Statutory Residence Test (“SRT”): Exceptional circumstances

As per our previous article on the Statutory Residence Test (SRT), determining residency is largely dependent on the number of days spent in the UK along with connecting ties to the UK.

However, 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 the individual has no choice concerning the time they spend in the UK, or in coming back to the UK and subject to the circumstances an individual can disregard up to 60 days spent in the UK when looking at their residency position for a particular tax year.

Whilst HMRC issued further guidance on this in August 2020, especially with respect to COVID situations, there has been no extension to the maximum limit of the number of days that can be disregarded, which remains at 60 days despite the scale of the pandemic. HMRC confirmed that this would be reviewed on a case-by-case basis.

A recent anonymised case of Taxpayer vs. HMRC [2022] provides useful insights into HMRC’s approach when considering exceptional circumstances.

During the 2015/16 tax year, an individual who lived in Dublin, having moved from the UK, spent more than 45 days in the UK and assessed herself as being a non-UK resident as the days spent in the UK fell within the “exceptional circumstances” exemption due to the fact that she was in the UK to support her twin sister and to care for her two young children. Furthermore, her husband remained a UK resident, from whom she was not separated. In March 2016, the taxpayer received dividends of approximately £8 million from the family company. As she is assessed to be a non-resident, she would not be liable to pay UK income tax on the dividends received.

Applying the SRT, having spent more than 45 days in the UK during a tax year, the individual would be considered to be a UK resident, provided the exceptional circumstance conditions are not satisfied. Thus, HMRC deemed the taxpayer to be a UK resident and amended her 2015/16 self-assessment tax return to reflect additional tax due of approximately £3.15 million.

HMRC argued that the conditions for exceptional circumstances were not met due to the following:

• The taxpayer would have been able to foresee a need to support her twin sister
• Exceptional circumstances did not encompass a person who came to the UK under a moral obligation
• Exceptional circumstances only applied to persons who were already in the UK and not to those who came to the UK because of exceptional circumstances and who were then prevented from leaving the UK by those same circumstances.
  All of the above arguments were rejected by the tribunal.

The taxpayer appealed the assessment, on the basis that she was subject to the exceptional circumstances exemption. Out of the 50 days spent in the UK during the 2015/16 tax year, the taxpayer claimed that six days were due to exceptional circumstances concerning the taxpayer’s need to care for her sister, and her sister’s minor children, as mentioned above. The removal of these six days would make the taxpayer a non-UK resident under the SRT.

Although the exact consequences of this are yet to be seen it is clear that the tribunal felt that the exceptional circumstances exemption had a wider scope than initially suggested by HMRC. It will be interesting to see how this decision affects HMRC’s approach to exceptional circumstances and whether HMRC would seek to appeal to the Upper Tribunal. Watch this space!