A tax tribunal has ruled in favour of an Irish resident whose visit to the UK was unexpectedly extended because she needed to care for her sister and her sister’s children.

The First-tier Tribunal (FTT) found that caring for an alcoholic sister and her minor children were ‘exceptional circumstances’ for the Statutory Residence Test (SRT).

The tribunal’s decision saved the woman from paying £3.1 million of UK tax on dividends received in the 2015/2016 tax year.

The case: A Taxpayer v HMRC, 2022 TC08464

The dispute was heard by the FTT’s Tax Chamber after the taxpayer appealed against amendments made by HMRC to her self-assessment tax return for the tax year ending 5 April 2016. The amendments showed additional tax due of £3,142,550.58.

The woman – who wasn’t named in the decision – argued she was non-UK resident throughout the 2015/2016 tax year. HMRC, meanwhile, contended the number of days she spent in the UK meant she was UK resident.

The taxpayer said some of the days she spent in the UK in December 2015 and February 2016 should be disregarded because of ‘exceptional circumstances’.

What is the ‘exceptional circumstances’ argument?

In summary, if a non-UK resident spends a day in the UK, this day may be disregarded for tax purposes if the taxpayer wouldn’t be present in the UK at the end of that day but for exceptional circumstances beyond their control. These circumstances would need to prevent the taxpayer from leaving the UK, although their intention would be to leave as soon as those circumstances allowed.

The maximum number of days a person can stay in the UK under the above exemption is 60.

In the tax case – which was heard in private – the Irish resident needed to prove to the tribunal that five of the six days under consideration fell within the ‘exceptional circumstances’ exemption.

The decision

The tribunal accepted the woman’s evidence that when she arrived at her twin sister’s house in December 2015 and February 2016, she found a dysfunctional household in which her twin sister was drunk and incapable of caring for herself or her children. There was nobody else who could provide the care needed.

The FTT rejected HMRC’s argument that the taxpayer could have flown backwards and forwards from Dublin to Manchester each day because she had the use of a private jet.

The tribunal judge said: “It seems to us that to expect the Appellant to do this journey on a daily basis at a time when she was attempting to care for her twin sister and her children would, whilst theoretically possible, be impracticable.”

The FTT accepted the woman’s belief she was the only person from whom her twin sister would accept help and guidance. It also anticipated there may have been significant practical difficulties in getting household help from outside because of the twin sister’s alcoholism and periods when she was non-functioning.

The judge ruled the circumstances were beyond the taxpayer’s control, and her appeal was therefore allowed.

Our thoughts on the SRT tax appeal

Since 2013, the UK has had the Statutory Residence Test. This welcome set of rules attempts to provide the taxpayer, and HMRC, with clarity regarding a person’s tax residence status.

But, as with everything in the UK tax system, the SRT comes with its own complexities.

Even the most organised taxpayer may find events happen that are outside their control. Some scope for dealing with this is built into the system in the form of ‘exceptional’ days.

However, the concept isn’t tightly defined. And, to a certain extent, it’s at the discretion of HMRC to agree the time spent in the UK is covered by the exceptional days exemption.

So, it’s no surprise there can be some uncertainty.

The Taxpayer v HMRC case is helpful in further defining what is meant by the term ‘exceptional’ and the circumstances in which it can apply.

Tax residence advice

If you need advice on the Statutory Residence Test and exceptional circumstances, get in touch with our team of tax specialists.

We also handle HMRC tax enquiries and investigations on behalf of our clients. Plus, we offer a tax expert witness service for solicitors and forensic accountants.

Call us today on 07813 434195 or email: stephanie.churchill@churchilltaxation.co.uk

Steph Churchill

Stephanie Churchill

Managing director & co-owner of Churchill Taxation