“Exceptional circumstances” and the Statutory Residence Test

TaxTalk - November 2023

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A recent Upper Tribunal case has highlighted HMRC’s strict view of what constitutes ‘exceptional circumstances’, Andrew McCready explains.

Since 2013 an individual’s UK tax residence has been determined by the Statutory Residence Test (SRT). The SRT works by counting the number of days you are present at midnight in the UK and applying that number against a series of tests and conditions.

As a concession, the SRT allows an individual to disregard up to 60 days in the UK in a relevant tax year if they are in the UK for “exceptional circumstances”.

The exceptional circumstances apply to days on which:

  • The individual is in the UK at midnight due to exceptional circumstances beyond their control.
  • Those circumstances prevent them from leaving the UK
  • They intend to leave the UK as soon as those circumstances permit.

The legislation gives examples of exceptional circumstances of “national or local emergencies such as war, civil unrest or natural disasters” and “a sudden or life-threatening illness or injury”, although this is far from an exhaustive list. It is a question of fact whether an event is exceptional and if the particular circumstance prevents the individual from leaving the UK.

As such it is important in each case to consider whether the circumstances are exceptional and if they prevent a person from leaving the UK.

During Covid, HMRC issued helpful guidance on what would be considered exceptional in those circumstances which we have considered further below. However, what about other circumstances?

To be exceptional, the circumstance must be out of the ordinary and prevent the person from leaving the UK. HMRC has historically taken quite a narrow view to this and the recent case of A taxpayer v HMRC has further confirmed this.

A taxpayer v. HMRC: [2023] UKUT 00182 (TCC)

A recent judgment was given at the Upper Tribunal focusing on an exceptional circumstances claim.  

The case centred on a taxpayer (“the Taxpayer”) who was residing in Dublin but was previously resident in the UK. After leaving the UK on 4 April 2015, the Taxpayer had declared herself to be non-UK resident under the SRT during the 2015/16 tax year. However, the Taxpayer had travelled repeatedly to the UK throughout the year to care for her twin sister who had been suffering from alcoholism and depression, and the sister’s two minor children. As a result, the Taxpayer had exceeded the number of days she could spend in the UK without becoming tax resident under the SRT. The Taxpayer made a claim under the exceptional circumstances provision to be treated as non-UK tax resident.

The First-Tier Tribunal (FTT) had originally concluded that whilst the “[Taxpayer’s] twin sister’s alcoholism and depression [does not], of itself, constitute exceptional circumstances”, the combination of the need for the Taxpayer to care for her twin sister and her minor children “at a time of crisis caused by the twin sister’s alcoholism does constitute exceptional circumstances”.

HMRC appealed to the Upper Tribunal on four grounds, of which all were allowed. The main outcomes of the case are as follows:

  • For exceptional circumstances to apply, the SRT reads that “[the Taxpayer] would not be present in the UK at the end of that day but for exceptional circumstances beyond [the Taxpayer’s] control that prevent [the Taxpayer] from leaving the UK”.

The Upper Tribunal agreed with HMRC that the Taxpayer had failed to demonstrate that they were prevented from leaving the UK because of exceptional circumstances. They found that moral obligations are themselves not exceptional circumstances as they do not stop or render it impossible for you to leave the UK.

During the case in question, the Taxpayer had the choice whether or not to look after her sister’s minor children. She had no legal obligation to do so and thereby made a choice to remain in the UK. Ultimately, the Taxpayer could have left at any time.

Moral obligations arise by reason of conscience; you have a choice as to whether you meet those moral obligations. The Tribunal argued that it is not “out of the ordinary course, or unusual, or special, or uncommon” for an individual to have a moral obligation towards their relatives – they are neither sudden nor unexpected.

Nevertheless, it is important to distinguish between a moral obligation and a legal obligation. Applying HMRC’s own examples of exceptional circumstances, it could be argued that if the Taxpayer had a legal obligation to affected children (for example, they were her own children), then the outcome of the case could have been different.

One point is certain however, if you choose to remain in the UK by reason of a moral obligation, exceptional circumstances will not apply unless other factors are present.

  • HMRC argued that if exceptional circumstances do apply, they “must be applied each day at the time the [person] stayed in the UK and at the end of the relevant day”. In this case, the Tribunal found that the Taxpayer had presented a lack of evidence to substantiate the reasons as to why she was prevented from leaving the UK.

What HMRC means is that taxpayers who wish to claim exceptional days under the SRT must demonstrate that exceptional circumstances apply on each and every day of the claim. The Tribunal found that whilst the FTT rightly said that a taxpayer should not have to produce “an itemised timeline for each day”, they must present sufficient evidence to allow a judgment to be made for each day of the claim.

This case emphasises the importance of clear record-keeping and the need to maintain contemporaneous records. It is without question that taxpayers will need to demonstrate to HMRC that they were prevented from leaving the UK because of the exceptional circumstances on a day-to-day basis.

Covid-19 and exceptional circumstances

The Covid-19 pandemic impacted the freedom of travel to and from the UK, and many individuals were forced to remain in the UK for extended periods of time.

Luckily, HMRC responded quickly to the pandemic, publishing guidance which stated that individuals could claim exceptional circumstances if they

  • were quarantined or advised by a health professional or public health guidance to self-isolate in the UK as a result of the virus
  • found themselves advised by official Government advice not to travel from the UK as a result of the virus
  • were unable to leave the UK as a result of the close of international borders
  • were asked by their employer to return to the UK temporarily as a result of the virus.

Whilst HMRC has stated they will look sympathetically at those who claimed exceptional circumstances because of Covid-19, the success of any claim will rely on its specific facts and available evidence. Importantly, any claim should still have been subject to the 60-day limit.

Individuals should also pay close attention to any workdays they may have spent in the UK during the pandemic. HMRC have confirmed they should have been treated as UK workdays and potentially liable to UK tax.

Key points for taxpayers and advisors

  • Evidence is key. For any exceptional circumstances claim to be successful, the taxpayer should maintain good record-keeping that supports an exceptional day claim on a day-by-day basis.
  • Moral obligations are no excuse. If you choose to remain in the UK by reason of a moral obligation, you will not meet the threshold for a valid claim. Whilst a moral obligation can exist, other factors must be present for exceptional circumstances to apply.
  • 60 days maximum. You can only claim for 60 exceptional days in any given tax year.

For more information on issues raised in this article, please contact Andrew McCready.