Henkes – FTT has jurisdiction to determine mixed questions of fact and law on application for closure notice

In Henkes v HMRC [2020] UKFTT 159 (TC), the First-tier Tribunal (FTT) decided that it has jurisdiction to determine mixed questions of fact and law on an application for a closure notice and appeal against an information notice.

Background 

Mr Everet Henkes (the taxpayer) applied to the FTT, pursuant to section 28A(4), Taxes Management Act 1970 (TMA 1970), for an order directing HMRC to close its enquiries (fully, or in the alternative, partially) into his self-assessment returns in respect of the tax years 2014/15 and 2015/16. The taxpayer also appealed against an information notice issued by HMRC pursuant to paragraph 1, Schedule 36, Finance Act 2008 (the information notice).

The taxpayer considered himself to be domiciled outside the UK and accordingly filed his tax returns on the remittance basis. HMRC accepted that the taxpayer's domicile of origin was outside the UK, but considered that he had acquired a UK domicile of choice at some point during his adult life. It therefore opened an enquiry into his tax returns for the relevant years and issued the information notice seeking information about his worldwide income and gains. 

The success of the taxpayer's application and appeal depended on whether: (1) HMRC had reasonable grounds for not issuing closure notices in relation to its enquiries; and (2) the information requested in the information notice was reasonably required. 

There was also an anterior issue of whether the FTT had jurisdiction to determine, as a preliminary issue, whether the taxpayer had acquired a UK domicile of choice, or whether it was limited to considering the reasonableness of HMRC's belief that he did, as contended for by HMRC. If the FTT did have jurisdiction to determine domicile, the next question was whether it was appropriate for it to do so.

FTT decision 

The application was refused and the appeal dismissed.

The FTT did, however, decide that it had jurisdiction to determine a person's domicile on an application for a closure notice and on an appeal against an information notice. 

In Vodafone 2 v HMRC [2006] EWCA Civ 1132, the Court of Appeal held that a question of law could be determined as a preliminary issue on an application for a closure notice. In the view of the FTT, that principle applied equally to mixed questions of fact and law, such as whether a taxpayer had acquired a domicile of choice. The FTT was also of the view that although the legislative regimes governing closure and information notices were distinct, there were parallels and, as with section 28A, TMA 1970, there was nothing in  paragraphs 1 and 26, Schedule 36 , Finance Act  2008, to suggest that the FTT was limited to determining whether HMRC's view of the taxpayer's domicile was reasonable.

Interestingly, the FTT also said that any determination on the taxpayer's domicile would engage the principle of estoppel and that neither party would be able to argue for a contrary outcome in any subsequent proceedings before the FTT e.g. on an appeal against a closure notice. To do so, the FTT said, would amount to an 'abuse of process'.   

The FTT noted that HMRC's enquiries had been ongoing for over three years and the taxpayer had been put to a considerable amount of trouble and expense in answering numerous questions about his domicile. Moreover, the question of his domicile was, effectively, the sole issue that had to be resolved in order to determine both the application and the appeal. Once that issue was decided, the dispute between the parties would be at an end. Balancing the need for HMRC to be able properly and fully to exercise its investigative powers, against the taxpayer's need not to have to spend inappropriate time and incur unnecessary expense as a result of a needlessly protracted investigation, the FTT determined that it was appropriate for it to determine the taxpayer's domicile. 

On the issue of domicile, HMRC accepted that the taxpayer had a domicile of origin outside the UK. In order to have acquired a UK domicile, the taxpayer must, at some point prior to the relevant tax year, have:

(1) had his only or chief residence in the UK; and

(2) formed the intention to remain in the UK indefinitely.

With regard to (1), the FTT determined that the taxpayer's 'chief' residence was in the UK, as his only other residence (in Spain) was visited infrequently and on a seasonal basis. In respect of (2), the FTT concluded that the taxpayer had acquired a UK domicile of choice. In reaching its conclusions, the FTT found that the taxpayer had no strong links or attachment to any jurisdiction other than the UK. 

The FTT said at [159]:

"What ultimately matters in this context is not whether the Appellant has a strong attachment to a jurisdiction other than the UK but instead whether the Appellant intends to remain in the UK indefinitely, as that term has been interpreted in the case law … ".

It went on at [160]:

"… if the attachments which the Appellant has to the UK are significant, his lack of attachments to any other jurisdiction can affect both the adhesiveness of his domicile of origin and the proper interpretation of his intentions as regards the UK".

In reaching its conclusion on domicile, the FTT seemed to have been greatly influenced by the fact that the taxpayer had lived in the UK since 1967 (apart from two three-year periods when he had worked abroad). On the facts, the FTT held that the taxpayer had acquired a UK domicile and it was therefore reasonable for HMRC to have refrained from issuing closure notices and to have issued the information notice.

Comment 

This decision concerns important jurisdictional issues, as well as the law relating to an individual's domicile. This is one of those rare cases where the FTT has been persuaded that the taxpayer lost his domicile of origin and acquired a domicile choice in the UK. In circumstances where the taxpayer lived in the UK since 1967, it is perhaps not altogether surprising that the FTT concluded that he acquired a UK domicile of choice. As always, in cases involving disputed domicile, the issue will turn on the specific facts of the case under consideration and the evidence before the FTT will be crucial in determining the issue. 

On the jurisdictional issue, the FTT held that it did have power to determine the taxpayer's domicile, notwithstanding that the proceedings were not substantive appeal proceedings. It also confirmed that the parties would be bound by its findings in relation to domicile and would be unable to argue for a contrary view in any future appeal proceedings before the FTT. It remains to be seen whether the taxpayer will seek to disturb this aspect of the decision in any appeal which he may bring in due course against future closure notices issued by HMRC. The concept of 'abuse of process' has also been raised in other recent tax cases (see, for example, our blog on Booth Ltd v HMRC [2020] UKFTT 35 (TC) here).   

With regard to whether HMRC could issue a partial closure notice without amending the taxpayer's self-assessment returns for the relevant tax years, differently constituted FTTs came to the opposite conclusion, on very similar facts, in Embiricos v HMRC [2019] UKFTT 236 (TC) and The Executors of Mrs R W Levy v HMRC [2019] UKFTT 418 (TC) (see our blog on that decision here). Those cases are on appeal and it is to be hoped that the Upper Tribunal will provide some much needed clarity on this important issue.

The decision can be viewed here.