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The was an appeal brought by Mr McCabe against a decision in the First-tier Tribunal (FTT) in 2022 and raises some important points for those considering a move overseas and changing their tax residency status. In particular, it involves a situation where someone can be resident for tax purposes in both the UK and another country and outlines how their tax residency status may then be determined.

In the , it was found that Mr McCabe, a well-known businessman and former chairman of Sheffield United football club, was resident in the UK for tax purposes in the 2006/07 and 2007/08 tax years. As a result, it was found he was subject to income tax and capital gains tax in the UK for those two tax years, including on a gift of shares in his business to his children in this period.

It is not uncommon for individuals who move overseas to retain ties to the UK and continue to spend significant time here. To the surprise of some, this can sometimes result in someone being treated as tax resident in two or more countries. In such circumstances, there may be a treaty between the two countries that helps to break this deadlock, which requires the individual to determine their tax residency status under the treaty. 

Such a treaty between two countries or jurisdictions is often referred to as a ‘double taxation convention’ (DTC). When trying to determine someone’s residency status under a DTC, there are usually a series of tests that work a bit like a waterfall. If the first test does not determine the residency status of an individual, you flow through to the next test and so on. 

Each DTC is unique, but the majority have very similar provisions. The first residency tie-breaker test is typically whether the individual only has a permanent home available to them in one of the countries. In the case of Mr McCabe, it was found that the family home in the UK was still available to him, despite moving out, removing his possessions and handing over his keys.

Flowing down to the next test, it is necessary to determine a taxpayer’s ‘centre of vital interests’. This can be a very difficult test to satisfy, as has been seen in this case, if the individual retains ties to the UK. As the facts of this case highlight, retaining business interests and regularly seeing friends and family together with brief, but relatively frequent, visits can be important factors. 

In determining someone’s centre of vital interests, it is not sufficient that someone is habitually living outside the UK. That is in fact the typical third tie-breaker test and in this case, would likely have been satisfied. The issue was that once the centre of vital interests was found to be in the UK, there was no need to even look at this third test.

With the uncertainty of the upcoming Budget prompting some to reconsider their futures in the UK, this case highlights the challenges that can be faced if someone who has moved abroad continues to spend a lot of time in the UK. Ultimately, the cutting of social ties can often prove too high a cost for many to bear.

It’s worth noting that the UK statutory tax residence test (SRT) came into effect after the period in question for this case, from 6 April 2013. While determining an individual’s UK tax residence position can still be complicated, the SRT sets out a framework which will determine the position for each tax year. By ensuring that an individual is not UK resident under the SRT, they can avoid having to rely on the provisions of a DTC.