Football manager loses Statutory Residence Test tax case

Football manager and businessman Ernest Batten has lost his tax appeal against HMRC after being judged UK resident in 2014-2015.

Mr Batten – manager of Sheppey United FC – had argued he was non-UK resident for the period in question because he was living and working in Gibraltar.

But the First-tier Tribunal (FTT) agreed with HMRC’s assessment that Mr Batten must pay capital gains tax on 34 disposals of UK properties he made in the 2014-2015 tax year.

Complex residency rules

Mr Batten said he’d left the UK in March 2010 to live and work in Gibraltar and stopped being UK resident at that point when his relocation gave rise to a distinct break in the pattern of his life. He said he didn’t resume UK residence until the tax year 2015-2016.

The Batten v HMRC case is particularly complicated because of the introduction of the Statutory Residence Test (SRT) in April 2013. Because of this, the tribunal considered both pre-SRT common law rules and SRT rules.

Mr Batten was in the unusual position of having been accepted as non-UK resident for the tax years 2010-2011, 2011-2012 and 2013-2014 – but not for 2012-2013 and 2014-2015.

Residency tests

It was common ground Mr Batten didn’t meet any of the automatic tests under the SRT.

So, the alternative ‘sufficient ties test’ was used, and part of this required an analysis of residency in the previous three tax years.

Looking at the three years preceding 2014-2015, the only one in dispute was 2012-2013.

Ernest ‘Ernie’ Batten’s background

Ernie Batten (as he is known) is a British citizen who was born in the UK in 1957. He lived in the UK (and nowhere else) for more than half a century until March 2010.

He spent some time as an apprentice professional footballer for Charlton Athletic FC and continued as a semi-professional footballer until 1998. He then qualified as a Football Association coach.

In 1985 Mr Batten started a property lettings business and in 1988 a care home business. In 1992 the care home business was expanded when he sold the original care home facility and bought the Little Oyster Holiday Camp, which was redeveloped as a care home for adults with physical and learning disabilities.

In 1995 his wife, Mrs Batten, took over sole day-to-day management of the Little Oyster care home business. The role involved the coordination and oversight of a large body of staff. By the time Mr Batten went to Gibraltar in 2010, Little Oyster provided a 64-bedroom facility with a staff of 100 carers, cleaners and catering workers.

In 2001 Mr and Mrs Batten moved into their family home, Parsonage Farmhouse, which they jointly own, and to which Mr Batten has returned when in the UK.

Did Ernest Batten make a ‘distinct break’ from the UK?

The FTT said Mr Batten made a distinct break in the tax year 2010-2011 and, as a result, became non-UK resident in that year.

The break continued in the following tax year but ended in 2012-2013.

Tax appeal conclusion

The FTT’s Tax Chamber considered all Mr Batten’s circumstances for 2012-2013 and decided he was UK resident for that tax year. This ruling meant he was also UK resident in 2014-2015.

The FTT said: “Considering the evidence overall we find that while Mr Batten was happy to have a second home in Gibraltar, which he and the family continue to use to this day, he did not have an intention to make Gibraltar his home longer term.

“He enjoyed the lifestyle in the summer months in Gibraltar when the place was buzzing, but he spent much of the winter months away from Gibraltar from 2012 onwards, with a considerable period over Christmas and New Year in the UK.

“He never took additional possessions beyond those initially transported in his relatively small car and as the years passed he returned more frequently to the UK, to the extent that he engaged in the brief runs to Calais to reduce his midnight count here.

“His ‘home’ in the truest sense of that word, with all that encapsulates in the context of accommodation and a centre of life, was in the UK.”

The tribunal recognised the result was “untidy” and added: “The rules are applied on an annual basis and consequently such results can and will arise.”

Our thoughts

Residency is a notoriously difficult area of tax law.

Until the Statutory Residence Test was introduced in 2013, it was based purely on tax case law and there was no certainty over an individual’s tax position.

There are many other areas of tax law that rely upon tax residency status, such as anti-avoidance rules. So, it’s crucial for you to fully understand your residency status, both before the SRT was introduced and after, because there are subtle differences in treatment.

You should always seek professional tax advice if there’s any doubt about your residency status. This is especially important if there are potentially serious tax implications riding on your residency status.