UK and International Tax news

FTT Decision In Tax Residence Case

Thursday 26th May 2022

The FTT has recently published its decision in a case involving tax residence, the application of the Statutory Residence Test, and whether there were ‘exceptional circumstances’ beyond the taxpayer’s control which had prevented her from leaving the UK.

The Taxpayer had contended that she was non-UK resident throughout the particular tax year, whereas HMRC contended that the number of days which she spent in the UK meant that she was UK resident.  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 did not satisfy the requirements of the “exceptional circumstances” test and as a result the taxpayer was UK resident under the SRT, giving rise to 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 can apply only if they arise after a taxpayer is already in the UK. The FTT held that there was no statutory justification for this and this position clashed with HMRC’s published practice.

It is also noted that HMRC has recently updated its guidance which includes an example which clearly sets out that where an individual returns to the UK because of FCDO advice in response to war, then exceptional circumstances will apply. HMRC will also take into consideration any wider reasons which are outside of the individual’s control and look at the facts and circumstances of the situation.  This may indicate a relaxation in HMRC’s approach and permit situations similar to those in the present case to be considered.

This is a very fact specific case and the FTT’s decision in favour of the taxpayer was probably not expected.  HMRC may well appeal if they do not accept a broader approach to the meaning of exceptional circumstances.

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


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