Turberville v Revenue & Customs [2010] UKFTT 69 (TC)

FTT-Tax
Turberville v Revenue & Customs
[2010] UKFTT 69 (TC) · 2010-02-03
[1]This is an appeal against a statutory determination of ordinary residence made on 7 March 2008 that Mr P G Turberville was ordinarily resident in the UK for the years ended 5 April 2002 and 2003. The Appellant was represented by Mr Robert Maas of Blackstone Franks LLP; the Respondents (“HMRC”) were represented by Mr Timothy Brennan QC.[2]We had two bundles of documents and we heard evidence from Mr Turberville and his wife Mrs Jean Turberville. We find the following facts:(1) The Appellant was born in Aberdeen in 1951. He was educated in Scotland and became a member of the Institute of Chartered Accountants of Scotland in 1975 after articles with Meston & Co (now part of Deloittes). After working in their Aberdeen and Edinburgh offices he decided to move into the oil industry and joined Shell, moving to their international staff in 1979. He worked for Shell International in the following locations: New Plymouth, New Zealand: October 1979 to August 1981 Wellington, New Zealand: September 1981 to June 1983 Al Jubail, Saudi Arabia July 1983 to August 1985 Sarawak, Malaysia: September 1985 to June 1988 (at this point he separated from his first wife and they were divorced in 1989) London: September 1988 to January 1991 (his present wife moved in with him in July 1990 and they were married in March 1991) Lagos, Nigeria: January 1991 to August 1993 Houston, Texas: September 1993 to January 1997 London: February 1997 to 31 October 1998(2) He decided to leave Shell having been headhunted by various companies and decided to join TXU Corp as he wanted to return to the US. He was not employed until 3 January 1999 but in the meantime helped (without remuneration) a friend with a consulting job in South Africa. By an agreement governed by English law “made effective as of 4 January 1999” he was engaged by The Energy Group Limited to serve as chief executive of its subsidiary Eastern Group plc, which had just been taken over by TXU Corp. The Energy Group could terminate the contract on 36 months notice during the first 12 months of the term, 24 months during the next 12 months and 12 months thereafter, and he could terminate on 12 months notice. His job was to integrate the European subsidiaries into the TXU Corp.(3) He entered into a replacement agreement governed by English law “made effective as of 1 July 2000” with TXU Corp which recited that he was currently the chief executive of TXU Europe Group plc (which he said was a different company, and so there must have been a change in his employer before that). The agreement provided that TXU Corp would cause TXU Europe Group plc to employ him as chief executive in replacement of the previous agreement until 30 June 2003 and thereafter on either party giving 12 months notice or his reaching the age of 63.(4) He was appointed in February 2001 President of International Operations based in Dallas and in charge of the worldwide activities of TXU Corp outside the US with effect from 1 July 2001 (he actually flew to Dallas on 9 July, having spent 3 to 4 July 2001 in Brussels). The understanding, short of any binding commitment, was that he would ultimately succeed Mr Erle Nye as chairman and CEO of TXU Group. The service agreement of 1 July 2000 was extended by an agreement “made effective as of 11 May 2001” but actually sent to him for signature on 6 June 2001, to expire at the earliest on 30 June 2004. We did not see a change of his service agreement reflecting his new role. According to HMRC Form P 85 (leaving the UK) signed on 15 January 2003 (after the employment had terminated, although this is not mentioned) he claimed that he lad left the UK on 1 July 2001 and that he was paid a figure in US dollars paid in sterling into a UK bank account. He moved to Dallas and occupied a three bedroom apartment rented for a year from 1 July 2001 by a group company TXU Business Services Company “for the benefit of Phil and Jean Turberville,” which was extended for a further year by an agreement signed on 12/18 June 2002. He paid $85,000 personally for the furnishing of the apartment, and bought a car in the US for $95,000.(5) The fortunes of TXU were hit by the events of 11 September 2001 and more particularly by the collapse of Enron at the beginning of December 2001. Market confidence in energy companies like TXU was lost and it did not have the financial capacity to support its trading exposures. Additional capital was required to support the investment grade rating. It was forced in 2002 to sell off its international operations and to place its UK business in administration. The Appellant was made redundant on 31 October 2002. He agreed to provide consulting services until 31 January 2003 under a separate contract (which we did not see) principally to the administrators in the UK. The Appellant signed a severance agreement governed by Texas law on 12 November 2002 under which he was paid compensation which was received in December 2002 (and we understand that this appeal is principally concerned with the taxability of this).(6) We saw evidence of an initial approach by Mrs Turberville to estate agents in Monaco in February 2002 (suggesting that they realised then that their future with TXU was precarious) and her receiving particulars of a selection of properties there by letter of 10 October 2002. Mr and Mrs Turberville signed a lease of an apartment in Monaco on 29 November 2002 for one year from 1 December 2002 and renewable by notice not later than 31 August each year at a rent of Euros 108,000. He received a Carte de Sejour on 10 December 2002.(7) From 1979, when he joined Shell International, until the present time he has owned houses in the UK. Shell advised its international employees to do so in case they needed to leave the country in which they were working suddenly. From October 1998 he owned a house in Thames Ditton and from October 1997 also rented a flat in Chelsea.(8) The Appellant had two sons by his first marriage, Nicholas (born August 1975) and Christopher (born August 1978). Mrs Turberville’s son Laurence (born 1982) by her first marriage lived with them and was educated in Nigeria and Houston. When the Appellant was posted to London Laurence attend the American Community School in Cobham as a boarder (the Thames Ditton house was chosen for access to the school) and subsequently the American University in Richmond in England.(9) His UK tax returns show the following: 1999-00 no claim for non-residence. 2000-01 no claim for non-residence. 2001-02 (signed 15 January 2003) claimed to be resident and ordinarily resident but claiming split-year treatment [presumably this is by implication that he was claiming to be not resident or ordinarily resident after leaving], that he was ordinarily resident for 2000-01, and intended to live outside the UK permanently. A form P85 (leaving the UK) also signed on 15 January 2003 claims that he left the UK on 1 July 2001. 2002-03 (signed 17 December 2003) claiming non-residence and ordinary residence, but saying that he was ordinarily resident for 2001-02 [contrary to what we have assumed was the implication of the 2001-02 return, and presumably in error], and that he intended to live outside the UK permanently.(10) His US tax returns for the calendar years 2001 and 2002 were on form 1040 NR (non-resident alien income tax return). (a) The 2001 return was signed on 12 June 2002. It was prepared by Jennifer Kemp of Deloitte & Touche LLP of Dallas. The return shows that the purpose of the visit to the US was for employment, that the question about type of entry visa was not applicable, and that he had spent 41 days in the US in 1999, 95 days in 2000 and 138 days in 2001. It states that he was claiming the benefit of art 15 of the double taxation agreement with the UK. An addition form 8833 (treaty-based return of position disclosure) stated that his salary was derived by a resident of the UK in respect of employment exercised in the US, and that he was present in the US for a period not exceeding 183 days, the remuneration was paid by an employer who was not a US resident, and that it was not borne by an permanent establishment or fixed base which the employer had in the US. The Appellant said (and we accept) that he was told by Deloitte & Touche that he could file either as a resident or a non-resident and that it could be changed later. (b) The 2002 return was signed on 10 December 2003. It was prepared by Buzzacott Livingstone in the UK. No treaty claim was made and the return gives details of his salary. The purpose of the visit to the US was given as business. The entry visa was stated as visa waiver (apparently he did not need a green card, which would, we understand, have made him a tax resident as he was already working for a group company). It states that he did not give up permanent residence as an immigrant in the US in the year [we take that to be related to immigration rather than tax status]. He had spent 117 days in the US in that year.(11) In the UK tax year 2001-02 he spent 130 days in the UK (of which 45 are before 3 July 2001), with 52 days of arrival or departure (all but 2 in the UK), and 183 days outside the UK. (a) Before 3 July 2001 the totals were 45 days in the UK, 15 days of arrival or departure (all involving the UK) and 28 days outside the UK (including 3 trips to Dallas, one to Chicago and back from Denver and 4 trips to European destinations and back). (b) From 3 July 2001 the totals were 70 days in the UK, 32 days of arrival or departure (all but two involving the UK, one being a trip from Dallas to Brussels where he spent one night and then to the UK) and 137 days outside the UK. There were three visits to Australia, to Stockholm and Helsinki, Palma (on holiday), Brussels, Paris and Venice, Geneva (twice), Berlin, Hong Kong (on holiday), and Bahrain. The European trips were all made to and from the UK. Most of the stays in the UK were of 7 days or less, exceptions being 22 days between 14 December 2001 and 5 January 2002 and 8 days from 12 to 19 January 2002.(12) In the year 2002-03 he spent 118 days in the UK (this does not include visits of 3 and 5 days to visit his sick mother and 14 days at the time of her death which on the basis of IR20 would not be counted), 54 days travel (of which only 2 were not from or to the UK) and 193 days outside the UK (including the visits to the UK not counted for IR20 purposes). (a) Before 31 October 2002 he spent 62 days in the UK, 33 days of arrival and departure (all but 2 being to or from the UK), and 110 days outside the UK. There were seven trips from Dallas (or in one case New York) to the UK and back; from the UK to Rome, twice to Melbourne (from the UK and back to Dallas), Helsinki, Palma (twice, for holiday), Geneva (twice). The pattern is similar to the previous year with all European trips being made from the UK. The time spent in the UK was in all cases 7 days or less with the exception of 21 days between 21 September and 11 October (b) From 31 October 2002 he spent 56 days in the UK, including 30 days continuously from 28 October 2002 to 26 November 2002. All but 18 of those days were before 10 December 2002 (this figure excludes three visits to his sick mother and for the funeral totalling 22 days) when he received his Carte de Sejour in Monaco and only 6 days were after 1 January 2003. He made five trips to Monaco and back between 27 November 2002 and 4 January 2003, then drove to Monaco on 9 January 2003 and then visited the UK for two separate days between then and 5 April 2003 (again excluding the days mentioned).[3]Mr Maas, for the Appellant, contends in outline:(1) In IRC v Lysaght [1928] AC 234 at 243 Viscount Sumner said “I think 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 ‘extraordinary.’” From 6 April 2001 to about 1 July 2001 the Appellant was not in the UK for a settled purpose. He had been appointed in February 2001 President of International Operations based in Dallas and in charge of the worldwide activities of TXU Corp outside the US with effect from 1 July 2001. He was in the UK in 2001-02 waiting to take up that position.(2) In 2002-03 he was made redundant on 31 October 2002. He agreed to provide consulting services until 31 January 2003 under a separate contract principally to the administrators in the UK, but this work ceased by the end of November 2002. He made five trips to Monaco and back between 27 November 2002 and 4 January 2003, then drove to Monaco on 9 January 2003 to take up residence there. His presence in the UK was not for a settled purpose.[4]Mr Brennan, for HMRC, contends in outline:(1) The Appellant was UK based to start with and was resident and ordinarily resident for over four years until July 2001. Nothing changed thereafter.(2) He always owned a home in the UK where his personal effects were kept. It was in part for the use of his sons.(3) As Lord Scarman said in Shah [1983] 2 AC 309 , 342D:
“I agree with Lord Denning MR that in their natural and ordinary meaning the words mean ‘that the person must be habitually and normally resident here, apart from temporary or occasional absences of long or short duration’.”
The Appellant had temporary absences though with frequent visits to the UK. (4) His evidence of intention to take up residence in the US is relevant to the question whether he took up residence in the US but of little assistance as to whether he abandoned ordinary residence in the UK. He did not cease to have his homes in the UK; take the bulk of his possessions to the US but purchased new furniture there leaving Thames Ditton intact; sell his car; cease to use his homes, and nor did his sons; or cease to visit the UK. There was no change in the pattern of his life. There was no distinct break in the pattern of his life in July 2001. Taking another expatriate posting, just as he had done many times before was not sufficient to demonstrate that he ceased to be ordinarily resident in the UK. Far from being a distinct break in the pattern of his life, the pattern remained precisely the same. (5) When the Dallas job ended the Appellant and Mrs Turberville came back to the UK because, as Mrs Turberville said, “We had to have somewhere to park ourselves.” They parked themselves in the jurisdiction of their family homes, where they were ordinarily resident.[5]The following summary of relevant factors in considering residence and ordinary residence was given by Lewison J in Revenue and Customs Commrs v Grace [2009] STC 213 at [3], and was adopted by Lloyd LJ, who gave the judgment in the Court of Appeal:
“[3] 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 IRC (1928) 13 TC 486 at 505, [1928] AC 217 at 222. This is the definition taken from the Oxford English Dictionary in 1928, and is still the definition in the current online 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 (Inspector of Taxes) [1998] STC 475 at 480, 70 TC 478 at 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: IRC v Zorab (1926) 11 TC 289 at 291; iv) Residence in a place connotes some degree of permanence, some degree of continuity or some expectation of continuity: Fox v Stirk ; Ricketts v Registration Officer for the City of Cambridge [1970] 3 All ER 7 at 13, [1970] 2 QB 463 at 477; Goodwin v Curtis (Inspector of Taxes) [1998] STC 475 at 481, 70 TC 478 at 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 IRC (1928) 13 TC 511 at 529, [1928] AC 234 at 245; 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 IRC (1928) 13 TC 486 at 505, [1928] AC 217 at 223; 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: Shah v Barnet London Borough Council [1983] 1 All ER 226 at 235, [1983] 2 AC 309 at 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, ex p Reynolds (1888) 5 Morr 111, 4 TLR 452; Shah v Barnet London Borough Council [1983] 1 All ER 226 at 235, [1983] 2 AC 309 at 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’: Shah v Barnet London Borough Council [1983] 1 All ER 226 at 236 and 239, [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: Shah v Barnet London Borough Council [1983] 1 All ER 226 at 235, [1983] 2 AC 309 at 344; xi) Although residence must be voluntarily adopted, a residence dictated by the exigencies of business will count as voluntary residence: Lysaght v IRC (1928) 13 TC 511 at 535, [1928] AC 234 at 248; 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: Shah v Barnet London Borough Council [1983] 1 All ER 226 at 235, [1983] 2 AC 309 at 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: IRC v Combe (1932) 17 TC 405 at 411.”
[6]In Grace , Lewison J had also expressed approval of the Special Commissioner Dr Brice’s summary in Shepherd v Revenue and Customs Commissioners [2005] STC (SCD) 644, describing it as “impeccable”. The relevant passage, referred to but not set out by Lewison J, is at paragraph 58 of Shepherd :
“58. From these authorities I derive the following principles: (i) 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 ); (ii) 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 ); (iii) 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 ); (iv) 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 ); (v) 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 ); (vi) 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 ); (vii) 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); (viii) 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 ); (ix) 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 ); (x) 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 (xi) that a person could become non-resident even if his intention was to mitigate tax ( Reed v Clark ).”
[7]Applying these principles to the facts of this case, the Appellant was sent to the UK by Shell in February 1997 and worked for Shell in the UK until October 1998. After a short break he was based in the UK for Eastern Group until the beginning of July 2001 when he went to Dallas. Whatever the position was at the beginning it is clear that by the end of that 4¼ year period he was ordinarily resident in the UK. The issue is whether he abandoned this ordinary residence in 2001-02 and 2002-03 (or if he did abandon it in 2001-02, whether he resumed it in 2002-03). Mr Brennan’s contention is that he only worked abroad for some 16 months from July 2001 to October 2002 (not covering a complete tax year) and even then he paid frequent visits to the UK where he retained a house and a flat. Mr Maas’s contention is that there was a complete break in the Appellant’s lifestyle when he became based in Dallas under a contract continuing for the next three years with the expectation of taking over as chairman and chief executive of TXU Corp and remaining there until his retirement. He had the benefit of an apartment in Dallas rented by the company for the first year (subsequently extended for another year) and paid significant sums for furnishings and a new car.[8]In relation to 2001-02, while it was clear in February 2001 that he would go to Dallas in July 2001 we do not consider that this changes the quality of his residence between 6 April 2001 and 30 June 2001, which was a continuation of his residence during the previous four tax years. Although it was then known that such residence would cease about 1 July 2001 it was nevertheless part of his residence for settled purposes and the fact that the Appellant’s state of mind was such that he would be leaving the UK at around that time does not, until his actual departure, alter the position. From the date of actual departure, we consider that in deciding whether there was then a distinct break one should look at the position as it was in July 2001 without the benefit of hindsight. The three-year employment contract coupled with his expenditure on furnishing the apartment rented by his employer point to a distinct break. The fact that he was in line for the chairmanship and chief executive position made this potentially an even longer term change in his lifestyle. We can understand it was of concern to HMRC that he was making inconsistent claims, telling the IRS that he was resident in the UK (and making a treaty claim that depended on such residence), while claiming non-residence in the UK. We accept the Appellant’s statement that he was advised that his US residence position was unclear and could be changed afterwards. We suspect that he was advised by Deloitte & Touche in Dallas to keep out of the complicated US tax system for as long as possible without full investigation or understanding of his UK tax position. While the claim he made in his US tax return for 2001 was inconsistent with his claim to be non-resident in the UK, there is nothing inconsistent in his claiming to be non-resident of the US in 2002 under their rules, which we believe are based on a formula for counting days over a three-year period, as well as non-resident in the UK. Accordingly we do not consider that his claim in his US tax return to be UK resident is evidence that contradicts his employment position and other facts demonstrating a distinct break. We consider that the facts taken together do demonstrate a distinct break in his lifestyle which would support his ceasing to be ordinarily resident. Nothing had changed to throw doubt on this conclusion by the end of the tax year. Accordingly, the Appellant continued his previous ordinary residence in the UK from 6 April 2001 to around 1 July 2001 and there was then a distinct break in his residence. We should have liked to decide that he was not ordinarily resident from about 1 July 2001, which in some cases is HMRC’s practice and has featured in several decided cases (for example, in Gubay v Kington [1981] STC 721 it was an agreed fact (at 724b) that the taxpayer was resident and ordinarily resident from 6 April 1972 until 28 October 1972 and not resident or ordinarily resident thereafter; and in Carstairs v Sykes [2000] STC 1103, it was an agreed fact (at 704c) that “the taxpayer resumed residence and ordinary residence in the United Kingdom on 15 February 1993.)” But we do not consider that it is open to us to split the tax year (see, for example, Elmhurst v IRC [1937] 2 All ER 349, referred to by Vinelott J in Gubay v Kington , and Jones v Lincoln-Lewis [1991] STC 307). As the Appellant had been ordinarily resident for part of 2001-02 we find that he was ordinarily resident for the year. It is, of course, open to HMRC to split the year.[9]In relation to 2002-03 it follows from our finding that the Appellant made a distinct break in his pattern of life from about 1 July 2001 that on 6 April 2002 he was not ordinarily resident. He lost his job in Dallas at the end of October 2002 and the consulting agreement required him to help the administrator in the UK until 31 January 2003, which in practice seems to have ended in November 2002. He had rented an apartment in Monaco from 1 December 2002. We find the form P85 (leaving the UK) completed on 15 January 2003 giving the date of his leaving the UK as 1 July 2001 and details of his employment in Dallas but not saying that the contract had ended, as not particularly helpful but being consistent with an intention to continue to live outside the UK. We consider the retention of the house and flat in the UK as fairly neutral; he had retained these (or predecessor properties) throughout the time he was working abroad. Looking at the position at the end of October 2002 when his employment with the TXU group ceased prematurely he might have resumed living in the UK as he had been until 1 July 2001 in which case his ordinary residence would become the UK again. But the facts do not support this. We consider that when looking for a person’s residence “for settled purposes as part of the regular order of his life, whether for short or long duration” one must take into account events that upset such regular order. Here there was the upheaval caused by losing his job based in Dallas that would contractually have continued until June 2004, the short-term consulting requirement to assist the liquidator in the UK until 31 January 2003, and taking a lease of the property in Monaco and acquiring a Carte de Sejour there, which involved trips between the UK and Monaco on five occasions between 27 November 2002 and 4 January 2003, then driving to Monaco on 9 January 2003. During November and December 2002 we do not consider that it is possible to say that he had a regular order of life anywhere; it was a time of transition. The time he spent in the UK after October 2002 cannot be treated as part of a pattern starting from his residence in the UK before going to Dallas. By 5 April 2003 one can see that he did not resume life in the UK as it had been before he went to Dallas. In saying this we are not looking for a “permanent base,” or “centre,” or “real home” (expressions used in Shah ) but concluding that the UK was not his residence “for settled purposes as part of the regular order of his life.” It was, in our view, physical presence that was no more than a stop-gap measure. Looking back from 5 April 2003 we conclude that he was not ordinarily resident in the UK during 2002-03.[10]Accordingly, we find that the Appellant was ordinarily resident in the UK in 2001-02 and not ordinarily resident in 2002-03.[11]Each party has a right to apply for permission to appeal against this decision pursuant to Rule 39 of the Rules. The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice. JOHN F AVERY JONES ROGER BERNER TRIBUNAL JUDGES RELEASE DATE: 3 February 2010