The first question at issue in McCabe v HMRC  UKFTT 356 (TC) was whether Mr McCabe was tax-resident in the UK for the tax years 2006/7 and 2007/8, and therefore liable to Capital Gains Tax (‘CGT’) in respect of gains made in those years.
The years pre-date the introduction of the Statutory Residence Test (‘SRT’) by Finance Act 2013. Thus, the first 211 paragraphs of the case, in which the First-tier Tribunal (‘FTT’) undertakes a meticulous analysis of the minutiae of the facts in the context of case law going back nearly 100 years, stand as an eloquent testimony to the wisdom of introducing the SRT, which replaced the vagaries of the old case law with a set of objective (albeit complex) rules.
However, that was not the end of it. Having decided that Mr McCabe was resident in the UK under UK law, and recognising that he was also resident in Belgium under Belgian law, the FTT had to apply the ‘tie-breaker’ clause of the UK/Belgium Double Tax Convention. Since such ‘tie-breaker’ clauses are found in most treaties and are often identically worded (though the precise wording must always be checked), this part of the FTT decision is of wide and continuing application.
The first rule is that if you have a ‘permanent home’ available in only one of the countries concerned, the tie-breaker deems you to be a resident only of that country.
It was agreed that Mr McCabe had a ‘permanent home’ available in Belgium: but did he also have one in the UK? He had hoped to avoid that by removing his personal belongings from the family home (which had been in his wife’s legal ownership since 2004), handing back his keys, and staying in hotels on his visits to the UK. The FTT was not buying that, observing that:
- Mr McCabe was a welcome visitor at [the family home] whenever he was in Scarborough. [it] was available to him to use, and he did use it throughout the Relevant Period.
- Mrs McCabe would have given him permission to stay overnight whenever he wanted, and for as long as he wanted. The only reason he did not do so was that he had been advised not to for tax purposes.
Thus, the FTT did not consider that any weight should be placed on what it called ‘the artificial step’ of Mr McCabe’s handing over his keys to Mrs McCabe: he had a permanent home available in the UK as well as in Belgium.
That meant that the second stage of the tie-breaker had to be considered. This required deciding which was the country with which Mr McCabe’s personal and economic relations were closer (the ‘centre of vital interests’ or ‘COVI’). This required the FTT to perform a ‘balancing act’.
In favour of the COVI being in Belgium were that Mr McCabe
- had an office there, from which he worked on his own and attended meetings in person and by video conference
- was remunerated by a Belgian company
- had explored (though had not pursued) business opportunities in Belgium
- owned his apartment there
- attended social events and had developed new friendships there.
Against that, Mr McCabe
- had spent time in the UK with family and with long-standing friends at Christmas and at other times during the year
- was the controlling shareholder of a substantial UK-based group of companies for which he conducted a considerable amount of business in the UK and from which his remuneration was ultimately derived
- attended a significant number of Sheffield United football matches in the UK (he was Chairman of the club), which were important to him as a fan as well as a means of spending time with friends and family
- attended social events in the UK including (not necessarily in order of importance!) the Player of the Year dinner and his wife’s 60th birthday party.
On balance, therefore, the COVI was in the UK. Mr McCabe was resident and ‘treaty-resident’ in the UK and as such liable to UK CGT on gains made in the relevant years.
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