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Article

Residence – what are exceptional circumstances?

Article

Residence – what are exceptional circumstances?

30 Sep 2022

4 minute read

When calculating an individual’s liability to tax in the UK, their residence status plays an important role. Since 2013 this is determined by the Statutory Residence Test (SRT).

Residence – what are exceptional circumstances? - news article image

When calculating an individual’s liability to tax in the UK, their residence status plays an important role. Since 2013 this is determined by the Statutory Residence Test (SRT). 

When reviewing the SRT, it is imperative for the individual to have kept clear records of their number of days in the UK. Under the SRT HMRC define a day as one in which the individual was in the UK at the end of that day, being midnight. 

This matter becomes of greater importance where exceptional circumstances prevent the individual from leaving the UK. 

From the recent HMRC case “A Taxpayer v HMRC [2022] TC08464”, the First Tier Tribunal held that a taxpayer’s need to be in the UK to care for her alcoholic sister’s minor children was in fact an exceptional circumstance for the purposes of the SRT 

Exceptional Circumstances 

Up to 60 days per tax year can be disregarded when counting days for (most) purposes of the SRT if the taxpayer can show that each of the following conditions are satisfied:

  • The circumstances were exceptional;
  • The circumstances were beyond the individual’s control;
  • the circumstances prevented the individual from leaving the UK;
  • the individual 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. 
The concept of “exceptional circumstances” has also been reviewed by HMRC in the context of Covid-19, and the approach taken by HMRC considering lockdowns and self-isolation requirements to allow these periods to be considered exceptional circumstances. 
If the individual can prove that the above conditions are met then the days spent in the UK by the individual, during the period of the exceptional circumstance, will be disregarded under the SRT. 

Examples of exceptional circumstances contained within HMRCs statute include ‘national or local emergencies’ (e.g. war, civil unrest or natural disasters) and ‘a sudden or life-threatening illness or injury’. 

However, the exemption for exceptional circumstances is limited to 60 days per tax year. From the 61st exceptional day, any midnights spent in the UK will constitute days spent by the individual in the UK, regardless of whether the exceptional circumstances continue to exist, or if new exceptional circumstances arise. 

The Tribunal’s Decision

In coming to the decision they did, the Tribunal rejected HMRC’s interpretation of the exceptional circumstances exemption, asserting there was no statutory basis for HMRC limiting the operation of the exemption. 

In particular, the Tribunal dismissed each of HMRC’s submissions that: 

  1. The taxpayer’s ability to foresee a need to care for her sister upon her move to Ireland precluded a finding of exceptional circumstances;
  2. The exceptional circumstances exemption does not apply to those who came to and remained in the UK due to a moral obligation or an obligation of conscience to care for another;
  3. The exceptional circumstances exemption could only apply to those already in the UK, and whilst in the UK, the exceptional circumstances prevented them from leaving. 
In this instance, the Tribunal accepted that these circumstances were beyond the taxpayer’s control, that she was unable to leave the UK until the situation had been stabilised, that she would not have been in the UK during these periods but for the need to care for her sister and minor children, and that the taxpayer intended to leave the UK as soon as those circumstances permitted.


Key Points 

The Tribunal’s judgment brings into focus the interpretation of the statutory exemption, highlighting that:
  • Exceptional circumstances can apply even where the circumstances are foreseeable.
  • A wider view should be taken of what it means to be prevented from leaving the UK.
  • The exemption applies to individuals who come to the UK due to the exceptional circumstances, not only to those who are already in the UK. 

What does this mean going forward? 

To determine whether the exemption applies, there is no requirement to consider the reason why an individual came to the UK, or whether the individual was already in the UK – the exemption merely looks at the taxpayer’s circumstances at the end of a particular day and whether a taxpayer is prevented from leaving the UK. 

This directly contradicts HMRC’s Residence, Domicile and Remittance Basis Manual, which notes that the exemption will ‘usually only apply to events that occur while an individual is in the UK and which prevent them from leaving the UK’ (RDRM13240) and ‘will generally not apply in respect of events that bring an individual back to the UK’ (RDRM13250). 

The exact consequences of this case remain to be seen, but it is clear that the Tribunal felt that the ‘exceptional circumstances’ exemption has a wider scope than initially suggested by HMRC and as outlined in their guidance.

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