Tribunal finds taxpayer was non-UK resident despite exceeding the permitted days due to 'exceptional circumstances'

In A Taxpayer v HMRC [2022] UKFTT 133 (TC), the First-tier Tribunal (FTT) held that a taxpayer was non-UK resident, despite exceeding the permitted days, due to 'exceptional circumstances'.

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 statutory residence test (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. 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 argued 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. HMRC amended the taxpayer's self-assessment tax return for the 2015/16 tax year . The amendments showed additional tax due of £3,142,550.58. 

The taxpayer appealed to the FTT. 

FTT's decision

The appeal was allowed.

The exemption contained the following four conditions, all of which had 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 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 children at the time and was under a moral obligation to come 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, was impractical. HMRC’s argument that a foreseeable circumstance could not be an exceptional circumstance, was rejected 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 also rejected this argument and found 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.

Comment 

This decision provides some useful guidance on how the tax tribunals and courts are likely to approach appeals brought by other taxpayers in similar circumstances to the taxpayer in this appeal.  Although the FTT said that HMRC’s requirement of an itemised 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. 

It is also worth noting that the taxpayer in this case remains anonymous due to a direction from the FTT. Such directions are rare, but where it is considered that the privacy of third parties, and in particular children, needs to be maintained, the FTT may be willing, as in this case, to issue a direction under Rule 14 of the Tribunal Rules anonymising its decision.

It will be interesting to see whether HMRC seeks to pursue an appeal to the Upper Tribunal. 

The decision can be viewed here.