UK residence – an “exceptional” case

20 May 2022

One of the key factors in determining an individual’s liability to UK tax is their residence status; and since 2013, that status has been determined by the Statutory Residence Test (SRT).

The SRT works by mechanically counting the number of days (meaning midnights in the UK) an individual is present in the UK in a particular tax year and applying that number against certain tests and conditions. The only flexibility in the otherwise prescriptive SRT is the concept of “exceptional circumstances”.

What are “exceptional circumstances”?

Up to 60 days can be ignored when counting days for (most) purposes of the SRT if the taxpayer can show that:

  • there were circumstances that were exceptional;
  • the circumstances were beyond the taxpayer’s control;
  • the circumstances prevented the taxpayer from leaving the UK;
  • the taxpayer would not have been in the UK at the end of the day but for the circumstances; and
  • the taxpayer intended to leave the UK as soon as circumstances permitted.

We previously discussed the concept of “exceptional circumstances” in the context of Covid-19, looking at the approach taken by HMRC in light of lockdowns and self-isolation requirements.

More recently, the First-Tier Tribunal has considered “exceptional circumstances” in a different context in the case of A taxpayer v HMRC [2022] UKFTT 00133 (TC).

An “exceptional” case

The facts of the case do not make for happy reading: the taxpayer had recently moved to live in Dublin but, during the tax year in question, spent a number of days in the UK caring for her twin sister, who was alcoholic and suicidal and who had two minor children. HMRC argued that these days in the UK did not satisfy the requirements of the “exceptional circumstances” test and as a result the taxpayer was UK resident under the SRT, giving rise to an additional tax bill of £3m. The taxpayer argued the contrary position.

Although the First-tier Tribunal did not consider that visits to care for the taxpayer’s twin sister would of themselves constitute exceptional circumstances, the fact that the twin sister had minor children altered the position – “In our view, the combination of the need for the Appellant to care for her twin sister and, particularly, for her minor children at a time of crisis… does constitute exceptional circumstances”.

Without considering the Tribunal’s detailed findings of fact, the points below are worth highlighting.

  • The test for exceptional circumstances is tightly drawn but it is intended to be a relaxation from the rest of the SRT. The Tribunal cited with approval the words of the late Lord Bingham (albeit in the context of different legislation):

To be exceptional, a circumstance need not be unique, or unprecedented, or very rare; but it cannot be one that is regularly, or routinely, or normally encountered.”

  • HMRC’s argument that a “foreseeable circumstance” could not be an exceptional circumstance was rejected – the Tribunal held that foreseeability is just one factor to consider.
  • HMRC contended that a moral obligation could not “prevent” (as required by the test for exceptional circumstances) an individual from leaving the UK, and that the test could apply only where the person was physically unable to leave the UK (e.g. volcanic eruption) or remained there due to a legal obligation (e.g. to care for their minor child). The Tribunal rejected this and found that the word “prevent” includes physical, moral, conscientious or legal restrictions.
  • HMRC argued that exceptional circumstances can apply only if they arise after a taxpayer is already in the UK – but the Tribunal found that there was no statutory justification for this, and this position clashed with HMRC’s published practice. (It should be noted in this context that HMRC guidance currently states (at RDRM13250) that although the exceptional circumstances exemption would “generally not apply in respect of events that brought an individual back to the UK”, if the individual returns to the UK due to Foreign, Commonwealth and Development Office (FCDO) advice to avoid all travel to a region (due to, for example, civil unrest or natural disaster), the exemption would normally apply. Following the hearing in the present case, this guidance has been updated to confirm that, since current FCDO advice is against all travel to Russia, Belarus and Ukraine, individuals returning to the UK from these territories will qualify for the exemption. The updated guidance notes that “present HMRC guidance provides an example which clearly sets out that where an individual returns to the UK because of FCDO advice in response to war, then exceptional circumstances will apply. However, HMRC will also take into consideration any wider reasons which are outside of the individual’s control and look at the facts and circumstances of the situation.” Whether or not this is intended to indicate a relaxation in HMRC’s approach to take into account situations similar to those arising in the present case remains to be seen.)
  • Whilst it would have been theoretically possible for the taxpayer to fly in and out of the UK each day to look after her twin because the taxpayer had use of a private jet, this was impracticable.

Points for taxpayers

Any taxpayer facing a closure notice assessing them to tax in this context would be well advised to read HMRC’s explanation for refusing exceptional circumstances carefully: in this case, the Tribunal noted that HMRC had re-written the statutory language in the relevant closure notice “in a way that is, in our view, entirely unjustified”. The Tribunal emphasised that “the language used by the provision consists of ordinary English words and we have rejected the submissions of HMRC designed artificially to narrow the meaning of those words.

For taxpayers seeking to rely on the exceptional circumstances exemption, it would also be sensible to keep contemporaneous records evidencing the circumstances which are exceptional. There was some criticism of the taxpayer in this case as she was “vague in relation to details”; however, the Tribunal said that HMRC’s requirement of an itemised timeline for each day was not necessary.

Although it is possible that HMRC will appeal this decision, the outcome of the case is encouraging for taxpayers as it suggests a broader approach to the meaning of exceptional circumstances than that favoured by HMRC.