Embiricos - (partial) closure of route to early resolution of domicile enquiries

Recent years have seen a significant increase in HMRC enquiries into taxpayers' domicile status. These are frequently long-running and complex, causing taxpayers to seek early resolution. There have been conflicting decisions in the tribunal on whether a taxpayer can force an early determination of their domicile prior (and separately) to a detailed examination of the quantum of their foreign income and gains for the relevant years. The recent Upper Tribunal decision in Embiricos [2020] UKUT 370 has resolved this conflict.

In outline, Mr Embiricos considered himself to be non-UK domiciled and so claimed the remittance basis in his tax returns for various years. HMRC opened enquiries into those returns and reached the conclusion that he was in fact UK domiciled.  As is common for remittance basis taxpayers, Mr Embiricos had not provided details of his foreign income and gains when filing his tax returns and so HMRC also sought this information.

Mr Embiricos applied to the tribunal for a "partial closure notice" (PCN) on his domicile alone. This is a relatively new concept, introduced in 2017, allowing a taxpayer to force HMRC to issue a formal conclusion on a particular "matter" in an enquiry, so that it can then be the subject of an appeal at the tax tribunal (if the taxpayer disagrees). Mr Embiricos argued that his domicile was a "matter" capable of being subject of a PCN without needing to explore the details of his foreign income and gains for the relevant years.

This would have had significant advantages for Mr Embiricos - not least to have his domicile determined in advance, as the subject of a separate, discrete appeal, without the additional cost and burden of working out the quantum of foreign income and gains and disclosing that to HMRC. If the domicile-only appeal were successful, the question of quantification would never arise.

The First-tier Tribunal found in Mr Embiricos' favour.  However, the Upper Tribunal has now allowed HMRC's appeal. The decision was based on existing case law (prior to the introduction of the PCN regime) that states that closure notices cannot be issued without quantifying the tax at stake. The UT was also concerned that: (i) Mr Embiricos' position conflicted with the separate statutory regime for HMRC and taxpayers to refer issues jointly to the tribunal and (ii) giving a wide interpretation to a "matter" capable of being subject to a PCN would open the floodgates to multiple pieces of litigation on enquiries in other contexts.

Overall, the decision is a disappointing one for taxpayers and, subject to any appeal, it removes a powerful strategic weapon for anyone faced with a domicile enquiry (although other potential options remain open).  It will also be interesting to see the full implications of the decision for other types of tax enquiry.