Statutory Residence Test: a return to common sense on the ‘exceptional circumstances’ exemption

Exceptional circumstances

In our article dated 26 May 2022 (see Statutory Residence Test: an exceptional 'exceptional circumstances' case?), we reported on A Taxpayer v HMRC [2022] UKFTT 133 (TC), one of the first cases dealing with the UK’s Statutory Residence Test (‘SRT’). Since then, HMRC successfully appealed to the Upper Tribunal (‘UT’), which overturned the decision of the First Tier Tribunal (‘FTT’) decision and re-made it in HMRC’s favour (see A Taxpayer v HMRC [2023] UKUT 00182 (TCC)).

In this latest update, the Court of Appeal allowed an appeal and restored the decision of the FTT. The full judgment can be found here: A Taxpayer v HMRC [2025] EWCA Civ 106.

Background

An individual’s liability to UK tax on their income and gains depends on the individual’s residence status in the UK. Whether an individual is resident for UK tax purposes is determined by the rules under the SRT, as contained in Schedule 45, the Finance Act 2013:

The SRT involves a detailed three-step test, with each step to be taken in turn:

1. The automatic overseas test (also known as the automatic non-resident test);
2. The automatic UK test(also known as the automatic resident test); and
3. The sufficient ties test.

For each of the above three steps, a key consideration is the number of ‘days’ an individual spends in the UK.

Exemptions

For the purposes of day counting under the SRT, the general rule is that an individual is considered to have spent a day in the UK where the individual is present in the UK at the end of that day (i.e. at midnight). However, this period can be reduced by ‘exceptional circumstances’. For an individual to be able to rely on exceptional circumstances, each of the following conditions set out in para 22(4) of Schedule 45, the Finance Act 2013 must be satisfied:

1. The circumstances must be exceptional;
2. The circumstances were beyond the individual’s control;
3. The circumstances prevented the individual from leaving the UK;
4. The individual would not be present in the UK at the end of the day but for those circumstances; and
5. The individual intended to leave the UK as soon as those circumstances permitted.

If the individual is able to prove, on the balance of probabilities, that the above conditions are met, then (subject to a cap of 60 days) the days spent in the UK by the individual during the period of exceptional circumstances will be disregarded under the SRT.

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

Facts

For the 2015/16 tax year, the taxpayer declared herself a non-UK tax resident on her self-assessment tax return, having moved with her daughter to Ireland on 4 April 2015.

In March 2016, the taxpayer received dividends of approximately £8 million from the family company. As a non-UK resident, she would not be liable to pay UK income tax on the dividends.

For the purposes of the SRT, the taxpayer would be considered a UK resident if she spent 46 days or more in the UK during the 2015/16 tax year.

Having spent over 46 days in the UK, HMRC deemed the taxpayer to be UK resident, and amended her 2015/16 self-assessment tax return to reflect additional tax due of approximately £3.15million.

The taxpayer appealed the assessment, relying on the ‘exceptional circumstances’ exemption. In doing so, the taxpayer claimed that 6 days spent in the UK - during two separate visits in December 2015 and February 2016 – were due to exceptional circumstances concerning the taxpayer’s need to care for her alcoholic and suicidal sister, and her sister’s minor children.

The removal of these 6 days would make the taxpayer non-resident under the SRT.

Past decisions of the FTT and UT

The FTT found that the taxpayer caring for her sister and her minor children constituted exceptional circumstances and ruled in her favour.

HMRC appealed to the UT, which overturned the FTT's decision and re-made it in HMRC’s favour. The UT held that the FTT's decision regarding the presence of exceptional circumstances was internally inconsistent and concluded that there were no exceptional circumstances in this case, as alcoholism and depression are not uncommon issues. Additionally, the UT held that a person could not be 'prevented' from leaving the UK solely due to a moral or conscientious obligation to stay - only physical or legal obligations could meet the requirement.

The taxpayer appealed to the Court of Appeal.

What did the Court of Appeal decide?

The Court of Appeal upheld the taxpayer’s appeal and restored the FTT's decision. The Court held that the FTT was entitled to answer the question of exceptional circumstances, it being an issue of fact. The court also held that moral obligations can indeed “prevent” someone from leaving the UK and that the FTT's conclusion on exceptional circumstances was valid.

The Court's reasoning focused on several key points:

• The FTT’s Decision: The Court found that the FTT's decision was valid and consistent. The FTT had sufficient material to support their conclusions, including evidence of the appellant's sister's severe alcoholism and the need to care for her minor children.
• Interpretation of "Prevent": The Court held that that the statutory language of para 22(4) does not restrict the meaning of "prevent" to certain defined categories such as legal or physical constraints and medical advice. It held that prevention can be for any number of reasons and could also encompass moral obligations or obligations of conscience.
• Objective and Subjective Factors: The Court acknowledged that the distinction between objective facts and subjective reactions is not always clear-cut. For example, the illness of a close relative is an objectively verifiable fact, but whether it compels someone to stay depends on a mix of objective facts and subjective moral obligations. The Court agreed with the FTT's assessment that moral obligations can indeed prevent someone from leaving the UK, especially in cases where a close family member is seriously ill.
• Exceptional Circumstances: The Court highlighted that the UT had taken a narrow view of what could constitute exceptional circumstances by concluding that serious illness and death are not ‘exceptional’. If serious illness and death are considered objectively commonplace so as to not be exceptional, this raises doubts about whether a person could rely on their own serious illness as exceptional, an interpretation which would seem to contradict the statutory example. The Court instead suggested that the role of the FTT in determining exceptional circumstances in a contested case is to (1) find as a fact what the circumstances are; (2) decide whether those circumstances prevented the individual from leaving the UK; and (3) decide whether they circumstances were exceptional.

This decision helpfully restores a degree of common sense to the test.