Spc00741

Income tax – whether individual employed in and resident in UK for over three years was ordinarily resident in relevant year of assessment – on facts, yes – appeal dismissed

THE SPECIAL COMMISSIONERS

	FABIO MASSIMO GENOVESE	Appellant

	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S
	REVENUE AND CUSTOMS	Respondents

		Special Commissioner: 	JOHN CLARK 

Sitting in public in London on 17 November 2008

The Appellant in person

Akash Newbatt of Counsel, instructed by the Solicitor for HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2009

DECISION

1.	The issue in this case is whether Mr Genovese was ordinarily resident in the UK in the year of assessment 2001-02.
The facts
2.	A substantial part of the evidence was provided by means of a Statement of Agreed Facts, reproduced below. In addition to a bundle of documentary evidence, Mr Genovese provided a witness statement and gave oral evidence, as did Mrs Marina Genovese Fasoli.
Statement of Agreed Facts
(1)	Mr Genovese is an Italian national and was born in Venice, Italy.
(2)	He is an investment banker. In the relevant period he was specialising in mergers and acquisitions in relation to Italian and Swiss Financial Institutions.
(3)	He joined JP Morgan in Milan in 1987 and, apart from a few months training in New York, continued working for the bank in Rome until 1990.
(4)	In 1990 Mr Genovese was assigned by JP Morgan to work in London on expatriate terms. He continued to work for JP Morgan in London until he was made redundant in 1995. Following his redundancy Mr Genovese remained in London to find another job.
(5)	In May 1995 Mr Genovese was offered a job with UBS and took up duties in Switzerland in August. His focus was on the Italian Financial Services market.
(6)	On 2 December 1995 Mr Genovese married his wife. His first son was born in Zurich in 1997.
(7)	In 1997 UBS merged with SBC.
(8)	In March 1998 Mr Genovese sought and was offered employment by Salomon Brothers. This role would be in their London office. He did not accept the offer.
(9)	In April or May 1998, following a post merger reorganisation, UBS offered Mr Genovese the opportunity to move to its Milan or London office. Mr Genovese chose to move to UBS’ London office where he was engaged on expatriate terms and conditions. He continued to work on Italian Financial Services clients, and later expanded to Swiss, Austrian and on some German Financial Institutions.
(10)	On arrival in the UK in 1998 Mr Genovese rented accommodation in London. His family moved to London and they shipped their furniture to London.
(11)	In 1999 Mr Genovese’s terms of employment were changed from expatriate terms and conditions to employment under a local UK contract of employment.
(12)	Mr Genovese’s second son was born in London at the end of 1999.
(13)	In or around 2000 Mr Genovese put his children down for a private preparatory school.
(14)	In the autumn of 2001 the lease on their flat expired. Mr Genovese renewed it on a one year lease with a three month notice period. Mr and Mrs Genovese then decided to invest in the UK property market and they identified a suitable family home in London. In March 2002 they arranged a mortgage and made a formal offer of £1.8 million to purchase [property address]. The purchase was completed at the end of July 2002.
(15)	In May 2002 Mr Genovese was asked to take a role as Office Manager in UBS’ Milan office. He accepted the role on a temporary basis and commuted to Milan from Monday to Friday each week. In September 2002 Mr Genovese returned to work full time in the London office.
(16)	Mr Genovese continues to live and work in London.
(17)	Mr Genovese has been resident in the UK since 1988-99 and ordinarily resident since, at least, 2002-03.
3.	In addition to the agreed facts, I find the following facts from the other evidence given.
4.	The letter of secondment from UBS dated 20 May 1998 stated that it would last until 31 December 1998, after which Mr Genovese would be transferred to a local contract in the UK. A subsequent letter dated 18 December 1998 from Warburg Dillon Read (the Investment Banking Division of UBS AG) extended the existing terms of his contract until 30 June 1999. The local contract letter from Warburg Dillon Read (of which there was only an extract in the bundle of documents) did not specify any duration, and referred to the continuity of his employment with UBS since 1 August 1995.
5.	In an undated form P86 sent to HMRC by Ernst & Young on 25 November 1998, Mr Genovese specified his date of arrival in the UK as 1 July 1998 and stated that he intended to stay in the UK for “2-3 years”. In his witness statement he indicated that at the time he had had no clear idea how long he would remain in the UK, and had selected this response from the examples given in the form despite being aware that this would deprive him of the opportunity to claim temporary workplace relief. He had felt that he could not honestly say that he expected to leave the UK within two years.
6.	In September 1998 Mr Genovese took a one-year tenancy of a flat in London. In August 1999, the landlady sold her interest in the flat to a company. Mr Genovese agreed a further one-year tenancy with the new landlord in September 1999, and a further similar term in September 2000. In September 2001, he signed a new tenancy agreement, again for a one-year period. This agreement contained an option to renew for a further year, but with a provision permitting early termination by the tenant during that year on giving three months’ written notice.
7.	From 1998 onwards Mr Genovese continued to specialise in Italian markets. However, given the continuing uncertainty in the merchant bank employment market, he felt that there was a strong case for remaining around the head office in London.  He commented that this was where personnel decisions continued to be made and personal relationships with decision makers were important. He viewed his immediate employment prospects on a quarterly basis, and contemplated moving offshore to obtain more secure employment.
8.	In 2001-02 his two financial priorities were to retain his employment in what he described as a lucrative but volatile and competitive profession, and to find suitable accommodation for his growing family, bearing in mind that average house prices in the UK had increased by nearly 50% since his arrival in London. Mr and Mrs Genovese found a suitable property in March 2002; they both felt comfortable in it, and regarded it as a sound investment in place of continuing to pay ever increasing rent.
9.	The role in the Milan office was primarily an office administration role with reduced client contact. Mr Genovese was reluctant to give up the client-facing role which he believed used his skills to their best effect. He and Mrs Genovese discussed the position, and it became increasingly clear that she was reluctant to move back with the family to her home city of Milan, which she did not consider to be a very pleasant place to bring up small children. Mr Genovese was also concerned that he would lose ties with clients and contacts in various European countries if he was based in Milan. He therefore decided in May or June 2002 to stay in London for the time being, continuing to commute between London and Milan.
10.	No suitable position emerged at UBS, and Mr Genovese and UBS parted company by mutual agreement early in 2005.
11.	Although Mr and Mrs Genovese and their children have continued to live in London, they still do not regard it as their permanent home.
Mr Genovese’s arguments
12.	The point at issue was whether, by 5 April 2002, Mr Genovese had become habitually resident in the UK, residing here for a settled purpose. There was no statutory guidance to determine ordinary residence, as opposed to a state of being not ordinarily resident. Case law, based mainly on the cases of Levene v Commissioners of Inland Revenue (1928) 13 TC 486 at 500 (HL) and Lysaght v Commissioners of Inland Revenue (1928) 13 TC 511 at 526 (HL), had decided that each case should be determined on its own particular facts. In reaching these judgments, the House of Lords had set out criteria which had evolved into a generally accepted set of rules to determine when a person who had not been resident in the UK and who became resident also became ordinarily resident in the UK.
13.	Mr Genovese referred to the published guidance in HMRC’s booklet IR 20, and to Statements of Practice 3/81 and 17/91. He argued that HMRC’s challenge to his self assessed residence status was typical of a great many cases which HMRC had examined over recent years; HMRC’s assertions appeared to be a reinterpretation of IR 20 with reducing regard to case law and their own statements of practice on which the guidance was based. He referred to various recent Special Commissioners’ and High Court cases relating to British or Commonwealth subjects attempting to “break” UK residence, in particular Gaines-Cooper v Revenue and Customs Commissioners, [2008] STC 1665, Shepherd v Revenue and Customs Commissioners [2006] STC 1821, Barrett v Revenue and Customs Commissioners [2008] STC (SCD) 268, and Grace v Revenue and Customs Commissioners [2008] STC (SCD) 531. If HMRC were relying in part on such recent judgments, it must follow that there should be a clear change in the pattern of the taxpayer’s life. If there had been a point at which Mr Genovese had decided to remain in London, it was in May 2002 when he found that the only foreign posting on offer did not match his particular area of expertise.
14.	Mr Genovese argued that there was no legislative or case law support for the “three year rule” which HMRC had adopted as standard. HMRC’s Guidance Notes “Coming to Work in the UK” issued on 28 October 2008 indicated that a person coming to the UK might be regarded as not ordinarily resident in the UK if he or she “did not intend to live here for more than a couple of years”. This appeared to be a restriction of the previous practice.
15.	Mr and Mrs Genovese did not consider themselves habitually resident in the UK, even after the period set out in booklet IR 20. In relation to the house purchase, HMRC appeared to be arguing that a proposed purchase was as good as an actual purchase so as to bring Mr and Mrs Genovese within the scope of Statements of Practice 3/81 and 17/91. HMRC had suggested that the absence of any home elsewhere was a factor; it had never been considered necessary, for the purposes of establishing resident but not ordinarily resident status, that a home should be retained elsewhere. The presence of a foreign national’s family was not an indication of habitual residence. Putting down children’s names for school places was not an indication of an intention to remain in the UK until the children reached a certain level in their education, but simply a prudent step in ensuring that places would be available if ultimately required.
16.	Mr Genovese emphasised the unstructured nature of employment plans in the world of merchant banking; there was no certainty that an employee would remain in the UK, even if there was any form of annual plan relating to the particular employee. The conversion of his terms of employment from an expatriate contract to a “local hire” contract was more likely to have been a decision based on cost grounds than one as to any kind of guarantee of continuing employment in the UK.
17.	Mr Genovese had relied on published HMRC guidance to self assess himself as resident but not ordinarily resident for 2001-02. HMRC were introducing criteria which had been applied to British and Commonwealth citizens trying to claim that they had ceased to be resident and ordinarily resident in the UK. HMRC had referred in their Statement of Case to factors relevant to determining ordinary residence status; there should be a voluntary decision to remain, with a degree of settled purpose, such as education, family, business. Mr Genovese had been far from settled in his employment in 2002; employment prospects were precarious. He had needed to house the family in the short term, and it made economic sense to buy rather than pay rent, but had not purchased a house in 2001-02. There had been no evidence of a decision to remain indefinitely prior to 6 April 2002.
18.	He emphasised that all the tax cases cited had related to British or Commonwealth citizens. The comments in argument relating to intention and expression of will, quality and continuity had left him a little confused, finding it a struggle to find a difference between 2001-02 and 2002-03. HMRC’s arguments were calling into question booklet IR 20 and the Statements of Practice. The nature of a banking position was that it was not a guaranteed long term employment, whatever a contract might say. He questioned where else his family could have gone; he had been faced with the position as it was. Reference had been made to the foreseeable future, but in 2002 when there had been a real possibility of a job in Italy, his intention might have changed. Education was a need, wherever he was based. Purchase of the house had been a pure economic decision. He had had no real choice in 2002-03 but to accept ordinary residence status, but he did not think that he was settled in the UK. He would leave the whole question to the Tribunal’s interpretation.
Arguments for HMRC
19.	Mr Nawbatt argued that ss 334 to 336 of the Income and Corporation Taxes Act 1988 (“ICTA 1988”) did not apply to Mr Genovese. This meant that his ordinary residence status depended on ordinary common law principles, and that HMRC’s booklet IR 20 and other guidance did not determine the position. Ordinary residence was not defined in the Taxes Acts. The words should be given their natural and ordinary meaning. “Ordinary” meant normal and part of everyday life (Lysaght), or by reference to a regular, habitual mode of life in a particular place, which has persisted despite temporary absences and is voluntary and has a degree of settled purpose (Barnet London Borough Council v Shah [1983] 2 AC 309).
20.	Ordinary residence was to be contrasted with occasional or temporary residence, and connoted residence in a place with some degree of continuity apart from accidental or temporary absences (Levene). In Reed v Clark (1985) 58 TC 528 the taxpayer had been regarded as being ordinarily resident in the USA after the lapse of only 13 months.
21.	For ordinary residence purposes, intention might be relevant in two ways. First, presence in the country concerned must be voluntary. Secondly, there must be a degree of settled purpose. This merely meant that the purpose of living where one did had a sufficient degree of continuity to be properly described as settled; the purpose might be education, family, or business. It was clear from Shah that there was no requirement for any deep examination of the mind of the taxpayer.
22.	The issue was whether Mr Genovese had been ordinarily resident for the year 2001-02. Mr Genovese accepted that he had been resident since May 1998, but contended that he had not become ordinarily resident before 6 April 2002. Under s 50(6) Taxes Management Act 1970 (“TMA 1970”), the burden of proof was on Mr Genovese to show that he had been wrongly assessed.
23.	Mr Nawbatt submitted that in 2001-02, Mr Genovese had been in the UK as part of his everyday life. With reference to Viscount Cave’s judgment in Levene at 507, Mr Genovese accepted that he had been resident since May 1998. Mr Nawbatt argued that since then, any absences had been temporary, Mr Genovese’s family having remained throughout in the UK. On any view, Mr Genovese’s residence during the relevant period had not been “occasional”, and he accepted that he had been resident in the UK throughout. Mr Nawbatt referred to the judgment of Nicholls J in Reed v Clark at 554E, and to the summary immediately following that paragraph of the cases concerning ordinary residence.
24.	Since 1998, Mr Genovese’s only abode had been in London. He had adopted it voluntarily, having chosen to come to London. His settled purposes had been employment and family. His living in London had formed part of the regular order of his life, for the time being. Mr Genovese had referred to the question of permanence, but in Shah, Lord Scarman had stated that it was not necessary for the settled purpose to involve intention to remain for an indefinite period. The settled purpose might be until Mr Genovese was able to pursue employment elsewhere. Mr Nawbatt argued that Mr Genovese’s purpose, by 2001-02, was enough to be a settled purpose, as he had been resident since 1998. As an alternative, his change in contract in 1999 from expatriate to permanent UK contract demonstrated a settled purpose. Mr Nawbatt referred to Nicholls J’s comments in Reed v Clark at 555B to E, which indicated that a year might in some circumstances be sufficient to establish ordinary residence.
25.	It was clear from the authorities that an individual could be ordinarily resident in two places or countries. Mr Genovese’s abode was as described by Lord Scarman in Shah at 343G. By 2001-02 at the latest, Mr Genovese had become ordinarily resident.
26.	Lord Scarman in Shah at 344E to F had commented that it was inappropriate to consider the state of mind of the individual. Mr Genovese’s evidence had been primarily as to his state of mind. The objective facts led irresistibly to the conclusion that he was ordinarily resident in the UK in 2001-02; he was in the UK for employment and his employment ambitions, he had brought his family to the UK, he had put his children’s names down for education, and in March 2002 he had looked for and found a family home. Even before the purchase, he had had a family home in London. He did not have any home or property elsewhere. Mr Nawbatt emphasised that the appeal did not concern Mr Genovese’s domicile; Mr Genovese’s evidence, as well as that of his wife, appeared more relevant to the latter question.
27.	Mr Nawbatt referred to the judgment of Lewison J in Revenue and Customs Commissioners v Grace [2008] EWHC 2708 (Ch) (subsequently reported at [2009] STC 213), which had been handed down the previous week. Much in the judgment applied to Mr Genovese’s position, and in certain respects the facts in his case were stronger than in Grace, where the taxpayer had had no family in the UK, and had had a property outside the UK.
28.	Mr Nawbatt summarised the evidence. Applying common law principles, the only possible conclusion on the facts was that Mr Genovese had been ordinarily resident in the 2001-02 tax year. He lived in London as part of the regular order of his life adopted voluntarily and for the settled purposes of employment and family. HMRC’s booklet IR 20 was consistent with the common law principles, but in any event it was the latter which must be applied.
Discussion and conclusions
29.	I accept Mr Genovese’s important submission that none of the tax cases cited concerned the question whether a “foreigner” (ie an individual originating from outside the UK and the Commonwealth) coming to the UK had become ordinarily resident here. There is a clear need to establish the appropriate income tax treatment for such individuals, and much is dealt with by means of practices evolved by HMRC. These practices are not within the jurisdiction of this Tribunal as presently constituted, although I consider below whether there can be any recognition of those practices in applying the common law test.
30.	In the majority of the cases cited, the issue was whether the individual had demonstrated a sufficient change of status to establish that ordinary residence had ceased. Shah did not concern tax, but related to the acquisition of the status; the statutory framework under consideration required that the individuals should establish that they had been ordinarily resident in the UK for a defined period, namely three years.
31.	There is no such defined period for income tax purposes. Leaving aside the question of HMRC’s practice as set out in booklet IR 20 and Statements of Practice 3/81 and 17/91, the position is a matter of common law, as Mr Newbatt submitted.
32.	As Mr Newbatt also submitted, the Taxes Acts do not define ordinary residence, or the statutory expression “ordinarily resident”. As Lord Scarman indicated in Shah at 341H-342, the House of Lords in Levene and Lysaght had decided to construe the words “ordinarily resident” in their tax context as bearing their natural and ordinary meaning. He continued:
“I agree with Lord Denning M.R. 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 significance of the adverb "habitually" is that it recalls two necessary features mentioned by Viscount Sumner in Lysaght's case, namely residence adopted voluntarily and for settled purposes.”
33.	In Levene at 507, Lord Cave LC had explained “ordinary residence” in the following terms:
“The expression "ordinary residence" is found in the Income Tax Act of 1806 and occurs again and again in the later Income Tax Acts, where it is contrasted with usual or occasional or temporary residence; and I think that it connotes residence in a place with some degree of continuity and apart from accidental or temporary absences. So understood, the expression differs little in meaning from the word "residence" as used in the Acts”.
34.	In the same case at 509, Lord Warrington of Clyffe said:
“I do not attempt to give any definition of the word "resident". In my opinion it has no technical or special meaning for the purposes of the Income Tax Act. "Ordinarily resident" also seems to me to have no such technical or special meaning. In particular it is in my opinion impossible to restrict its connotation to its duration. A member of this House may well be said to be ordinarily resident in London during the Parliamentary session and in the country during the recess. If it has any definite meaning I should say it means according to the way in which a man's life is usually ordered.”
35.	In Shah, the House of Lords considered the natural and ordinary meaning of the words “ordinarily resident”. Lord Scarman, with whose speech the other Lords all concurred, expressed the following conclusions:
(1)	Following Levene and Lysaght, the words are to be construed in their natural and ordinary meaning as words of common usage in the English language (341H);
(2)	The words are not to be interpreted as comparable with domicile (343C);
(3)	They do not imply an intention to live in a place permanently or indefinitely (343E-F);
(4)	Unless the statutory framework or legal context requires a different meaning, the words refer to a person’s abode in a particular country which he or she has adopted voluntarily as part of the regular order of his or her life for the time being, whether of short or long duration (343G);
(5)	The mind of the individual is relevant in two (and only two) particular respects. The residence must be voluntarily adopted, and there must be a degree of settled purpose, having sufficient continuity to be described as settled (344B-C);
(6)	The purpose, while settled, may be for a limited period, and common reasons for a choice of regular abode include education, business or profession, employment, health, family, or merely love of the place (344C);
(7)	The “real home” test is wholly inconsistent with the natural and ordinary meaning of the words as construed in Levene and Lysaght (345D);
(8)	The test requires objective examination of immediately past events, and not intention or expectation for the future (345F-H).
36.	As confirmed in Levene and Lysaght, the question whether an individual is ordinarily resident is one of fact, so that a finding by the Special Commissioners can only be disturbed by the courts if there was no evidence to support that finding. As a consequence, there is little or no guidance in the cases on the specific factors likely to lead to a conclusion that the individual is, or is not, ordinarily resident. In particular, subject to the one exception mentioned below, there is no specific indication of the minimum period of the appropriate form of residence required to demonstrate that the individual has become ordinarily resident.
37.	The exception is Reed v Clark. At the end of their decision, the Special Commissioners in that case (at (1985) 58 TC 541) considered that Mr Clark had “established himself [ie in the USA] in a way which would make him resident, and ordinarily resident, there under UK tax rules.” At the end of his judgment, Nicholls J declined to comment on the question whether this was a correct conclusion to draw from HMRC’s booklet IR 20; in the light of his earlier comments he did not see how this booklet affected any matter which he had to decide. Earlier in his judgment (at 555D-E) he had said:
“In my view a year is a long enough period for a person's purpose of living where he does to be capable of having a sufficient degree of continuity for it to be properly described as settled. Hence, depending on all the circumstances, the foreign country could be the place where for that period he would be ordinarily and not just occasionally resident.”
38.	Despite Mr Nawbatt’s submission, I am reluctant to accept that the expression of such a view in a case determining whether a British subject had ceased to be resident and ordinarily resident in the UK can be any form of guidance in a case involving a determination whether a “foreigner” (in the sense referred to above) had become ordinarily resident in the UK. As confirmed by Lewison J in Grace at [3](viii), a person may be ordinarily resident in two countries at the same time. It therefore cannot assist the determination of that person’s status in relation to the UK tax system to examine, on an entirely hypothetical basis, what is his ordinary residence status in the context of the tax system of another country. The possibility of dual ordinary residence had been referred to by Lord Scarman in Shah at 342, citing the 19th century bankruptcy tax case In re Norris (1888) 4 T.L.R. 452. This does not appear to have been acknowledged in Reed v Clark.
39.	Further, as the question whether an individual is ordinarily resident is one of fact, Nicholls J’s comment in Reed v Clark cannot be taken as more than the expression of an opinion, similar in nature to the comment by Viscount Cave, LC in Levene at 507 that: “I find it difficult to imagine a case in which a man while not resident here is yet ordinarily resident here”. The latter opinion may be contrasted with the comments of Viscount Sumner in the same case at 502 on the social changes which had made questions relating to residence more intricate and doubtful.
40.	I therefore conclude that there is no guidance as to the minimum period required to establish that a “foreigner” has become ordinarily resident in the UK.
Mr Genovese’s position
41.	I consider Mr Genovese’s position in the light of the principles set out above. He arrived in London on 1 July 1998 to work for UBS, and initially lived in employer-provided accommodation. Subsequently, in September 1998, he entered into a tenancy agreement for a flat. His wife and son joined him. Their furniture was shipped to London, but was placed in storage as the flat was furnished. He continued to work for UBS, although in 1999 the terms of his employment contract were changed from expatriate to local. As each one-year term of the tenancy agreement for the flat expired, he renewed it for a further one-year term, until September 2001 when the new agreement was negotiated to provide a term of a further year. This contained a right to renew for a further year subject to a three-month early termination provision. (Strictly, all the terms of these agreements were for just under one year.) By March 2002, he had obtained approval in principle for a property loan and on 28 March 2002 was able to make an offer, subject to survey and to contract, to purchase the London property.
42.	Applying the test set out in Shah, had Mr Genovese at some time before 2002-03 voluntarily adopted an abode in the UK as part of the regular order of his life for the time being? His primary reason for his presence in the UK was employment. It was confirmed by Lord Buckmaster in Lysaght at 535 that residence dictated by the exigencies of business would count as voluntary residence for this purpose. Mr Genovese had chosen to come to work in London, and the consequence was that he had to remain here while working for UBS until he or UBS decided that he should take up duties elsewhere. His presence in the UK for this purpose, coupled with the presence of his family and the taking up of accommodation in the London flat, did amount to voluntarily adopting an abode in the UK.
43.	Was this as part of the regular order of his life for the time being? The position as he saw it when completing the form P86 in the latter part of 1998 was that he was not expecting to be leaving the UK within two years. However, as confirmed in Shah, it is not appropriate to take his intentions or expectations into account. It is clear that by the beginning of 2002-03 he had established a pattern of residence for the purpose of his continuing employment. Viewed as at the beginning of that fiscal year, it could be described as settled (as Mr Genovese reluctantly accepted in agreeing that he was ordinarily resident from 6 April 2002 onwards), but could it be described as such in any earlier year?
44.	In considering the comments of Lord Denning MR in Shah, Lord Scarman (in the passage cited at paragraph 32 above) approved the use of the adverb “habitually” as recalling the requirements mentioned by Viscount Sumner in Lysaght that residence should be adopted voluntarily and for settled purposes. It appears to me that in order for a pattern to be described as “habitual”, it must continue for a sufficient length of time. In Shah, the period in question was laid down by the relevant legislation; clearly a three year period is sufficient to demonstrate a pattern amounting to ordinary residence.
45.	A pattern which has continued for only two years does not easily fit the description “habitual”. If the pattern has continued into a third year, this begins to approach the description, but as a matter of practice it would be somewhat unsatisfactory to apply the relevant test on the basis of a part of that third year. Thus it would not be appropriate to consider Mr Genovese to have become ordinarily resident by 5 April 2001. By 5 April 2002, he had been living and working in the UK for a period of a little over three and a half years. I note that paragraph 3.9 of booklet IR 20 sets out the following practice for longer term visitors:
“You will be treated as ordinarily resident from the beginning of the tax year after the third anniversary of your arrival if you come to, and remain in, the UK, but you
•	do not originally intend to stay for at least three years, and
•	do not buy accommodation or acquire it on a lease of three years or more.”
46.	It appears to me that the reason for applying this practice (which I acknowledge is not binding on me, nor do I have any jurisdiction over it) is that there needs to be a period of three years to establish the habitual nature of the residence, and that the practice can only conveniently be applied after the end of the final tax year under review. Inevitably, taxpayers will self-assess their status on the basis of the published practice, rather than making a determination which appears inconsistent with that practice. Thus they are unlikely to conclude that their status has changed part way through a fiscal year; Mr Genovese certainly did not consider that he had become ordinarily resident during 2001-02.
47.	The position in Shah was simpler; it was only necessary to examine the period from the individual’s arrival to the date of application for the educational award. The individuals were found to have fulfilled the condition of three years’ ordinary residence in the UK.
48.	Mr Genovese had initially lived in employer-provided accommodation from 1 July 1998 until late September 1998.The successive tenancies of the London flat continued from 28 September 1998 until a point some time after 5 April 2002; there was no evidence as to the basis on which the 2001 tenancy agreement was terminated once the purchase of the London property had been completed in July 2002.
49.	 Thus, by the end of September 2001, Mr Genovese had been living with his family in the London flat under successive short-term tenancies for three years. I view the period in the employer-provided accommodation as temporary and not implying anything of a habitual nature. Throughout that three year period, and for a short time before, he had been working in London for the same banking group.
50.	This was sufficient to establish the habitual nature of the residence by that stage, which would imply that Mr Genovese could be described as ordinarily resident in the UK from October 2001 onwards; for the reasons already given, I am not persuaded that a period of less than three years from the commencement of the first tenancy of the London flat is sufficient to show that he was ordinarily resident at any earlier stage. The question is whether it is necessary to show that Mr Genovese was ordinarily resident for the whole of the year of assessment 2001-02, or simply that he was ordinarily resident at some time during that year of assessment. The distinction is between that status “for” the year and ordinary residence “in” that year; the former would imply that the status needed to be fulfilled throughout the year, while the latter connotes having that status at some time during the year, without the need for it to have subsisted throughout.
51.	From the documentary evidence, I conclude that the reason for Mr Genovese’s appeal is that he had claimed in his self-assessment for 2001-02 to be within Case II of Schedule E in respect of part of his earnings. This provided that a person was liable to tax in respect of:
 “Any emoluments, in respect of duties performed in the United Kingdom, for any year of assessment in which the person holding the office or employment is not resident (or, if resident, not ordinarily resident) in the United Kingdom . . .”
52.	In contrast, under Case I of Schedule E, a person was liable to tax in respect of:
“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 . . .”
This would include all emoluments, not merely those relating to duties performed in the UK.
53.	Thus the test under s 19 of the Income and Corporation Taxes Act 1988 as it applied in 2001-02 is whether the person in question was ordinarily resident “in” that year of assessment.
54.	With some concerns as to the inconsistency with the practice laid down in HMRC’s booklet IR 20, which I consider myself unable to take into account when applying the common law test, I conclude that Mr Genovese was ordinarily resident in the UK from the end of September 2001, and that for the purposes of Cases I and II of Schedule E he was ordinarily resident “in” rather than “for” the 2001-02 year of assessment.
55.	In case I am wrong in my conclusion that it is not necessary to show that Mr Genovese was ordinarily resident throughout the relevant year of assessment, I should comment on the question of the offer to purchase the London property. I do not consider that a mere offer subject to survey and to contract could be taken into account, given the uncertainty whether such offer might lead to ultimate purchase; viewed as at a point immediately after the end of the 2001-02 year of assessment, the offer could at best be described only as an expression of intention. On the basis of Lord Scarman’s comments in Shah, it is inappropriate to take intention into account. I do not consider that the offer would amount to a purchase within the terms of paragraph 3 of Statement of Practice 17/91. It is not appropriate for me to speculate whether a completed purchase within 2001-02, or a contract to purchase concluded within that year but with a completion date in the subsequent year, would have affected the conclusion as to Mr Genovese’s status for 2001-02.
56.	The “common law test” has led me to a conclusion at variance with booklet IR 20. Comparison of the various factors comprising the common law test with the factors considered relevant under HMRC’s practice shows in particular that IR 20 is concerned with matters of “intention” and what the individual “decides”. The difference appears to stem from a fundamental difference of approach. The common law test is applied retrospectively to determine whether the individual coming to the UK has or has not become ordinarily resident. Booklet IR 20 is concerned with a provisional decision whether or not, on the basis of information available at a much earlier stage, the individual appears to have become ordinarily resident. For this purpose, the individual’s intentions and decisions need to be taken into account in order to arrive at an appropriate taxation treatment for the initial stages of his period in the UK.
57.	The differing results of applying the respective tests to the same set of factual circumstances raise concerns for the position of all individuals in a similar position. As already indicated, they will have acted on the assumption that their position is governed by the practice set out in IR 20, and in particular will have submitted returns on that basis. An individual who discovers that his or her tax position is not as it had been assumed to be is placed in a difficult position, as nothing can be done after the event to rearrange matters. That individual may well feel at a disadvantage compared with other taxpayers in a similar position whose returns have been accepted without enquiry. Questions of legitimate expectation may arise, although these are outside the present Tribunal’s jurisdiction. The question of the treatment of individuals coming to live and work in the UK in circumstances similar to those of Mr Genovese is of considerable importance, and needs to be resolved in some practical way if the flow of workers to and from the UK is not to be distorted by concerns as to the tax considerations.
58.	I wish to reassure Mr and Mrs Genovese that I have not disregarded any of their evidence. However, much of that evidence related to matters of intention. Although I have taken it into account in reviewing Mr Genovese’s position, it is clear from Lord Scarman’s comments in Shah that intention is not a relevant factor in applying the common law test, and that Mr Genovese’s state of mind was relevant only to the voluntary adoption of residence and to settled purpose.
Conclusion
59.	On the basis of the common law test, I find that Mr Genovese was ordinarily resident in the UK in the year 2001-02, and that therefore his appeal must be dismissed.

JOHN CLARK

SPECIAL COMMISSIONER
RELEASE DATE: 18 March 2009

SC/3080/2008

Authority referred to in skeleton and not referred to in the decision:
R (oao Wilkinson) v Revenue and Customs Commissioners (2005) 77 TC 78