UK and International Tax news

Court of Appeal Hears Tax Residence Case

Sunday 23rd March 2025

The Court of Appeal has recently heard an appeal concerning a taxpayer’s residence status in 2015/16 under the Statutory Residence Test and whether ‘exceptional circumstances’ relief was available.

In A Taxpayer v HMRC 2022 UKFTT 00133, the taxpayer had received a large dividend in 2015/16 but claimed that she was not taxable in the UK on it as she was not resident in the UK but in the Republic of Ireland.

Her claim rested on the application of detailed and prescriptive rules within the statutory residence test and contained in schedule 45 FA2013.  In the particular circumstances, the rules had the effect that she would be resident in the UK for 2015/16 if she spent more than 45 days in the year in the UK.

During the tax year, the taxpayer spent a number of days in the UK caring for her twin sister, who was an alcoholic and suicidal and who had two minor children. HMRC argued that these days in the UK took her over the 45 day allowance but did not satisfy the requirements of the “exceptional circumstances” test.  As a result, the taxpayer was UK resident under the SRT and an additional tax bill of over £3m.

HMRC’s guidance on the SRT provides that “days spent in the UK may be ignored if the individual’s presence in the UK is due to exceptional circumstances beyond their control. This will usually only apply to events that occur while an individual is in the UK and which prevent them from leaving the UK.  Exceptional circumstances will normally apply where an individual has no choice concerning the time they spend in the UK or in coming back to the UK. The situation must be beyond the individual’s control”.

The SRT refers to the maximum number of days spent in the UK in any tax year that may be ignored due to exceptional circumstances being 60. This is a limit, not an allowance or entitlement, and it applies whether there is one event or several events in the same tax year. Days spent in the UK over the 60-day limit count for the purposes of the SRT.

In this case, the FTT held that visits to care for the taxpayer’s twin sister would of themselves not constitute exceptional circumstances. However, the fact that the twin sister had minor children altered the position. The combination of the two did constitute exceptional circumstances.

HMRC contended that the test for exceptional circumstances could apply only where the person was prevented from physically leaving the UK or remained there due to a legal obligation such as to care for their minor child. The FTT rejected this and found that the word “prevent” included physical, moral, conscientious or legal restrictions. HMRC
also argued that exceptional circumstances could apply only if they arose after a taxpayer is already in the UK.

The FTT held that there was no statutory justification for this, that this position clashed with HMRC’s published practice, and held that the taxpayer had not appreciated the extent to which her twin sister was incapable of coping with the running of the household and the care of her minor children. The immediate need to seek to establish a stable household in which the minor children could be cared for was an exceptional circumstance outside the taxpayer’s control.

Given the unexpected decision of the FTT, HMRC appealed to the UT which held that “the circumstances of the visits were not “exceptional”, and the taxpayer was not “prevented from leaving” the UK by exceptional circumstances”. It dismissed the taxpayer’s appeal and held that she was tax resident in the UK during 2015-16.

The Court of Appeal has recently heard the taxpayer’s appeal [2025 EWCA Civ106] and considered the five grounds where the UT had apparently erred, including:

  • the circumstances were exceptional,
  • the circumstances were beyond P’s control,
  • P would not be present at the end of the day but for those circumstances,
  • the circumstances prevented P from leaving the UK, and
  • P intended to leave the UK as soon as those circumstances permit

In a 27 page judgment, the CA accepted all the taxpayer’s grounds of appeal and held that the UT had been wrong to find that the FTT had erred on these issues.

This was a resounding victory for the taxpayer and the decision will have considerable precedent value. Given this, HMRC may decide to seek leave to appeal to the Supreme Court.

If you would like further information on this case, please contact Keith Rushen on 0207 486 2378.

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