Yates suffers from a life shortening disease and in 2000 moved to Estepona, on the southern coast of Spain. She thought that its warm dry climate would be beneficial to her health and this view was supported by her medical specialist.
Her husband remained in the family home, because of business commitments but made occasional visits to his wife.
Yates made many visits to the UK between 2000 and 2001 and 2007 and 2008, ranging from 60 days in 2000/01 to 220 days in 2002/03. As well as visiting her husband at the family home, she spent time looking after her terminally ill father and, after his death, her mother.
In 2003, 2004, 2005 and 2006 she realised substantial capital gains on the sale of shares.
In 2008 Yates returned to live permanently in the UK because she felt that her relationship with her husband was suffering as a result of their separation. It had been intended that McKee would join her and that the two would live in Spain when his business commitments allowed, but, this never happened.
HM Revenue & Customs assessed her for capital gains tax in respect of the disposals of shares between 2003 and 2007. She was charged CGT but appealed on the grounds that (a) she was not UK resident in the relevant years and (b) even if she was UK resident she was also resident in Spain and the Spanish-UK Double Taxation Convention had the effect that the gains were not taxable in the UK.
The tax tribunal judge reviewed the evidence. During the relevant years she had a number of bank accounts and credit card accounts. These all used her UK address near Nottingham. She was in receipt of state benefits (disability living allowance) paid into her UK bank account. (Entitlement to this would have been endangered had she gone abroad on a permanent basis.) She applied to the Department for Work and Pensions for a mobility car using her UK address.
The judge held that Yates was UK resident in the years under review. The hallmark of UK residence has been a “settled or usual abode” in the UK. For this to end there must be a “clean break” in the pattern of the individual’s life. This usually involves a substantial loosening of social and family ties with the UK. Yates’ marital relationship with McKee was of the highest importance to her and in going to Spain she was not intending to compromise or impair it.
The judge’s specific comments were: “I find that the quality of Ms Yates’s absence from the UK was not such as to support the conclusion that she had made a distinct break in the pattern of her life for the purpose of relinquishing her status as UK resident and ordinarily resident. I therefore hold that she was resident and ordinarily resident in the UK in all of the relevant years.”
The judge also held that Yates “retained a centre of vital interests” in the UK and thus under the terms of the UK – Spain double tax treaty she was to be regarded as a UK resident.
This case shows that it is very difficult for an individual to establish tax residence in a “foreign” country when a spouse remains living in the UK during the period under review.
It’s worth noting that Ms Yates would almost certainly have been regarded as UK tax resident had the statutory residence test (which will apply with effect from 6 April 2013) been in force during the years in which she was in Spain.
Gerry Brown is technical manager at Prudential
