In the recent case of A Taxpayer v HMRC [2022] UKFTT 133 (TC), the First Tier Tribunal held that despite exceeding the permitted days, a taxpayer was non-UK resident owing to ‘exceptional circumstances’.
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Background of the case
In the concerned case, the taxpayer was resident in the UK during the 2014/15 tax year, living with her husband and children in the UK. She moved to Ireland in April 2015 wherein, she declared herself, on the self-assessment tax return as non-UK resident under the Statutory Residence Test (SRT). In the 2015/16 tax year, she received £8 million in dividends paid on shares in a UK company that her husband had transferred to her during the 2014/15 tax year, on which over £3m of income tax would have been due had she remained UK resident.
Under the SRT rules, in the 2015/16 tax year, the taxpayer had to spend 45 or fewer days in the UK in order to be non-UK resident, but she in fact spent 50 days in the UK. However, the taxpayer argued that 6 of those days should be discounted under the ‘exceptional circumstances’ exemption contained in paragraph 22(4), Schedule 45, Finance Act 2013, as she had visited the UK in December and February of that tax year in order to support her twin sister (a suicidal alcoholic) and her two young children.
HMRC was of the view that the additional days spent in the UK by the taxpayer did not satisfy the requirements of the ‘exceptional circumstances’ test and as a result the taxpayer was UK resident under the SRT rules. The taxpayer appealed to the First Tier Tribunal (FTT).
What constitutes as ‘exceptional circumstances’?
The provision contained in paragraph 22(4) Schedule 25 of the Finance Act 2013 provides that an individual’s day spent in the UK may be disregarded if the taxpayer would not be present in the UK at the end of the day but for exceptional circumstances beyond the taxpayer’s control that prevents the taxpayer from leaving the UK till the issue resolves.
The FTT reviewed the terms of the exemption set out in legislation and noted that each limb must be satisfied:
(1) the circumstances were exceptional;
(2) the circumstances were beyond the taxpayer’s control;
(3) the taxpayer would not be present in the UK at the end of that day but for those circumstances (i.e. those circumstances prevented the taxpayer from leaving the UK); and
(4) the taxpayer intended to leave the UK as soon as those circumstances permitted.
Generally, it is thought that circumstances that are not beyond the individual’s control or which could reasonably have been foreseen or predicted are not usually exceptional. The FTT therefore rejected HMRC’s submission that foreseeability is, of itself, a factor which excludes the application of the “exceptional circumstances” test.
However, at paragraph 147 of the judgment the FTT notes – “There is no requirement in the statutory language for foreseeability or non-foreseeability to determine whether circumstances are “exceptional”. Foreseeability is not the statutory test. It is true that foreseeability may be an element of exceptionality, but it is not a determining factor which, of itself, excludes the application of the exemption”.
Judgement of the FTT
The FTT allowed six days on which the taxpayer had been present in the UK at midnight to take care of her twin sister and her two children during the 2015-16 tax year to be ignored for the purposes of the SRT, with the result that the taxpayer was non-UK resident for that tax year under the sufficient ties test. The taxpayer’s evidence was accepted that she was the only person able to assist her twin sister at the time and was under a moral obligation to come to the UK to do so.
What does this case highlight?
The case under discussion sheds light on what the tax tribunals and courts believe may constitute ‘exceptional circumstances’ for the purpose of STR. Although the FTT said that HMRC’s requirement of an itemized timeline for each day was not necessary, taxpayers seeking to rely on the ‘exceptional circumstances’ exemption should keep a contemporaneous record evidencing the circumstances which are considered to be exceptional.
Furthermore, moral obligations including those associated with close family ties can qualify as exceptional circumstances. It was therefore the caring element for the taxpayer’s sister and for her minor children that seemed to sway the FTT that the taxpayer should be allowed to claim that certain days in the UK do not count because of exceptional circumstances.
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