mr Evans’ submissions

32.	Mr Evans says that it was clear that Miss Karim moved her focus the UK to Portugal in 2000 and that thereafter she gradually further reduced her ties to the UK.  Even if she did not cease to be UK resident on 28 April 2000 it was clear that by May 2003 she had ceased to be UK resident: at that time she had extinguished her ties to Tudor Homes’ business and taken up employment with a Portuguese company.  After April 2003 Miss Karim’s contact with the UK was effectively limited to the severing of her links with this country: her presence here was not as a resident.  Neither after April 2003 could it be said that the ordinary pattern of her life was that she was resident here: ordinarily she was resident in Portugal.

Mr Tebbet’s submissions

33.	Mr Tebbet says that until 2003 Miss Karim had an abode in the UK at 8 Holly Lodge, had business interests in the UK (her property or properties and interest in Tudor Homes), and was present in the UK.  He says that her Portuguese employment started only in 2003.  As a result he says that she did not leave the UK permanently in 2000 but remained resident here until at least 2003/4.

34.	Mr Tebbet relies upon the approach taken in IR20.  There it is accepted that a person who leaves the UK to full-time work abroad and whose presence in the UK is, for subsequent years, less than 183 days in a year and less than 91 days on average, is non-resident, and that a person who leaves for a whole year and then does not return for more than 91 days on average becomes non-resident.  Applying the tests he says it is clear that Miss Karim did not take up any employment outside the UK until 2003 – he says that her employment with Nonagon was not employment outside the UK despite the non-UK incorporation and registered office of Nonagon – and that in any event there was no good evidence that the 91 day rule was satisfied.

Discussion

The statutory provisions

35.	Section 2 TCGA 1992 provides;- 

“(1)	Subject to any exception provided by the Act, and without prejudice to section 10 and 276, a person shall be chargeable to capital gains tax in respect of chargeable gains accruing to him in a year of assessment during any part of which he is resident in the United Kingdom, or during which he is ordinarily resident in the United Kingdom.”

It was not suggested that any exception was applicable.  Neither section 10 nor section 276 were relevant.

36.	Section 9 of that Act provides:-

“(1)	In this Act “relevant” and “ordinarily resident” have the same meanings as in the Income Tax Acts.
…
“(3)	… an individual who is in the United Kingdom for some temporary purpose only and not with any view or intent to establish his residence in the United Kingdom shall be charged to capital gain tax on chargeable gains accruing in any year of assessment if and only if the period (or the sum of the periods) for which he is resident in the United Kingdom in that year of assessment exceeds 6 months.

“(4)	The question whether for the purposes of subsection (3) above an individual is in the United Kingdom for some temporary purpose only and not with a view or intent to establish his residence there shall be determined without regard to any living accommodation available in the United Kingdom for his use.” 

We note that the provisions of subsection (3) and (4) mirror the provision of section 336 Taxes Act which applied at the relevant time in relation only to Schedule D income.

37.	The effect of section 9(1) is to incorporate into the TCGA the meanings applicable in the Taxes Act.  That incorporation, absent subsections 9(3) and 9(4) would not, because of its limitation to Schedule D, necessarily have included the effect of section 336, but does include the effect of section 334, which provides:- 

“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 of occasional residence abroad, and
(b)	…”

The authorities

38.	In Gaines Cooper & HMRC [2006] STC SPC 568 the Special Commissioners reviewed the authorities relating to the meaning of ‘residence’ for the purposes of the Income Tax Acts and said at para 165:-

165.	From these authorities we derive4 a number of principles.  First, that the concept of residence is not defined in the legislation; the word therefore should be given its natural and ordinary meaning (Levene).  Secondly, that the words “residence” and “to reside” mean “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).  Next, that the question whether a person is or is not resident in the United Kingdom is a question of fact for the Special Commissioners (Zorab). Fourthly, that no duration is prescribed by statute and it is necessary to take into account all the facts of the case; the duration of an individual’s presence in the United Kingdom and the regularity and frequency of visits are facts to be taken into account; also, birth, family and business ties, the nature of visits and the connections with this country, may all be relevant (Zorab; Brown).  Fifthly, that in general the availability of living accommodation in the United Kingdom is a factor to be borne in mind in deciding if a person is resident here (Cooper) (although that is now subject to section 336(3)).  Next that the fact that an individual has a home elsewhere is of no consequence; a person may reside in two places but if one of those places is the United Kingdom he is chargeable to tax here (Cooper and Levene).  Seventhly, that there is a difference between the case where a British subject has established residence in the United Kingdom and then has absences from it (Levene) and the case where a person has never been resident in the United Kingdom at all (Zorab).”

39.	In the same case the Special Commissioners considered the meaning of “temporary purposes” in section 336 (the parallel to section 9(3) and (4)).  They concluded at paragraph 178:-

“… we conclude that a temporary purpose is a purpose lasting for a limited time; a purpose existing or valid for a time; a purpose which is not permanent but transient; a purpose which is to supply a passing need.  “Temporary purpose” means a casual purpose as distinguished from the case of a person who is here in pursuance of his regular habits of life … the opposite of continuous purpose …”

And in relation to the meaning of “ordinary residence” they said at paragraphs 188 and 189:- 

“188.	At 527 of Lysaght Viscount Sumner said:

“My Lords, the word “ordinarily” may be taken first.  The Act on the one hand does not say “usually” of “most of the time” or “exclusively” or “principally”, nor does it say on the other hand “occasionally” or “exceptionally” or “now and then” … I think that the converse to “ordinarily” is “Extraordinarily”, and that part of the regular order of a man’s life, adopted voluntarily and for settled purposes, is not “extraordinarily”.  Having regard to the time and duration, the object and the obligation of Mr Lysaght’s visits to England, there was in my opinion evidence to support a finding that he was ordinarily resident, if he was resident in the United Kingdom at all … Grammatically, the word “resident” indicates a quality of the person charged and is not descriptive of his property, real or personal.”

189.	We conclude that the concept of “ordinary residence” requires more than mere residence; it connotes residence in a place with some degree of continuity (Levene) and “Ordinary” means normal and part of everyday life (Lysaght).”

40.	Although we were not referred to it we also note the judgment of Lewison J in HMRC v Lyle Dicker Grace [2008] EWHC 2708 (Ch).  At para 36 the judge noted that presence in the UK in order to fulfil the duties of a permanent (or at least indefinite) contract of employment could not be described as casual or transitory.  And at para 41 he said that a person’s residence may be dictated by the exigencies of work

Applying those principles

(a)	residence in the UK

We consider first whether, apart from section 9(3) and (4), the taxpayer was resident in the UK in any part of 2003/4.

We find that up until about November 2003 Miss Karim had a settled abode at 8 Holly Lodge: she had lived there a long time and although she also lived in Portugal she could be said to be settled there.  She spent a significant amount of time in the UK in that and contiguous years, and her visits were frequent.  She had business (with Tudor Peak Homes’ home) to attend here and family ties.  The fact that she may also have been resident in the Algarve is irrelevant.

We conclude that on general principles she was resident in the UK between 5 April and early November or late October 2003.

Do subsection 9(3) and (4) mean that Miss Karim is not to be treated as resident in that part of 2003/04?  That would be the case only if she was in the UK for some temporary purpose.

There were two grounds on which it might have been said that Miss Karim’s purpose for being in the UK in 2003/04 was temporary: first that she was here because of her mother’s illness; second that she was here to wind up her affairs in the UK.

In relation to the first we have not found it proven that all the days of her presence here were because of her mother’s illness.  In relation to the second whilst we suspect that some of her time may have been for that purpose, we have found that she partook of the management of Tudor Peak Homes in that period – which was not a temporary purpose – and we find that her presence at times after November 2003 indicates continuing purposes which were not transient or to supply passing needs.

We thus conclude that section 9(3), and (4), do not prevent Miss Karim being resident in 2003/4.   The imported effect of section 336 would be to render Miss Karim UK resident if she were not otherwise resident if her residence abroad were only occasional.  But, given our conclusions on her residence it is not necessary for us to consider this provision further.  We therefore find that Miss Karim was resident in the UK during part of 2003/4.

The fact that Miss Karim was present in the UK after November 2003 (and indeed regularly in 2004) suggests that she may have been resident for the whole of 2003/4.  We do not find it proved that she was not so resident.  

(b)	ordinary residence

Given our conclusion that Miss Karim was UK resident during at least part of 2003/4 there is no need for us also to decide whether or not she was ordinarily resident “during” 2003/4.  But the issue was argued before us and we set out our conclusions on the evidence.

It is clear to us that the factors which caused us to conclude that Miss Karim was resident in the UK in 2003/4 were present in prior years and that she was therefore resident in previous years.  Those factors were part of the regular settled order of her life and her residence in any one of those years was not extraordinary.

In 2003 however Mr Evans suggests that the pattern of Miss Karim’s life changed: he says that she cut her ties with Tudor Peak Homes and sold her UK properties.  Thus, he says, after November 2003 the ordinary pattern of her life was different, and UK residence was not part of it.  As a result he implies she was not ordinary resident ‘during’ 2003/4 even though she may have been resident for part of that year.

However although we have found that Miss Karim sold her properties and her shares there was no evidence before us which enabled us to conclude whether, after November 2003, she had or had not any abode or accommodation or place at which she would usually stay in the UK, or any work she did in the UK in addition to the work she did in Portugal. But there was evidence that her visits to the UK were not infrequent and were not for insubstantial periods.  The evidence before us was not sufficient to dislodge HMRC’s assertion, for which there was some basis in the evidence of her presence in the UK, that the ordinary everyday pattern of Miss Karim’s life had changed so as to make her not ordinarily resident: Mr Evans valiantly asserted that the pattern had changed but he had only the straws of that assertion to make the bricks needed to convince us.  We find that it was not proved that she was not ordinarily resident in 2003/4.

The Quantum of the Assessment

41.	On 16 January 2009 Mr Evans provided Mr Wallace with computations of the gains made by Miss Karim on 1 Leopold Terrace and 8 Holly Lodge.  These computations included deductions in computing the chargeable gain for improvement expenditure, £95,000 was deducted for expenditure on Leopold Terrace, and £45,000 for Holly Lodge.  Mr Evans’ letter properly noted that the figures had not been supported by invoices.

42.	The assessment against which this appeal is made includes no deduction for improvement expenditure.  Mr Evans did not offer any further evidence in relation to such expenditure.

43.	The onus was on the Appellant to provide evidence to convince us that there had been improvement expenditure  Insufficient evidence was provided for us to be able so to conclude.  We find therefore that no deduction in respect of such expenditure is available to Miss Karim.

Section 29: A Discovery Assessment

44.	The assessment appealed against was made under the provisions of section 29 TMA 1970 rather than by amendment to a self assessment return.  Such an assessment may be made only if one of the conditions in section 29 are satisfied.  Mr Tebbet relied on that in subsection (4):

“… that the [discovery that a gain had not been assessed which ought to have been] was attributable to fraudulent or negligent conduct on the part of the taxpayer or a person acting on his behalf.”

He says that Miss Karim or her advisers were negligent in not recording the gains on Leopold terrace and Holly Lodge since she was chargeable on them.

45.	On the evidence before us it was clear that Miss Karim was within the residence criteria of section 9 TCGA.  This was not, on that evidence, a borderline case in which it might not have been negligent to have concluded that Miss Karim was not resident and the gains were not chargeable.  The position might have been different if other evidence was before us, but it was not.  We therefore conclude that it was negligent not to report the gains, and that the assessment was validly made.

Conclusion

46.	We dismiss the appeal.

47.	The rights of the parties to appeal against this decision and the procedure for so doing are set out in the notice which accompanies this decision.  To such an extent that notice is incorporated in this decision.

CHARLES HELLIER
TRIBUNAL JUDGE
RELEASE DATE: 16 December 2009

TRIBUNAL JUDGE
RELEASE DATE: