Court allows taxpayer's appeal and agrees the "exceptional circumstances" exemption was satisfied

In A Taxpayer v HMRC [2025] EWCA Civ 106, the Court of Appeal allowed the taxpayer's appeal and confirmed that when considering whether a person had been present in the UK for the specified number of days to be liable to UK income tax, the statutory residence test (SRT) required consideration of all relevant circumstances and whether those circumstances, taken as a whole, were "exceptional". A sufficiently compelling moral obligation could prevent someone from leaving the UK and the moral obligation which the illness of a relative imposed on that person should be taken account in deciding whether the circumstances qualify as exceptional.

Background

The taxpayer moved to Ireland in April 2015. 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 less days in the UK, in order to be non-UK resident, but she spent 50 days in the UK. 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 (who was a suicidal alcoholic) and her sister's two young children. 

HMRC's position was that the additional days spent in the UK by the taxpayer did not satisfy the requirements of the "exceptional circumstances" test and she was therefore UK resident under the SRT rules. HMRC amended the taxpayer's self-assessment tax return for the 2015/16 tax year to show additional tax due of £3,142,550.58. 

The taxpayer appealed to the FTT.

FTT's decision 

The appeal was allowed.

The FTT noted that the exemption contains the following four conditions, all of which have to be satisfied: 

(1) the circumstances were exceptional; 

(2) the circumstances were beyond the taxpayer's control; 

(3) the taxpayer would not have been present in the UK at the end of each of the days concerned, but for those circumstances; and 

(4) the taxpayer intended to leave the UK as soon as those circumstances permitted. 

The FTT concluded that the combination of the need for the taxpayer to care for her twin sister and, particularly, for her sister's two young children at a time of crisis caused by the twin sister’s alcoholism, did constitute exceptional circumstances, for the purposes of paragraph 22(4). The FTT accepted the taxpayer’s evidence that she was the only person able to assist her twin sister and young nieces at the time and was under a moral obligation to travel to the UK to do so. 

The FTT agreed with the taxpayer that HMRC’s submission that she could have left the UK at the end of each day, then returned the next day, was impractical. HMRC’s argument that a foreseeable circumstance could not be an exceptional circumstance, was also rejected by the FTT as foreseeability was just one factor to consider. HMRC contended that a moral obligation could not "prevent" (as required by the test for exceptional circumstances) an individual from leaving the UK and that the test could apply only where the person was physically unable to leave the UK, or remained in the UK due to a legal obligation. The FTT rejected this argument and confirmed that the word prevent includes physical, moral, conscientious or legal restrictions. HMRC also argued that exceptional circumstances can apply only if they arise after a taxpayer is already in the UK, but this argument was dismissed by the FTT as there was no statutory justification for such an argument which was also inconsistent with HMRC’s published practice at the relevant time.

The FTT's decision can be viewed here.  

HMRC appealed the FTT's decision to the Upper Tribunal (UT). 

UT's decision 

The appeal was allowed.  

The UT criticised what, in its view, was vague evidence presented by the taxpayer before the FTT, who it considered was unsure about the details of her visits and the care she provided to her sister’s family. The UT also questioned why the taxpayer's involvement was deemed critical, given that her brother lived nearby and was actively involved in caregiving.

The UT said that the "exceptional circumstances" test is objective and the individual concerned must be prevented (not merely hindered) from leaving the UK. It disagreed with the FTT's view that serious illness or death of a relative could constitute exceptional circumstances. 

The UT concluded that the FTT had erred in law and ruled that the taxpayer was not entitled to exclude the six days under the exceptional circumstances rule. The taxpayer was therefore a UK resident for the 2015/16 tax year and the additional tax claimed by HMRC was due and payable. 

The UT's decision can be viewed here. 

The taxpayer appealed the UT's decision to the Court of Appeal (CoA). 

CoA's judgment 

The appeal was allowed.

The CoA agreed that the FTT had sufficient evidence before it to support its conclusions, including the taxpayer's sister's severe alcoholism and the need to care for her children. The CoA concluded that "prevent", in paragraph 22(4), was not limited to legal or physical constraints, it includes moral or conscience-driven reasons. It agreed with the FTT’s assessment that moral obligations could prevent someone from leaving the UK, especially where a close family member was seriously ill. The CoA disagreed with the UT’s narrow view that serious illness and death are not exceptional circumstances.

Comment

This is an important decision for any individuals who find themselves in a similar position to the taxpayer in this case and wish to rely on the "exceptional circumstances" exemption in paragraph 22(4), Schedule 45, Finance Act 2013. The CoA did not endorse the UT's guidance on how the FTT should decide appeals concerning paragraph 22(4), and suggested instead that the FTT should use 'common sense' in deciding what circumstances to consider and whether they amount to exceptional circumstances, for the purposes of paragraph 22(4). 

The CoA's judgment can be viewed here.