Closing HMRC enquiries

Individuals frequently move to the UK without intending to reside here permanently. Often, such ‘non-doms’ retain close links with their countries of origin and intend to return home when they can. UK tax law has always treated such ‘non- doms’ differently, and they may not have to pay UK tax on foreign income or gains. This policy has encouraged many successful people to base themselves here. In recent years however, HMRC appears to have targeted ‘non-doms’ for enquiry. Whatever the reasoning behind this change, domicile investigations are now much more commonplace. These can involve extensive and at times intrusive fact finding requests for information regarding family histories and assets held overseas.

There have been a number of recent Tribunal decisions on whether taxpayers can force HMRC to reach a conclusion on domicile status without having to provide access to details of foreign assets, income, and gains. Many have argued that the correct approach is to seek the issue of a ‘Partial Closure Notice’ so that the matter of domicile is treated as a discrete issue. In contrast, HMRC argue that the law stipulates that enquiries can only be resolved when tax liabilities can be quantified and that this supports continued information requests.

In the case of Henkes the Tribunal held that when determining an application for a closure notice, the court could determine the question of domicile as a preliminary and discrete issue. Unfortunately the cases of Levy, and more recently the judgement of the Upper Tribunal in Embiricos [2020] UKUT 370, provide contrasting judgements, and are supportive of the HMRC’s approach that a taxpayer must first give up all requested financial details before any domicile dispute can be resolved.

There is clearly some uncertainty as to the law around applications for closure notices, and this will raise challenges for those advising taxpayers in domicile disputes with HMRC. The latest decision in Embiricos arguably sits uneasily with the decision in Henkes, but it is the most up to date guidance we have on the approach that will be taken by HMRC in such cases. It remains to be seen whether the recent ruling will be appealed, or whether there will be other challenges to HMRC’s investigations of ‘non-doms’. In the meantime those whose UK tax status is being challenged by HMRC should ensure that responses are proactively managed.