An update on ‘exceptional circumstances’ and the Statutory Residence Test

What is the issue?

As highlighted in a previous insight, HMRC has been challenging those who may have incorrectly claimed that ‘exceptional circumstances’ applied for the purpose of the UK’s Statutory Residence Test (“SRT”).  

If exceptional circumstances apply, it would mean that up to 60 days of presence in the UK could be disregarded in determining an individual’s UK tax residence position for a tax year. The desired outcome of disregarding those days of presence would be that an individual could then fall below the applicable threshold of days of presence in the UK required to be UK tax resident for the tax year. The end result would be a limit to, or removal of, their liability to UK tax for that tax year.  

Determining whether particular circumstances count as ‘exceptional’ for the purposes of the SRT has never been particularly clear or easy. While there was some additional guidance provided by HMRC during the covid-19 pandemic, the pandemic caused many people to make decisions in a variety of circumstances which may not fit within the guidance or the law. This has meant that many people, in more cases than might have occurred in other years, have sought to rely on the exceptional circumstances rule in determining their UK tax residence position for a tax year. 

The legislation on exceptional circumstances gives limited examples of circumstances that may be exceptional to include: national or local emergencies such as war, civil unrest or natural disasters, and a sudden or life-threatening illness or injury. The implication of this is that it is contextual to determine, as well as being a mixed question of fact and law. 

What has happened now?

Following a decision that was given by the First-tier Tribunal (“FTT”) on 19 April 2022 in the case of A Taxpayer v HMRC, the Upper Tribunal (“UT”) considered whether the FTT had erred in law in deciding that that exceptional circumstances existed in that case that prevented the taxpayer from leaving the UK.  

In brief, the taxpayer, who was a woman who lived in Ireland but had been UK tax resident in previous years, had come back to the UK for some time to look after her twin sister (who had mental health issues) and her sister’s children who were minors. The taxpayer decision to come to the UK and to stay here to look after her sister and children were considered by her to be a ‘moral obligation’.  The taxpayer was described as being aware that she would have to rely on the application of the exceptional circumstances rule, but had failed to keep detailed records to support her claim. 

Because of the number of days the taxpayer had spent in the UK, she had exceeded the threshold of days required for her to be tax resident in the UK for the tax year concerned. The only way this could change would be if exceptional circumstances applied that allowed certain days of presence in the UK to be disregarded in determining her UK tax residence position for the tax year. 

The UT considered that the proper way to apply the rule would be to look objectively at the facts and the intention of the legislation as to whether there were exceptional circumstances that prevented the taxpayer from leaving the UK. In that context, the UT found that a perceived moral obligation that prevents you from doing something in a circumstance one considers exceptional is not the same thing as being prevented by the exceptional circumstance itself. 

The UT also considered that to determine whether exceptional circumstances prevented the taxpayer from leaving the UK, it was necessary to look at each day in isolation rather than looking at a ‘broad picture’. 

In a reversal of a decision of the FTT, the UT’s judgement given on 28 July 2023 found against the taxpayer that exceptional circumstances did not apply to her reasons for her visits to the UK and did not prevent her from leaving the UK. 

How can we help? 

It is clear that in many cases there is complexity in ascertaining the position of an individual’s tax residence position for a tax year. The correct way to apply the legislation is not as easy as one might think, and how to respond to any HMRC challenge requires careful consideration to reduce the risk of an unexpected negative outcome. 

While it may be thought that the position is straightforward, the reality is that it is usually not straightforward in many cases.  

As always, the best approach is to seek advice from expert tax advisers who can assist in reviewing the position and to plan accordingly. 

We also specialise in assisting clients in reviewing and regularising their tax position, where they believe they may have made an error in the past.  

Get in touch 

If you would like further advice on your situation, please contact  Joseph Adunse.