When do 'exceptional circumstances' count for UK tax residence status?

Whether an individual is UK tax resident in a particular year under the UK Statutory Residence Test (SRT) is largely determined by the number of days that an individual spends in the UK. 

However, there are reliefs that allow certain days to be disregarded, effectively reducing an individual's day count when applying tests under the SRT. One of these is "exceptional circumstances" relief, which broadly applies when an individual is prevented from leaving the UK by exceptional circumstances beyond their control – but they intend to leave as soon as those circumstances permit. 

Limited relief

The relief is, however, limited. It can only be applied to some of the residence tests under the SRT, such as the first automatic UK test (those spending 183 days or more here) and the 90-day tie. It does not apply to the second automatic UK test (the "only home" test) and it cannot result in a disregard of UK work days under the automatic UK resident "full-time work in the UK" test or the automatic non-resident full-time work overseas test. In addition, it does not apply to the work or family ties under the "sufficient ties" test.

There is also a maximum number of 60  "exceptional" days that can be disregarded for the purposes of the relief. Any excess must be counted. There are circumstances such as travel problems or "life events" – for instance, a marriage or choosing to come to the UK for medical treatment – that do not qualify under the relief.

Covid-19 update

The pandemic created a raft of unforeseen circumstances and led HMRC to publish some specific examples that it considered were more likely to be considered "exceptional" for the purpose of the relief. These included situations in which an individual had to quarantine or self-isolate in the UK, where international borders were closed or where they needed to come to the UK to care for a vulnerable family member who was shielding or self-isolating.

However, the 60-day limit was not extended to account for the ongoing pandemic and HMRC did not elaborate on whether the closure of international borders should be considered in respect of an individual's country of normal residence overseas or any other accessible country. It was also unclear what evidence individuals would need to provide to evidence any of these Covid-19 specific circumstances.

Taxpayer v HMRC 

The recent case of Taxpayer v HMRC [2022] UKFTT 133 (TC) is significant because it adds much needed flesh to the bones of the exceptional circumstances relief. It provides further detail on when an individual is unable to leave the UK and the significance of foreseeable circumstances. 

In this case, the taxpayer (who had previously been a UK tax resident) was residing in the Republic of Ireland and filed a tax return in the UK for the 2015/16 tax year as a non-resident, relying on a claim to exceptional circumstances. The taxpayer was hoping, as a non-UK tax resident, that she would avoid income tax on dividends received during this time.

The exceptional circumstances she claimed concerned multiple emergency visits to the UK to care for her alcoholic and suicidal sister and her children.

However, HMRC challenged the taxpayer's filing position arguing that the circumstances were not truly exceptional and were not beyond the taxpayer's control because the taxpayer was aware of her sister's alcohol dependence and mental health problems.

HMRC also argued that the relief does not apply to a taxpayer who has come to the UK because of exceptional circumstances and these have prevented them from leaving. Instead, the relief applies to those already in the UK, and while in the UK, the exceptional circumstances prevent them from leaving.

The First-tier Tribunal agreed with the taxpayer and found that the relief conditions were met and so the taxpayer could disregard the midnights spent in the UK visiting her sister and caring for her children.

Key takeaways

The key takeaways of the case are as follows:

• The purpose of the relief is to prevent unfair outcomes resulting from day counting under the SRT where an individual is unable to leave the UK due to circumstances they cannot control.
• Whether circumstances are exceptional is based on the facts of a given case. Exceptional circumstances are not necessarily rare. However, they cannot be circumstances that are regularly encountered.
• While foreseeability is a factor when considering whether circumstances are exceptional, there is no requirement for circumstances to have been unforeseeable. 
• Exceptional circumstances can arise when the individual is outside the UK, if the circumstances require the individual to come into the UK, and then prevent them from leaving.
• Where exceptional circumstances arise due to another individual’s illness or injury, there is no requirement for such an individual to be a spouse/partner or dependent child.
• Whether an individual is prevented from leaving the UK can be considered from a practical, moral or legal perspective and not just from the physical inability to leave the UK. For example, in this case, the individual had access to a private jet but it was impractical to travel back and forth the UK and Ireland given the care duties required.

Osborne Clarke comment

Until recently there has been little guidance and case law on the scope of the exceptional circumstances relief. Although HMRC has updated its guidance to take account of the Covid-19 pandemic and the recent case of Taxpayer v HMRC is helpful, there are still "grey" areas.

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