[2010] UKFTT 53 (TC)

TC00366

Appeal number: SC/3043/2009

Income tax – residence – determination of ordinary residence – whether taxpayer ordinarily resident for the first three full tax years after arrival in the UK – on facts, yes – appeal dismissed

FIRST-TIER TRIBUNAL

TAX CHAMBER

DR ANDREAS HELMUT TUCZKAAppellant

- and -

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

TRIBUNAL: JOHN CLARK (JUDGE OF THE FIRST- TIER TRIBUNAL)

NICHOLAS DEE

Sitting in public at 45 Bedford SquareLondonWC1B 3DN on 17 November 2009

Keith Gordon and Ximena Montes Manzano of Counsel,instructed by Squire Saunders and Dempsey, for the Appellant

Akash Nawbatt of Counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2010

1

DECISION

  1. Dr Tuczka appeals against a Notice of Determination of Ordinary Residence in respect of the years 1998-99, 1999-2000, and 2000-01 issued by the Respondents (“HMRC”) on 7 February 2005.

The facts

  1. The evidence before us consisted of a Statement of Agreed Facts, a bundle of documents, Dr Tuczka’s witness statement dated 26 August 2009, and his oral evidence given at the hearing.
  2. As the Agreed Statement of Facts covers a substantial part of the evidence necessary to our decision, we reproduce it, subject to minor amendments of a clerical nature:

(1)Dr Tuczka is an Austrian National who was born on 11 February 1971 in Eisenstadt, Austria.

(2)Between 1971 and June 1989 Dr Tuczka lived in the family home in Eisenstadt (30 miles from Vienna). From June 1989 (when he went to university) he also had the use of a family-owned apartment in Vienna.

(3)Under Austrian law (Meldengesetz, Law of Registration) every Austrian has to maintain an entry on a register showing his permanent residence. This is the address at which he is to be contacted and from which he must make himself available by law to the Austrian authorities. The entry on the register also confers electoral rights and determines the place where the individual is entitled to vote. Any departure from the address other than on a strictly temporary basis has to be notified and a new address registered. Until May 2003 Dr Tuczka was registered as being permanently resident in his home town of Eisenstadt. Dr Tuczka de-registered in 2003. There is no facility on the Meldengesetz register to record an address outside Austria and therefore from 2003 no address was recorded.

(4)Dr Tuczka is an investment banker. In the relevant period he was specialising in mergers and acquisitions.

(5)In 1997 Dr Tuczka was assistant to the board of Austrian Erste Bank, where he had been employed since January 1995.

(6)In April 1997 Dr Tuczka was offered employment by SBC Warburg (later UBS Warburg, today UBS) and took up duties based in London on 1 July 1997.

(7)Between July 1997 and May 1998 Dr Tuczka rented accommodation in London.

(8)Dr Tuczka’s girlfriend, Sylvia Schimmerl, (who later became his wife) came to the UK in 1998 to take up an accountancy training position.

(9)In or around February 1998, Dr Tuczka made an offer to purchase a property in Notting Hill. This offer was accepted on 20 February 1998 and thepurchase was completed in May 1998.

(10)The purchase of the Notting Hill flat was financed in part through savings and family money (£88,000) from Austria and in part by a mortgage through HSBC Midland (£65,000). The mortgage rate was fixed to July 2000 and the mortgage term was set at seven years. In December1999 Dr Tuczka restructured the flat financing, bringing in his father as a fellow investor.

(11)On 29 July 1998 Dr Tuczka notified HMRC on form P86 of his presence in the UK and the expected duration of his temporary stay, which he estimated (in the form) at between 2.5 and 3 years. On 12 November 1998 HMRC issued a Self Assessment tax return for 1997-98, which was completed by Dr Tuczka and lodged with HMRC on 27 January 1999. On this return, Dr Tuczka self assessed his tax residence status as Not Resident and Not Ordinarily Resident. No enquiry was raised by HMRC in relation to this return or the tax refund claim arising.

(12)On 9 November 1998, pursuant to a reorganisation, the original employment contract with UBS Warburg was replaced by a new contract with Warburg Dillon Read, the Corporate Finance division of the Bank. The general terms, including the 4 week notice period, remained unchanged.

(13)Self Assessment tax returns for 1998-99 and 1999-2000 were lodged with HMRC within the normal filing dates. For each year, Dr Tuczka self assessed his tax residence status as Resident but Not Ordinarily Resident. No enquiries were raised by HMRC in relation to these returns or the tax refund claims arising out of the overseas workday relief claimed.

(14)The Self Assessment return for 2000-01 was filed on 25 September 2001. Dr Tuczka self assessed his residence status for the year as Resident but Not Ordinarily Resident.

(15)Dr Tuczka married Sylvia Schimmerl on 10 May 2001 in Eisenstadt, Austria.

(16)In 2002, Dr Tuczka left Warburgs.

(17)Mrs Tuczka, who had been employed by PricewaterhouseCoopers (PwC) in the UK, took up a new post with PwC in Austria with a starting date of August 2002. She moved into the matrimonial home in Austria where she still continues to reside.

(18)Dr Tuczka continued to work in London. In the year ended 5 April 2003, he self assessed himself as resident and ordinarily resident in the UK.

(19)The Tuczkas’ first child, Clemens, was born in Vienna in December 2003 and their second child, Dominik, was born in August 2005, also in Vienna.

(20)On 19 September 2002 a section 9A enquiry was notified concerning inter alia the self assessed residence status for 2000-01.

(21)On 7 February 2005 a formal Notice of Determination of Ordinary Residence covering 1998-99, 1999-2000 and 2000-01 was issued by HMRC. A formal appeal was lodged by Haarman Hemmelrath, acting for Dr Tuczka, on 18 February 2005.

(22)On 25 January 2006 a discovery assessment was raised for 1999-2000 charging tax of £23,247.20.Formal notice of appeal was lodged by Haarman Hemmelrath, acting for Dr Tuczka, on 26 January 2006. [Haarman Hemmelrath subsequently merged with Squire Saunders and Dempsey, the instructing solicitors.]

  1. In addition to the above agreed facts, we find the following. Dr Tuczka’s intention after working for Erste Bank in Austria was to derive international experience, with a view to his eventual return to Austria to take up a senior position with a top-tier firm there. At the point when he left Austria, he did not own any residential property, having had the use of his family’s apartment while living there from Mondays to Fridays, staying at the family home in Eisenstadt at weekends. After moving to London, he continued to use the Vienna flat whenever he was in Vienna (which was quite often) whether for work or for socialising. He kept all his personal furniture and his valuables there, including his most valuable possession, an antique clock. His use of the Vienna flat continued until at least August 2001, the point at which the new matrimonial home in Vienna had been acquired; it was not until May 2002 that his and his wife’s personal belongings(mainly books and private possessions), were moved to Vienna.
  2. The letter from SBC Warburg dated 15 April 1997, sent to Dr Tuczka in Vienna, and in which he confirmed that he would be able to start work on 1 July 1997, contained the following paragraph relating to the place of work:

“Place of Work:

You will be based at 2 Finsbury Avenue in London. You may be required to work in another capacity or elsewhere in the Bank’s group, or elsewhere in London. If the Bank should ask you to transfer to another country, the UK would be regarded as your home location and any such transfer would be subject to your agreement at the time.”

A similar provision was contained in the substituted contract issued to Dr Tuczka on 9 November 1998 by Warburg Dillon Read, which was described as a division of UBS AG. The notice period under both was a minimum of four weeks, but the later contract indicated that the criteria for notice and service were set out in the Staff Handbook. The second contract stated: “Your employment is not for a fixed term or intended to be temporary.”

  1. For his first two months in London, Warburgs provided him with temporary housing. In September 1997 he moved into a rented apartment in London E14. He described this as “very basic”; all furniture and cookery items were provided. The rent was £760 per month, which he considered an enormous amount compared to the net monthly salary for an Austrian university graduate at that time. He did not bother to decorate the flat or bring many of his personal possessions to the flat, as he knew that he was never going to spend much time there. This was both because of his extensive working hours, and because of his expectation that Sylvia Schimmerl (“Sylvia”) would eventually be coming to London.
  2. Sylvia’s university course was a degree in law at the University of Vienna, with an exchange programme at the University of Paris. In May 1998 she finished her university degree in Paris. Dr Tuczka’s view was that the flat in E14 would be unsuitable for their needs, in particular because Sylvia would be spending much more time there than he would in view of his work and business travel commitments; his work involved a considerable amount of travel abroad. We find that she had seen the E14 flat during a visit to the UKat some stage before Dr Tuczka made the offer in February 1998 to buy the property in Notting Hill, and we accept Dr Tuczka’s oral evidence that she did not like the E14 flat.
  3. Dr Tuczka’s motives for buying the Notting Hill property rather than renting another property (whether on a shorter-term or longer term basis) were purely financial, in view of the conditions in the London property market at the time. His view was that it was better to spend the “rent” on a mortgage so as to acquire ownership and benefit from some capital appreciation. His view was that once he left London, he would be able either to sell the property at a profit or to hold it as an investment and take rental income.
  4. His original financing arrangements continued until December 1999, when (in contemplation of his eventual return to Austria and the need to finance a new home as the matrimonial home) his father provided finance to enable the accrued profit in the Notting Hill property to be released to Dr Tuczka to fund the purchase of property in Vienna.
  5. From late 1997 onwards, Dr Tuczka started to travel frequently back and forth to Vienna and Paris. When his work permitted, he spent time in Vienna keeping up his social contacts; Sylvia often accompanied him.
  6. During 1999, Dr Tuczka started to devote attention to his plans to secure work in Austria for his intended departure in early 2000, after the “bonus round”. He had a series of interviews for senior posts in a variety of possible roles.However, the commercial conditions in London in late 1999 and early 2000 were such that there was a high demand for German-speaking executives. The Warburgs managers were anxious to keep Dr Tuczka, by whatever means. At the same time, his position was enhanced by taking over work from his immediate manager, who had suddenly left Warburgs. Dr Tuczka persuaded Sylvia to wait for a time, and again for a further period, and so on.
  7. Dr Tuczka’s work continued during 2000, despite a contraction in the market in Europe; from October to December he worked on projects in Hong Kong and the Far East, where the markets were still active. By the end of the year, when he returned from the Far East, he considered that he needed to “sit tight”, as redundancies were starting; the position was the same in Austria. This situation continued well into 2001.
  8. By the end of 2001, he felt that the uncertainty was taking its toll; it was long past time to go home and he finally agreed with Sylvia to move back. As a result, in May 2002, after the annual bonuses had been paid in late March, he gave notice and resigned from Warburgs.
  9. As at that point, he described himself and Sylvia as being “ready physically, mentally and financially to end our transient connection with the UK”. Later in May 2002 when he had already left Warburgs and was on “garden leave”, he received an unsolicited job offer from ABN AMRO. Although this was unexpected, it was not totally “out of the blue”, as it came from his former line manager at Warburgs who had left in 2000 to move to ABN AMRO. Dr Tuczka felt that the financial terms now on offer in 2002 were such that he just could not turn them down. However, the job would have a significant London element. Dr Tuczka described Sylvia as not having been particularly happy about the new circumstances. He agreed to spend as much time as possible, including weekends, in Austria.
  10. The terms which he ultimately negotiated enabled him to be based for part of the working week in Vienna. His plans to leave London completely had once again to be postponed, but Sylvia left for Vienna as planned where she set up the matrimonial home as arranged and took up employment locally in August 2002.
  11. By May 2003 Dr Tuczka considered it appropriate to de-register his notification of his Eisenstadt address to the Austrian authorities; he did not consider it appropriate to register the new Vienna home address, as from around May 2003 he regarded his London flat as his residence for the time being. His reason was that he no longer had a definite plan for terminating his employment in London with ABN AMRO. Sylvia had already registered her address as being the new matrimonial home, the registration date being 24 September 2002. Since 2003, Dr Tuczka and Sylvia have come to terms with the fact that, financially, it has made sense for him to base himself in London but for the family home to be in Vienna.
  12. Dr Tuczka accepted that with effect from 6 April 2001, he was to be classed as ordinarily resident in the UK (following the third anniversary of his arrival in the UK). This was accepted in his self assessment return for 2001-02, which was filed at some point during June 2003. [A copy of this return was not included in the bundle.]
  13. When he had completed the form P86, Dr Tuczka had responded “No” to the following question:

“4.a. Have you, or if you are married, your husband or wife had any accommodation of any description for your use in the United Kingdom in the period starting 5 years before your arrival up to the present date?”

He explained in evidence that he had misread this question as being directed at only the five year period prior to his arrival, and that this had also been the impression given to him by the Human Resources officer when he had completed the form.

Contrary to the statement in the agreed statement of facts (paragraph [3](11) above), Dr Tuczka estimated the length of his intended stay at two and a half years, with no reference to three years.

Arguments for Dr Tuczka

  1. Mr Gordon referred to the cases in which ordinary residence had been considered, in particular by the House of Lords in Levene v CIR (1928) 13 TC 486, Lysaght v CIR (1928) 13 TC 511 and Barnet LBC v Shah [1985] 2 AC 309. He also referred to the recent decision of the Special Commissioner (John Clark) in Genovese v Revenue and Customs Commissioners [2009] STC (SCD) 373.
  2. Mr Gordon submitted that Dr Tuczka’s presence in the UK was not with a settled purpose. If there was any constancy in the order of his life up to and including 2001, it was the volatility and temporariness of his presence in the UK. The only thing that was settled was the fact that Dr Tuczka was planning his way out. The fact that this took longer than expected did not in itself turn his presence in the UK into a settled purpose, particularly having regard to the facts.
  3. In his return for the year ended 5 April 2002, Dr Tuczka had self assessed himself as having become ordinarily resident from 6 April 2001. This had been based purely on HMRC’s own IR20 guidance.
  4. Arguably Dr Tuczka had become ordinarily resident in or after 2001-02 or perhaps, later, in 2003-04 when, for the first time, working in London acquired a settled purpose. This would appear to reflect his decision in 2003 to deregister his address in Austria for the Meldengesetz. However, the correctness of those later decisions was not before the Tribunal.
  5. Mr Gordon made a series of comparisons with the caseof Genovese.This case and these comparisons are considered later in this decision.
  6. HMRC had stated in their Skeleton Argument that Dr Tuczka accepted that he had been resident in the UK from 1998-99 onwards. This was not the case. Nor did he accept that HMRC’s statement that he “was not a visitor to the UK”. For the first two years, Dr Tuczka had ticked the box in the return marked “Resident in the UK”; this was because s 336(2) of the Income and Corporation Taxes Act 1988 (“ICTA 1988”) required individuals to be treated, for the purposes of Schedule E, as resident if they spent in excess of six months (in practice, 183 days or more) in the UK. In the third year, ticking the box was in accordance with well-known but non-statutory HMRC practice which asserted residence once average annual presence reached 91 days. In subsequent years, notwithstanding what Mr Gordon argued was the reduced presence from 2002, tax returns were completed in accordance with the guidance in IR20; it was common ground that this was not legally binding.
  7. Although the appeal did not directly concern Dr Tuczka’s residence status for the years in question, Mr Gordon contended that it was common ground that an individual could not be ordinarily resident if he or she was not actually resident in the UK. He argued that individuals from outside the UK, but who spent considerable time in the UK, well in excess of 91 days on average, had been held to be non-resident, notwithstanding their considerable presence in the UK. He referred to CIR v Zorab (1926) 11 TC 289 and CIR v Brown (1926) 11 TC 292.
  8. He submitted that the parties did agree as to the main issues that, to be ordinarily resident in the UK:

a. an individual must be resident in the UK;