Cases on ordinary residence are extremely rare, so it was interesting to read the decision in Genovese v HMRC SpC 741, in which the very point was examined by the Special Commissioners. The taxpayer was an investment banker who came to work in the United Kingdom in 1998. He did not intend to stay, but he did so, and in 2001/02 he decided to buy a property, because house prices in London had increased by nearly 50 percent since his arrival.
The point in issue was whether, by 5 April 2002, he had become ordinarily resident in the United Kingdom. If he was ordinarily resident, he would be liable for tax on his worldwide earnings, whereas if he was not ordinarily resident, he would be taxable here only on the earnings attributable to his work in the United Kingdom.
There is no statutory or other definition of ordinary residence, but the generally accepted test is that the person must be habitually and normally resident in the United Kingdom, apart from temporary or occasional absences. The key word here is “habitually”, which consists of two features: being resident here voluntarily, and being resident for a settled purpose. It is sometimes also described as the way in which a man’s life is usually ordered. There is no requirement that the United Kingdom be the “real home” of the taxpayer – this is said to be wholly inconsistent with the natural and ordinary meaning of the words.
An important consideration is that ordinary residence is determined by reference to the objective examination of past events – not by reference to intentions or expectations for the future. This is significant because the whole of the arguments of HMRC (reflected in IR20) were that the intention is pretty much all that matters. Interestingly, this idea is repeated in the new residence guidance in HMRC 6 (see the next article) – and it is equally wrong there. (Having regard to the adverse comments made by the Special Commissioner in this case regarding the terms of IR20, it is to be hoped that the revised IR20 will be further revised to reflect a more accurate position.)
As far as Mr Genovese was concerned, the Special Commissioner decided that a period of three years in the United Kingdom was necessary, for his residence here was sufficiently habitual to make him ordinarily resident. In September 1998 he had taken a one-year tenancy of a flat in London with his wife and family, and, accordingly, the Special Commissioner considered that he had become ordinarily resident in September 2001. This was in the year 2001/02, and it is suggested that he should, therefore, be regarded as ordinarily resident for the whole of that year.
There seems to be inadequate legal authority for much of this, and, rather than this case clarifying the position, we are now in a state of uncertainty about the strict legal position, as well as the HMRC practice.