In the recent case of Kevin McCabe v HMRC ([2024] UKUT 00280 (TCC)), the Upper Tribunal examined whether Mr. McCabe had ceased to be a UK resident during the tax years 2006/7 and 2007/8. The case involved complex issues of tax residency under both common law and the UK/Belgium Double Tax Convention (DTC), ultimately concluding that Mr. McCabe remained a UK resident for the period in question.
Key Points
Common Law Residency Test The court applied the common law principles to determine residency. Although the statutory residence test did not apply during the relevant period, the decision followed guidance from earlier cases, notably HMRC v Glyn and Gaines-Cooper v HMRC. These cases highlight that UK residency continues unless there is a "distinct break" in the individual's connection to the UK. The court found that Mr. McCabe had not made such a break, despite his move to Belgium and frequent travel.
Tie-Breaker Test Under the UK/Belgium DTC A crucial aspect of the case was the application of the DTC’s “tie-breaker” provisions, which are used when an individual is resident in both the UK and Belgium. Under Article 4(2) of the DTC, the court must determine where the individual’s “centre of vital interests” (COVI) lies. Despite Mr. McCabe’s residence in Belgium, the court found that his COVI remained in the UK due to strong personal and business ties, including his significant involvement in the Scarborough Group and frequent visits to the UK.
Permanent Home and Habitual Abode One of the primary questions was whether Mr. McCabe had a “permanent home” available to him in the UK. Despite moving his primary residence to Belgium, the court held that his family home in Scarborough (Deepdale) was still available for his use, even though it was legally owned by his wife. This, combined with his frequent visits to the UK, supported the conclusion that he retained a habitual abode in the UK.Business and Social Ties The court placed significant weight on Mr. McCabe’s business commitments in the UK. Even though he had shifted much of his business focus to Europe, his ongoing roles in UK companies and regular attendance at meetings in the UK reinforced the conclusion that his professional and personal ties to the UK remained strong. His attendance at family events and social engagements, such as attending football matches, further contributed to the court's finding of continued UK residence.
Conclusion The decision in Kevin McCabe v HMRC emphasizes the complexity of determining tax residency, especially for individuals with international business interests. Even with significant time spent abroad, the case illustrates how strong personal, business, and social ties can result in continued UK residency. For those considering tax planning strategies, this case serves as a critical reminder of the importance of making a clear and demonstrable break with the UK if the intention is to become a non-resident for tax purposes.
This case reinforces the necessity of careful planning and legal advice when navigating the intricate rules around UK tax residency and international tax treaties.