Private Client Case Review: Henkes v HMRC  UKFTT 159 (TC)
A long time ago in a galaxy far, far away the concept of domicile and its importance to tax matters was considered untouchable, sacrosanct if you like. However, a great deal has changed over the past 20 years or so to the way in which non-doms are taxed. There’s been a significant amount of tinkering around the edges that gives the impression that the UK is still a fabulous place to live for the fabulously wealthy, but the truth is the remittance basis ain’t what it was in the good ol’ days. The inexorable withering of the tax benefits available to non-doms (akin to death by a thousand cuts) is aided by seemingly pro-HMRC courts.
The recent First Tier Tribunal (FTT) case Henkes v HMRC  is testament to this and, whilst very fact specific, is nonetheless a salient reminder that one’s domicile is not cast in stone.
- Mr Henkes was born in Venezuela and is a Dutch citizen
- He was raised in South America and educated in the USA
- He has been resident in the UK since 1967, except for two short periods of non-residence during which he maintained a UK home, and had strong family connections to the UK.
- He and his wife also had a home in Spain, which they visited regularly with friends and family
- He has a non-UK domicile of origin (not disputed by HMRC)
- He claimed the remittance basis for the 2014/15 and 2015/16 tax years, only paying UK tax on foreing source income and gains to the extent remitted to the UK.
- HMRC raised an enquiry into these two tax years, assetting that Mr Henkes had acquired a domicile of choice in the UK and was therefore liable to worldwide taxation
After two years of assisting HMRC with their enquiry, Mr Henkes applied to the FTT to consider :
- his application for a closure notice in relation to HMRC’s enquiries; and
- his appeal against the information notice issued by HMRC.
HMRC’s view was that they could not issue any sort of closure notice without calculating the tax that they claimed was due given Mr Henkes had become (in their opinion) UK domiciled. Instead, they issued an Information Notice requesting details of Mr Henkes’ foreign income and gains for the 2014/15 and 2015/16 tax years and for good measure also for the 2013/14 tax year, which was not under enquiry.
The FTT found there were two procedural questions to consider:
- whether the FTT had jurisdiction to determine Mr Henkes’ domicile status; and
- if it did, should it exercise its discretion to determine Mr Henkes’ domicile status.
The FTT decided it had both the jurisdiction to determine Mr Henkes’ domicile status and that it should exercise its discretion to determine Mr Henkes’ domicile as this was central to the application for a closure notice and the appeal against the information notice.
The FTT went on to find that Mr Henkes had indeed acquired a UK domicile. The following findings are of interest:
- Mr Henkes’ main residence was in the UK, not his Spanish holiday home;
- Mr Henkes had lived in the UK for a lengthy period of time and had strong family ties here;
- Mr Henkes did not have a meaningful connection with another country (although one might argue that citizenship and owning property that one visits is meaningful);
- Mr Henkes did not prove that he would leave the UK at some point in the future
- Mr Henkes had no intention of retiring
- Mrs Henkes was reluctant to leave the UK
It was therefore reasonable for HMRC to:
- not issue closure notices in relation to its enquiries into the tax returns for 2014/2015 and 2015/2016; and
- seek information on Mr Henkes’ worldwide assets in relation to these years.
Whilst a case at the FTT is not binding, long term non-doms should take notice. It illustrates the importance of maintaining strong ties with a country other than the UK and that intentions should be in line with actions, particularly husband and wife being aligned in this regard.