Shepherd v Revenue and Customs [2005] UKSPC  00484 (20 June 2005)

SPC 00484

INCOME TAX – Schedule E – residence and ordinary residence - Appellant was an airline pilot who flew long haul flights from and to the United Kingdom – agreed that until October 1998 the Appellant was resident and ordinarily resident in the United Kingdom -  from October 1998 the Appellant also rented a flat in Cyprus – after that date he continued to fly long haul flights from and to the United Kingdom and spent most of his off-duty time either in the United Kingdom or in Cyprus - whether in the year of assessment 1999/2000 the Appellant was resident and ordinarily resident in the United Kingdom – yes – appeal dismissed – ICTA 1988 ss 19, 334 and 336 

THE SPECIAL COMMISSIONERS

IAN HUGH SHEPHERD 
Appellant

                                                              - and -

HM REVENUE AND CUSTOMS
Respondents

		Special Commissioner: DR A N BRICE

Sitting in public in London on 1, 2  and 3 March and 10 May 2005

Michael Sherry of Counsel, instructed by Wilfrid T Fry Ltd Taxation Consultants, for the Appellant

Ingrid Simler of Counsel, instructed by the Acting Solicitor for HM Revenue and Customs, for the Respondents 

© CROWN COPYRIGHT 2005 

DECISION 

The appeal
1.	Captain Ian Hugh Shepherd (the Appellant) appeals against a notice of determination dated 8 May 2003 given by an Officer authorised by the Commissioners of Inland Revenue which notice determined that the Appellant was ordinarily resident in the United Kingdom for the years of assessment 1998/1999 and 1999/2000. In April 2005 the Commissioners of Inland Revenue became HM Revenue and Customs (the Revenue). 

The legislation
2.	At the relevant time s 19 of the Income and Corporation Taxes Act 1988 (the 1988 Act) contained the provisions about Schedule E and the relevant part provided:

“1.	Tax under this Schedule shall be charged in respect of any office or employment on emoluments therefrom which fall under one or more than one 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.”

The issues
3.	At the hearing Mr Sherry, on behalf of the Appellant, accepted that the Appellant was resident and ordinarily resident in the United Kingdom until October 1998 which meant that he was resident and ordinarily resident in the United Kingdom for the whole of that year of assessment. Mr Sherry also accepted that the Special Commissioners had no jurisdiction to consider the possible application of extra-statutory concession A11 (Residence in the United Kingdom: year of commencement or cessation of residence) which provided for the splitting of a tax year where an individual ceased to reside in the United Kingdom during a year of assessment. Accordingly, the dispute in the appeal only concerned the year of assessment 1999/2000 and not 1998/1999. 

4.	The Appellant argued that he became resident in Cyprus in October 1998 and so in 1999/2000 he was not resident and ordinarily resident in the United Kingdom within the meaning of s 19 Case I or resident within the meaning of s 19 Case III. The Revenue argued that the Appellant remained resident and ordinarily resident in the United Kingdom until the end of April 2000 within the meaning of Case I or resident within the meaning of Case III. 

5.	Thus the issues for determination in the appeal were whether, in the year of assessment 1999/2000, (1) the Appellant was resident and ordinarily resident in the United Kingdom within the meaning of Case I or (2) resident in the United Kingdom within the meaning of Case III. 

The evidence
6.	Three (red) bundles of documents were produced by the parties. Oral evidence was given by the Appellant on his own behalf. Oral evidence was also given on behalf of the Appellant by his wife, Mrs Ursula Shepherd, and by Mr John Walford of Wilfrid T Fry Ltd Taxation Consultants.  

7.	Written statements, containing evidence on behalf of the Appellant and signed by: 

Ms Tracey Christou of Cyprus; 
Ms Androula Frangoudis of Cyprus;
Mr Takis Hadjioannou, the President and Mr Michael Philis the Secretary, of the Cyprus Offshore Golf Club; 
Mr J E Humphreys, Flight Crew Resource Manager of British Airways; 
Mr R A W Jones, the Secretary of Crusader Gliding Club; 
Mrs B H Shepherd, the mother of the Appellant and Mr Colin Shepherd, his brother; and   
Mr Nicholas Waite of Cyprus; 

were produced at the hearing. Rule 17(4) of the Special Commissioners (Jurisdiction and Procedure) Regulations 1994 SI 1994 No. 1811 provides that, in assessing the truth and weight of any evidence, the Tribunal may take account of its nature and source and the manner in which it is given. In assessing the truth and weight of the evidence in these written statements I bore in mind that the witnesses did not attend the hearing to give oral evidence and so were not available to be questioned.  

The facts
8.	From the evidence before me I find the following facts.

The Appellant, his employment and his family
9.	The Appellant is a British subject and holds a British passport. At the relevant time he was employed by British Airways as an airline pilot. He flew long haul flights all of which started or finished in the United Kingdom (usually at either Gatwick or Heathrow airports). At the relevant time British Airways Flying Crew Order included the following guidance:

“The Air Navigation Order places responsibility for the avoidance of fatigue on both the operator and the individual crew member. British Airways does not normally impose restrictions on where an individual chooses to live. Nonetheless, it must be emphasised that it is an individual’s responsibility to ensure that the travelling time from home to duty does not become a factor in the onset of fatigue. It is a requirement of the British Airways Flight and Duty Time Limitations Scheme that crew members should consider making arrangements for temporary accommodation near to base if the journey time from home to the normal departure aerodrome is usually in excess of 1:30min.

Crew members are reminded that it is their responsibility to ensure that they present themselves in such a rested state that will allow them to adequately complete their duties.”

10.	The Appellant married in 1968 and had one son born in 1972. In or about 1987 the Appellant and his wife purchased a house in Wokingham in their joint names with the aid of a mortgage and thereafter that house was the family home. In 1996 the Appellant became involved with an air stewardess who ended the relationship in August 1998. Because of that relationship the Appellant and his wife agreed to live separate lives, albeit in the same house. They were not divorced as neither wanted to re-marry. When the Appellant was at Wokingham Mrs Shepherd cooked his meals. In January 1998 Mrs Shepherd was stated by the Appellant as the first person British Airways should contact in the case of an emergency.

11.	The long haul flights which were captained by the Appellant lasted on average between five and seven days for the return journey. Before October 1998 the pattern of the Appellant’s life was that, for most of the days of the year, he was away from home because he was flying to, or returning from, far-off destinations. When he was in the United Kingdom he either stayed at the house in Wokingham (which was convenient for both Gatwick and Heathrow airports) or took part in sporting activities. He sailed; he took part in hang gliding; he enjoyed motor cycling; and he was a keen amateur radio enthusiast. He had a radio mast as high as 110 feet at the house in Wokingham. He also visited Europe for holidays.

The Appellant and Cyprus
12.	The Appellant knew that he would have to retire on 22 April 2000 when he attained the age of 55 years. He started to plan for his retirement in 1997 when he wrote to the Revenue and asked for guidance on retirement overseas; he did not mention any particular country. In reply he received a copy of the Revenue publication IR 20 “Residents and non-residents”.  The Appellant understood that it would be possible to have his British Airways pension paid gross without deduction of United Kingdom income tax in any country with which the United Kingdom had a double taxation agreement that exempted United Kingdom pensions from United Kingdom tax. Tax on the pension would be payable at the tax rate in the country of retirement. There were ninety-seven such countries of which Cyprus was one. On 5 May 1998 the Appellant applied to the Cypriot authorities for permanent residency and an immigration permit.   
 
13.	On 17 September 1998 the Appellant wrote to the Revenue to say that, with one year and seven months to go before his retirement, he was considering moving abroad to minimise his tax liabilities. He understood that his time in the United Kingdom had to average less than ninety-one days over four years. He had applied for Cyprus residency and would move there when permission was granted. However, this would take a considerable time and so he might move to Switzerland or Eire in the meantime. The Revenue replied to say that he was responsible for determining his residency status but if he was in the United Kingdom for 183 days or more in a tax year then he would be regarded as resident here.    

14.	On 14 October 1998 the Appellant visited Cyprus, returning on 20 October 1998. While he was there he stayed in a hotel and rented a car. He looked for a suitable place in which to acquire a flat and chose Larnaca as it was near the airport. He found a flat (41, Eviathi Apartment) where the landlord would permit him access to the roof for his radio antennae. The flat was a fully furnished penthouse with a sea view. It had an open plan kitchen and sitting room with one bedroom and bathroom; it also had a sun bathing area. It was about seven minutes from the airport by taxi. 

15.	On 19 October 1998 the Appellant signed a tenancy agreement in respect of the flat. The term of the tenancy was for one year and the monthly rent was £130 Cyprus which amounted to about £40 each week or £160 each month. In addition the Appellant paid municipal taxes, electricity, telephone and water charges. As the flat had solar power the electricity bills were small being £9 Cyprus for two months. The telephone bills were about £5 Cyprus or £6 Cyprus each month although the Appellant also had a mobile telephone and he estimated that the cost of all his calls could be in the region of £20 each month.  The water was metered and the bill amounted to about £3 Cyprus each month. On 1 February 1999 the tenancy agreement was renewed so as to expire on 24 April 2000. In evidence which I accept the Appellant said that he initially rented a flat because he wanted to find out if he liked being there; also, as he was working full-time, renting was easier because the landlord did all the maintenance. 

16.	Shortly after signing the tenancy agreement the Appellant joined the Cyprus Offshore Yacht Club and in February 1999 he joined the Crusader Gliding Club. However, he retained his membership of the British Hang Gliding Association, the Royal Yachting Association and the British Airways Yacht Club. His radio mast at Wokingham was partially de-commissioned (being reduced from a height of 110 feet to about 40 feet) and he took some of the equipment to Cyprus. Although it would still have been possible to receive transmissions in the United Kingdom if there were a radio, in fact the radio was also taken to Cyprus and all outgoing transmissions from October 1998 to April 2000 were made from Cyprus. During this period 3,311 radio contacts were made. The Appellant had a woman friend who lived in Cyprus and when he was there he visited her.  

The Appellant’s arrangements after October 1998 
17.	After October 1998 the pattern of the Appellant’s life was that, for most of the days of the year, he was away from home because of his employment. Of the remaining time some was spent in the United Kingdom, some in Cyprus, some engaged in sporting activities and some in Europe on holiday.   

18.	From 31 July to 9 August 1999 the Appellant and his wife visited Switzerland together as Mrs Shepherd’s parents lived there. In May 2000 Mrs Shepherd flew to Cyprus to join the Appellant for four days and he showed her the flat. In August 2000 Mrs Shepherd and her son went to Cyprus for a holiday and stayed at the flat while the Appellant was elsewhere. Mrs Shepherd and her son have since visited Cyprus and stayed at the flat while the Appellant was not there. Later, in 2002 when the Appellant was sailing round the world in his yacht, Mrs Shepherd and her sister flew out to join the Appellant in Barbados for a week.

The Appellant’s financial arrangements
19.	For the last ten years Mrs Shepherd has done charitable work and so the Appellant’s salary was the sole source of their income. In the United Kingdom the Appellant had a joint bank account with his wife and a high interest saving account at the same bank in his own name. He also had a bank credit card and building society credit card and Mrs Shepherd also had a credit card on both these accounts. The Appellant’s salary was paid into the joint bank account which was used by both his wife and himself. For many years the sum of £500 was paid each month, from the joint bank account and under standing order, into Mrs Shepherd’s separate bank account for housekeeping expenditure. Also, Mrs Shepherd regularly wrote cheques on the joint bank account both for her personal expenditure and also to pay for the outgoings on the house in Wokingham. The Appellant rarely drew cheques on the joint bank account but he did have a credit card which he used when he was abroad and which was paid by direct debit from the joint bank account. Mrs Shepherd also effected transactions on both the credit card accounts. The transactions on the joint bank account (cash withdrawals and payments in) and on the credit card accounts which were effected by the Appellant were effected at Wokingham or at Heathrow; none were effected in London. Nothing changed in October 1998 and these arrangements continued until April 2000.

20.	Sometime before the end of November 1998 the Appellant opened a bank account in Cyprus.  However, after October 1998 the Appellant’s salary continued to be paid into his joint bank account in the United Kingdom and he continued to pay the monthly mortgage payments on the house in Wokingham from his joint bank account. The mortgage was fully paid when the Appellant retired in April 2000. The house was not sold and his wife and son continue to live there. The Appellant remained on the electoral roll until 2000. All correspondence addressed to the Appellant, including his flight rosters from British Airways, his correspondence from the Revenue, and his bank and credit card statements, continued to be sent to him there. The Appellant did not inform his United Kingdom bank that he had moved to Cyprus. 

21.	The Appellant retired from British Airways on 22 April 2000 and his first pension payment was made on 31 May 2000 directly into his bank account in Cyprus. After he retired the Appellant stopped the monthly payment of £500 to his wife from the joint bank account but he continued to support Mrs Shepherd financially and after April 2000 transferred to her from his Cyprus bank account a monthly sum amounting to one half of his pension.

The events surrounding the retirement of the Appellant 
22.	On 19 January 2000 British Airways wrote to the Appellant (at his Wokingham address) to notify him that he had to retire on 22 April 2000 when his contract of employment would be terminated. He was asked to enter details of any change to his home address after the termination of his contract. The Appellant acknowledged receipt of the notice on 2 April 2000 but did not enter any details of another address. Although the Appellant formally retired on 22 April 2000 his last day of work was 6 April 2000. On 9 and 10 April 2000 he visited Holland to buy a car for his wife. 
  
23.	On 7 February 2000 the Appellant was granted an immigration permit by the Republic of Cyprus provided that he acquired permanent residence in Cyprus within one year from that day. 

24.	Beginning in June 2000 the Appellant went on a sailing cruise around the world in his yacht. The cruise lasted until October 2002. During that time he visited the United Kingdom to see his parents and brother once or twice a year. His father became ill in September 2002 and the Appellant returned to the United Kingdom to visit him.

25.	On 14 May 2001 the Appellant made a Will in Cyprus under which he gave to “his dearest wife” all his movable and immovable (real) property in Cyprus and all his personal property; if his wife pre-deceased him then he left his property to his son.  

26.	In May 2002 the landlord of 41, Eviathi Apartments did not wish to renew the tenancy agreement and so the Appellant moved to another apartment (number 13) in the same building. In November 2002 the Appellant purchased another apartment in Cyprus which he still has. He likes the sun and the life in Cyprus; he likes his sailing and gliding and riding motor cycles; and there are many English people there.

The Appellant and income tax 
27.	On 26 January 1999 the Appellant wrote to the Revenue from Cyprus to say that he was now resident in Cyprus and had applied to the Cyprus authorities for residence status under Schedule F when he retired in April 2000. He had decided to move to Cyprus before his retirement and commute to Heathrow for his work. He would be spending less than ninety days a year in the United Kingdom before retirement and very little time there after he retired. He would therefore be claiming non-resident status in his next tax return. He asked for correspondence to be sent to his Wokingham address.  

28.	On 1 September 1999 the Appellant signed his tax return for the year ending on 5 April 1999. The return asked him to state whether he was single, married, widowed, divorced or separated and he stated that he was married. 

29.	On 6 February 2000 a firm of authorised accountants and auditors in Larnaca wrote to the Revenue to say that they had been appointed by the Appellant to prepare his tax assessments for the Cyprus tax authorities for the period of his residency in Cyprus since October 1998 to 31 December 1999. They would also be handling his tax affairs in Cyprus with effect from April 2000. There was no tax liability in Cyprus until retirement.   

The enquiries of the Revenue
30.	In 2002 the Revenue made some enquiries about the Appellant’s tax status in Cyprus. On 6 February 2002 the firm of authorised accountants and auditors in Cyprus wrote to the Revenue to say that the Appellant had opened a file with the Cyprus tax authorities on 22 April 2000 when he started receiving his pension. Although he was a resident of the Republic of Cyprus since 1998 the Cyprus tax authorities did not accept his tax assessments for the period from October 1998 to 31 December 1999 because, according to Cyprus legislation, the emoluments of an alien individual from the rendering of salaried services outside the Republic were exempt from tax if they were not payable in Cyprus. On 7 February 2002 the Revenue asked why the Cyprus tax authorities had not accepted the tax assessments for the period from October 1998 to 31 December 1999 and the reply was because the Appellant had lived in Cyprus for only 68 days during that period.  

31.	On 13 March 2002 the Department of Inland Revenue in the Republic of Cyprus wrote to the Revenue as follows:

“(a)	Mr Ian Shepherd provided the following documents to my Department in order to support his claim that he is resident in Cyprus and to obtain exemption from UK on his pension:
(i)	copy of the immigration permit for permanent residency issued on 7 February 2000;
(ii)	contract of lease for the flat he rented since 1 October 1998;
(iii)	income tax returns for the years 1998 to 2000;
(iv)	UK Form X/individual for certification by my Department. 	
(b)	The date on which he first notified my Department that he was liable to Cyprus tax was the 22.4.2000.
(c)	Having regard to the above my Department was convinced that he is a UK retired pensioner who chose to reside in Cyprus and pay tax on his pension on remittance basis.
(d)	Despite the fact that his claim for such tax treatment was for the year 1998 onward my Department accepted his claim as from the year 2000. This was based on the fact that he stayed in Cyprus for a very limited period of time during the years 1998 and 1999.
(e)	Mr Shepherd declares on his income tax return that he is married and that the immigration permit mentioned in paragraph (a) above makes reference to his wife, Ursula Anna Shepherd. No other details about his wife are available in my file.”

The arguments for the Appellant
32.	For the Appellant Mr Sherry argued that in October 1998 the Appellant had deliberately set up a separate home in Cyprus. After that date there was a material change in the character and quality of his presence in the United Kingdom as he ceased to be resident here and became a visitor. He only visited Wokingham when that was necessary for the purposes of his work. Mr Sherry went on to argue that when the Appellant acquired the lease of the property in Cyprus in October 1998 he adopted Cyprus as part of the regular order of his life and lived there with a sufficient degree of continuity. Even though he continued to visit the United Kingdom, Cyprus was where he had his base. The fact that he was still in Cyprus in 2005 could be evidence of his intention in 1998.

33.	Mr Sherry relied upon s 336 of the 1988 Act and argued that after October 1998 the Appellant was in the United Kingdom for temporary purposes only and not with the intention of establishing his residence here and so the question of his residence had be decided without regard to any living accommodation available in the United Kingdom for his use. Mr Sherry accepted that In Re Young (1875) 1 TC 57 at 59 was authority for the principle that it was possible to be outside the United Kingdom for a whole year and still to be resident here if the United Kingdom was where one’s home was. However, Mr Sherry relied upon Commissioners of Inland Revenue v Zorab (1926) 11 TC 289 and Commissioners of Inland Revenue v Brown (1926) 11 TC 292. He distinguished Levene v Commissioners of Inland Revenue (1928) 13 TC 486 where the taxpayer had no fixed residence anywhere whereas in this appeal the Appellant did have a fixed residence in Cyprus. Mr Sherry also distinguished Lysaght v Commissioners of Inland Revenue (1928) 13 TC 511. He relied upon Commissioners of Inland Revenue v Combe (1952) 17 TC 401 for the principle that residence could be substantially different both in character and duration. He also relied upon Reed v Clark (1985) 58 TC 528 for the principle that the views of the Cyprus authorities were not relevant. Finally, Mr Sherry referred to the Revenue’s publication IR 20. 

The arguments for the Revenue
34.	For the Revenue Ms Simler argued that all the relevant factors pointed to the conclusion that there was no distinct break in October 1998. After that date the Appellant remained in the United Kingdom for a settled purpose, namely to perform the duties of his employment and to continue to see his wife, family and friends.

35.	Ms Simler relied upon s 334 of the 1988 Act which made it made clear how adhesive was the quality of residence of a Commonwealth citizen whose ordinary residence had been in the United Kingdom. She argued that after October 1998 the Appellant left the United Kingdom for the purpose of occasional residence abroad in Cyprus and so s 334 of the 1988 Act applied. Ms Simler also argued that there had to be a distinct break to divest a person of that residence and she relied upon Levene, Combe and Reed v Clark. She also relied upon Cooper v Cadwalader (1904) 5 TC 101 and Barnet London Borough Council v Nilish Shah [1983] 2 AC 309 at 349C. Finally, Ms Simler argued that s 336 did not apply because the Appellant had not been in the United Kingdom for a temporary purpose only and had an established residence here. Accordingly, the availability of accommodation in the United Kingdom remained a relevant factor in determining whether the Appellant was resident or ordinarily resident in the United Kingdom. 

Reasons for Decision
36.	In considering the arguments of the parties I first reach findings on three areas of disputed fact. I then turn to consider the authorities cited by the parties to see what legal principles they establish after which I apply those principles to the facts of this appeal. Finally I consider and apply s 334 and s 336 of the 1988 Act.

The three areas of disputed fact
37.	There were three areas of disputed fact. The first concerned the number of days on which the Appellant was present in the United Kingdom in each of the years 1998/1999 and 1999/2000. The second concerned the nature of the relationship between the Appellant and his wife. And the third concerned the extent to which the Appellant stayed at Wokingham when he was in the United Kingdom. 

The Appellant’s presence in the United Kingdom
38.	There was some dispute between the Appellant and the Revenue about the exact number of days spent by the Appellant in the United Kingdom in both 1998/99 and 1999/2000. The Appellant argued for a lower number and the Revenue argued for a higher number. In her closing submissions Ms Simler, for the Revenue, put forward a table which specified the number of days which she argued were spent by the Appellant in each place but, although the Appellant disputed the number of days which the Revenue claimed were spent in the United Kingdom,  no similar table was put in by the Appellant. 

39.	The Appellant had a computer programme which enabled him to record his work rosters and other information. At one stage he lost some of the data and had to re-construct it from his flight crew records. From these his representatives had produced a schedule showing where he was on each day in the two years of assessment the subject of the disputed decision. In his oral evidence the Appellant emphasised that he had not prepared the schedules and seemed to want to distance himself from them. Some of the information in the schedules was successfully challenged by the Revenue in cross-examination. I also bear in mind that the burden of proof in this appeal is on the Appellant to satisfy the Special Commissioners of the facts upon which he seeks to rely.

40.	From the evidence before me I have calculated, on the balance of probabilities, the number of days that the Appellant spent in each place. On that basis I find that in 1998/99 the Appellant was flying in the course of his employment (including the days of arrival and departure) for 179 days; was in the United Kingdom (not including the days of arrival and departure) for 92 days; was in Cyprus for 52 days (including the days of arrival and departure); was sailing for 22 days; and was visiting Europe (Dusseldorf and France) for 20 days. In 1999/2000 the Appellant was flying in the course of his employment (including the days of arrival and departure) for 180 days; was in the United Kingdom (not including the days of arrival and departure) for 80 days; was in Cyprus for 77 days (including the days of arrival and departure); was sailing for 8 days and was visiting Europe (Dusseldorf, France and Switzerland) for 20 days. Between April 2000 and June 2000 the Appellant visited Holland to buy a car for his wife (2 days); spent ten days on holiday in Antigua sailing; was in the United Kingdom for 35 days; and was in Cyprus for 11 days. In June 2000 he left for his round-the-world sailing cruise.  

41.	I also bear in mind that the Appellant did not dispute the statement made by the Cypriot tax authorities that, in the period from October 1998 to 31 December 1999, the Appellant was present in Cyprus for sixty-eight days. The difference between that figure and the figures mentioned in paragraph 40 could be explained by the fact that the figures in paragraph 40 include arrival and departure days in Cyprus whereas those given by the Cypriot tax authorities may well include only full days actually spent in Cyprus. Also, the figures in paragraph 40 are by reference to years of assessment whereas the figures mentioned by the Cyprus tax authorities are by reference to the period from October 1998 to December 1999.

42.	When in the United Kingdom between October 1998 and April 2000 the Appellant visited the Boat Show and celebrated the Millennium. Also, on 17 to 27 October 1999 he was in the United Kingdom for a longer period although on two of those days (22 and 23 October) he was working in Manchester. On two or three days each year the Appellant was in the United Kingdom on stand-by duty. However, most of the days when the Appellant was present in the United Kingdom were periods of between one or four days between flights. Those days were spent here partly to comply with the British Airways guidance on the avoidance of fatigue and partly because there was only one British Airways flight to and from Cyprus each day which took four and a half hours. Some of the intervals between the long haul flights made by the Appellant as pilot were too short to allow time for him to get to Cyprus and back. Thus throughout the disputed period the Appellant was in the United Kingdom regularly, mainly in order to join his outward flights and to return to the United Kingdom when each flight returned but also for other visits to, for example, the Boat Show and to celebrate the Millennium.  

The Appellant and his wife
43.	There was also a dispute between the Appellant and the Revenue about the exact nature of the relationship between the Appellant and his wife, the Appellant arguing that the relationship was formal only and the Revenue arguing that it was more than that.

44.	In reaching a decision on this matter I bear in mind that the Appellant and Mrs Shepherd are not divorced and neither wishes to remarry. Before his retirement the Appellant paid Mrs Shepherd a monthly sum and also gave her full access to his credit card accounts and joint bank account. He also paid all the mortgage and other outgoings on the house at Wokingham. After his retirement the Appellant continued to provide financially for Mrs Shepherd. All these arrangements show a generosity which was appreciated by Mrs Shepherd in her evidence.  The Appellant also treated Mrs Shepherd as his wife in other matters. In January 1998 she was stated as the first person British Airways should contact in the case of an emergency. In August 1999 they visited Switzerland together to see Mrs Shepherd’s parents. In September 1999, on his tax return, the Appellant stated that he was married; not that he was separated. In April 2000 the Appellant went to Holland to buy a car for Mrs Shepherd. In May 2000 Mrs Shepherd flew to Cyprus to join the Appellant for a holiday and later joined him on his yacht. In 2001 the Appellant made a will leaving all his Cyprus property to Mrs Shepherd as “his dearest wife”. The Wokingham house is in joint names and so would become the property of Mrs Shepherd if the Appellant were to pre-decease her. 

45.	From the evidence before me, therefore, I conclude that the Appellant and his wife remained good friends.	

The use by the Appellant of the Wokingham house
46.	That conclusion has some bearing on the third area of disputed fact, namely the extent to which the Appellant stayed at the house in Wokingham when he was in the United Kingdom. Initially the Appellant gave evidence that after October 1998 he mostly stayed at his parents’ house in London when he was in the United Kingdom whereas the Revenue argued that he retained the house in Wokingham as his base. 

47.	Here it is relevant that, after October 1998, the Appellant continued to pay the mortgage on the Wokingham house and to fund all the outgoings. He remained on the electoral roll. Also, it was the Wokingham address to which all the Appellant’s correspondence was sent, including his work rosters and his bank and other financial statements and so he would have had to visit the house to receive his correspondence. Further, many of the bank and credit card transactions effected by the Appellant, including payments in and some cash withdrawals, were effected in Wokingham or at Heathrow and none were effected in London. When asked by British Airways in April 2000 to give details of any change of address the Appellant did not do so. I have already found that the Appellant and his wife remained good friends and it is also relevant that their son lives at the Wokingham house. 

48.	Having heard the evidence and seen the witnesses I find that, although on some occasions the Appellant no doubt stayed at his parents’ house in London when he was in the United Kingdom, on most occasions he stayed at Wokingham.

The authorities

49.	The authorities cited by the parties can be considered in pairs. The first pair (Young and Cooper) were both judgments of the Court of Exchequer (Scotland). Young (1875) concerned a master mariner who sailed between Glasgow and the Mediterranean and New York. Although he had a house for his wife and family in Glasgow he was only in the United Kingdom for 88 days in the relevant year of assessment. It was held that he was resident in Great Britain; his absences were temporary absences and he was actually residing in Glasgow. He had done nothing to change his residence. Cooper (1904) concerned a citizen of the United States who resided in New York. However, he rented a house and shooting rights in Scotland for a term of three years, later extended to six years, where he spent two months each year. He was held to be resident in the United  Kingdom. At 105 the Lord President referred to the lease and to the occupation which was not casual or temporary but substantial and continuous. 

50.	The next pair of authorities (Zorab and Brown (1926)) were both heard by Rowlatt J on the same day and both concerned Indian civil servants.  Zorab concerned a British subject who was born in Calcutta and who for thirty years lived all his life in India generally in hotels. In 1920 he left India and thereafter lived in hotels in the United Kingdom, Paris and Belgium. Between November 1920 and May 1925 he lived in the United Kingdom for approximately two and a half years (being about six months of each year) for the purpose of seeing friends. He was assessed to income tax for the year 1924-25 but the Special Commissioners held that he was not resident in the United Kingdom for that year. On appeal Rowlatt J held that there was evidence on which the Commissioners could come to their decision and that they had not misdirected themselves in law. At 291 he said:

“Of course it is perfectly right to say that a man has not got to have a residence in the shape of a building to be resident in this country. That is quite clear. But I think that one has to consider not only the time that he is in this country but the nature of his visit and his connection with the country … Because the question to be solved is not whether he is resident for the five months he is here, but whether he is resident for the whole year during the time he is not here. … This gentleman seems to be a mere traveller. … All that can be said about it is that in the course of his habitual travels he spends a considerable period every year in England.”  

51.	 Brown also concerned an Indian civil servant who retired in 1983 and came to the United Kingdom where he took a house and lived until February 1918. He then gave up his house and lived in hotels in the United Kingdom until October 1919. He then spent nine months of each year in hotels in Europe and three months in the United Kingdom visiting his friends. The issue was whether he was resident in the United Kingdom for the year 1924-25 and the Special Commissioners held that he was not. Their decision was upheld by Rowlatt J.

52.	The third pair of authorities (Levene and Lysaght (1928)) were heard by the House of Lords consecutively and judgment in both was given on the same day. Levene concerned a British subject who lived in London until 1919 when he left with the intention of living abroad. He returned to the United Kingdom for five months each year but had no fixed residence either in the United Kingdom or abroad. The issue was whether he was resident or ordinarily resident in the United Kingdom for the year 1920-21 to 1924-25 and the Special Commissioners concluded that he was. At 505 Viscount Cave LC said:

“My Lords, the word “reside” is a familiar English word and is defined in the Oxford English Dictionary as meaning “to dwell permanently or for a considerable time, to have one’s settled or usual abode, to live in or at a particular place”. … In most cases there is no difficulty in determining where a man has his settled or usual abode, and if that is ascertained he is not the less resident there because from time to time he leaves it for the purpose of business or pleasure. … But a man may reside in more than one place. Just as a man may have two homes – one in London and the other in the country – so he may have a home abroad and a home in the United Kingdom, and in that case he is held to reside in both places and to be chargeable to tax in this country.”  

53.	Later Viscount Cave went on to consider some examples including that of the wanderer who had no home in any country and at 506 said:

“If , for instance, such a man is a foreigner, who has never resided in this country there may be great difficulty in holding that he is resident here. But if he is a British subject the Commissioners are entitled to take into account all the facts of the case … . Further the case may be different, and in such a case regard must be had to [what is now s 334 of the 1988 Act] which provides that every British subject whose ordinary residence has been in the United Kingdom shall be assessed and charged to 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.”  

54.	Later at 507 Viscount Cave said:

“The expression “ordinary residence” … is contrasted with occasional or  temporary residence; and I think it connotes residence in a place with some degree of continuity and apart from accidental or temporary absence.  So understood, the expression differs little in meaning from the word “residence” … and I find it difficult to imagine a case in which a man while not resident here is yet ordinarily resident here.” 

55.	In Lysaght the taxpayer was born in England and lived here until 1919 when he retired and went to live permanently in what was then called the Irish Free State. He continued as an advisory director of an English company; he came to England each month for a directors’ meeting when he stayed for about a week usually at a hotel. The issue was whether he was resident and ordinarily resident in the United Kingdom for the years 1922-23 and 1923-24. The Special Commissioners found that he was and the House of Lords held that there was evidence upon which they could properly arrive at that conclusion. At 527 Viscount Sumner said:

“My Lords, the word “ordinarily” may be taken first. The Act on the one hand doe not say “usually” or “most of the time” or “exclusively” or “principally”, nor doe 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’ 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.”  
    
56.	The final pair of authorities (Combe and Reed v Clark) both concern individuals who were resident in the United Kingdom before they left to work in the United States. In Combe (1932) the issue was whether the taxpayer was resident in the United Kingdom in each of the years 1926-27, 1927-28 and 1928-29. Before 24 April 1926 he had been resident and ordinarily resident in the United Kingdom but on that date he left to become employed in New York with a view to his becoming the European representative of the firm.  During each of the relevant three years he visited the United Kingdom on business and stayed at hotels; the time spent in the United Kingdom was 52 days in 1926-27; 175 days in 1927-28; and 181 days in 1928-29. The General Commissioners decided that he was not resident in the United Kingdom. The Court of Session upheld that decision and also held that there was evidence upon which the Commissioners could have come to that finding of fact. Lord Sands at 411 remarked that the visit to the United States was a distinct break and the three years that the taxpayer spent there could be regarded as a whole.  
   
57.	In Reed v Clark (1985) the taxpayer was normally resident in the United Kingdom but regularly worked in the United States. He was to receive a large payment in dollars in December 1977 and so sought professional advice designed to avoid tax. In 1977 he was regarded as resident in the United Kingdom for the purposes of United States tax. On 3 April 1978 he went to live in the United States and stayed there until 2 May 1979. He then returned to the United Kingdom. The issue was whether he was resident in the United Kingdom in the tax year 1978-79. The Special Commissioners held that he was not and that decision was upheld by the High Court on the ground that the taxpayer had been physically absent for the whole year and that what is now s 334(a) did not apply because the taxpayer did not leave the United Kingdom for the purpose of occasional residence abroad; his mode of life in the United States was settled and he was ordinarily resident there even though the period of residence was short.    

58.	From these authorities I derive the following principles. 

- that the concept of residence and ordinary residence are not defined in the legislation; the words therefore should be given their natural and ordinary meanings (Levene);

- that the word “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);

- that the concept of “ordinary residence” requires more than mere residence;  it connotes residence in a place with some degree of continuity (Levene); “ordinary” means normal and part of everyday life (Lysaght) or a regular, habitual mode of life in a particular place which has persisted despite temporary absences and which is voluntary and has a degree of settled purpose (Shah); 

- 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);  

-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);

- that a reduced presence in the United Kingdom of a person whose absences are caused by his employment and so are temporary absences does not necessarily mean that the person is not residing in the United Kingdom (Young);

- that 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 subject to s 336);.

- 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);

- that there is a difference between the case where a British subject has established a residence in the United Kingdom and then has absences from it (Levene) and the case where a person has never had a residence in the United Kingdom at all (Zorab; Brown); 

- that if there is evidence that a move abroad is a distinct break that could be a relevant factor in treating an individual as non-resident (Combe); and

- that a person could become non-resident even if his intention was to mitigate tax (Reed v Clark).

59.	I now turn to apply those principles to the fact of this appeal and I begin by taking into account all the relevant facts. The Appellant is a British subject and has many connections with this country. He was born here; his family live here; and at the relevant time his employment was here. He was employed by a British company and all the flights which he captained left from, and returned to, the United Kingdom. In the relevant year of assessment he also had a presence here and made regular and frequent visits to the United Kingdom not only because each of his long haul flights started and ended here but also because he wished to do other things such as visit the Boat Show, or celebrate the Millennium, or stay for a longer period (as happened from 17 to 27 October 1999). I have already found that in 1999/2000 the Appellant was flying in the course of his employment (including the day of arrival and departure) for 180 days; was in the United Kingdom (not including the days of arrival and departure) for 80 days; was in Cyprus (including the days of arrival and departure) for 77 days; was sailing for 8 days and was visiting Europe (Dusseldorf, France and Switzerland) for 20 days. It is relevant that by far the most of the Appellant’s absences were caused by his employment and so were to that extent temporary absences. 

60.	Subject to what is said below about s 336, it is relevant that the Appellant had available living accommodation in the United Kingdom at Wokingham. This was a house in which he, his wife and son had lived for almost twenty years. I have already found that, although on some occasions the Appellant may well have stayed at his parents’ house in London when he was in the United Kingdom, on most occasions he stayed at Wokingham. It is also relevant that the flat in Cyprus was more in the nature of a holiday home; it was let fully furnished and rented. Thus after October 1998 the Appellant’s financial investment in a house in the United Kingdom remained considerable; in Cyprus it was minimal.

61.	I have gone on to consider whether, as argued by the Appellant, there was a sufficiently distinct break in October 1998 as to lead to the view that on that date the Appellant became non-resident. Here it is relevant that in a number of areas of the Appellant’s life there was no or little change in October 1998. There was no change in his financial arrangements and, in particular, he continued to keep up his house in Wokingham. He continued to pay the mortgage instalments and his wife and son continued to live there. He continued to pay all the household bills. He used this address for all his correspondence relating to his employment and financial matters. He remained on the electoral roll. Other relevant factors are that the Appellant continued with the same employment until 22 April 2000 and his employment required his presence in the United Kingdom before and after each flight. I accept that after October 1998 the Appellant spent some days each year in Cyprus but he spent about the same or more in the United Kingdom.  

62.	In reaching a conclusion about the residence of the Appellant I have not regarded as relevant that the Cypriot authorities did not consider the Appellant to be resident in Cyprus after October 1998; that he was not granted an immigration permit until February 2000 and that was conditional upon his acquiring permanent residence in Cyprus within a year after that date; nor that the Cypriot tax authorities did not regard the Appellant as resident there for tax purposes until April 2000. Further, although the Appellant’s intention in going to Cyprus was to mitigate tax I do not regard that as a relevant factor in deciding whether he was resident in the United Kingdom.

63.	In my view the absences of the Appellant in Cyprus after October 1998 were temporary absences from the United Kingdom as were his absences when flying in the course of his duties and his absences when sailing and his absences when visiting Europe. His presence in the United Kingdom was not casual or temporary but substantial and continuous. He had a fixed residence here and did not have to stay in hotels. He was not a mere traveller. Wokingham was his settled and usual abode where he had lived for a considerable time.. There was no distinct break in October 1998. The most that could be said in favour of the Appellant after that date is that he resided both at Wokingham and in Cyprus but that would still mean that he would be resident here. 

64.	Before reaching a conclusion I now consider and apply ss 334 and 336 of the 1988 Act.

65.	At the relevant time s 334 of the 1988 Act provided:

“334	Commonwealth citizens and others temporarily abroad
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 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 … any trade profession, employment or vocation in the United Kingdom or elsewhere.”
. 
66.	It was accepted that the Appellant was a Commonwealth citizen. The relevance of s 334, therefore, is that as the Appellant’s ordinary residence was in the United Kingdom before October 1998 he remains liable to tax here if his presence abroad after that date was for the purpose of occasional residence abroad. 

67.	S 334 highlights the principle that there is a difference between the case where a British subject has established a residence in the United Kingdom and then has absences from it and the case where a person has never had a residence in the United Kingdom at all. In this appeal the Appellant was resident and ordinarily resident in the United Kingdom before October 1998. In my view his presence in Cyprus after that date was, at the most, for the purpose only of occasional residence abroad. Thus he remains liable to income tax under section 334. 

68.	At the relevant time the relevant part of s 336 of the 1988 Act provided:

“336.	Temporary residents in the United Kingdom  …
(2)	For the purpose of Case I … and 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 purpose of subs (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.” 

69	Thus s 336 can be contrasted with s 334. S 334 applies where a person is resident in the United Kingdom and makes occasional visits abroad; s 336 applies where a person who is not resident in the United Kingdom comes here for occasional visits. The relevance of s 336 is that if, after October 1998, the Appellant was in the United Kingdom for some temporary purpose only and not with the intention of establishing his residence here, then he would not be treated as resident here as he did not in the aggregate spend at least six months here; the question as to whether he is here for a temporary purpose is to be decided without regard to any living accommodation he has available here.  

70.	In my view, leaving aside the availability of living accommodation, all the relevant factors mentioned above point to the conclusion that after October 1998 the Appellant was not in the United Kingdom for temporary purposes only. He was here in order to continue to carry out the duties of his permanent employment; to visit the Boat Show and to celebrate the Millennium, to enjoy other periods here, and to stay with his family and no doubt visit his friends. He had already established his residence here.  Thus in my view s 336 does not apply to the Appellant. 

71.	For the Appellant Mr Sherry relied upon the Official Report (Hansard) of the proceedings in Standing Committee A on the Finance (No 2) Bill on 24 June 1993 at Cols 590 – 592. In my view the words of s 336 are not ambiguous and do not lead to absurdity. Accordingly, I have not relied upon the Official Report.  However, in case I am wrong in that conclusion I record that in my view the proceedings in the Official Report confirm me in my conclusions about s 336. At Col 592 Mr Dorrell (for the Government) stated that the new provision applied to temporary and occasional visitors to this country who had accommodation available to them. In my view after October 1998 the Appellant was not a temporary and occasional visitor to the United Kingdom.  

Conclusion
72.	I conclude that the question whether the Appellant was resident and ordinarily resident in the United Kingdom in the year 1999/2000 is a question of degree. Taking into consideration all the evidence before me, and the facts I have found, especially having regard to the Appellant’s past and present habits of life, the regularity and length of his visits here, his ties with this country, and the somewhat temporary nature of his attachments abroad, I have come to the conclusion that at least until 5 April 2000 he continued to be resident and ordinarily resident in the United Kingdom. He dwelt permanently here and this was where he had his settled or usual abode and so he was resident here. He resided here continuously as part of his everyday life; his residence here was part of the regular and habitual pattern of his mode of life and it persisted despite temporary voluntary absences to fly in the course of his employment, or to go to Cyprus, or to go sailing, or to visit Europe; his residence here also had a settled purpose and so I also conclude that the Appellant was ordinarily resident here.         

Decision
73.	My decisions on the issues for determination in the appeal are that, in the year 1999/2000, (1) the Appellant was resident and ordinarily resident in the United Kingdom within the meaning of Case I and (2) was resident in the United Kingdom within the meaning of Case III.

74.	The appeal is, therefore, dismissed.

DR A N BRICE

SPECIAL COMMISSIONER

RELEASE DATE:20 June 2005

SC 3089/2004
10..06.05