HMRC has won a dispute at the Upper Tribunal about whether a taxpayer was tax resident in the UK and therefore subject to £3.1m in tax.

In HMRC v A Taxpayer [2023] UKUT 00182 (TCC), the Upper Tribunal backed HMRC by ruling that looking after an alcoholic sister and her family wasn’t an ‘exceptional circumstance’ for the Statutory Residence Test.

The decision overturns last year’s judgement by the First-tier Tax Tribunal and means the taxpayer was a UK resident for tax purposes during the year in question.

Background to the ‘exceptional circumstances’ tax case

In April 2015, the taxpayer – who must remain anonymous – moved from the UK to Ireland.

During the following tax year (2015-16) the taxpayer’s husband transferred shares to her on which she received about £8 million of dividends.

The taxpayer completed her 2015-2016 self-assessment tax return on the basis she wasn’t UK resident.

HMRC opened an enquiry into that return. The investigation found she had exceeded the permissible number of days in the UK, and so was resident in the UK for tax purposes. HMRC amended her return to show extra tax of £3,142,550.58 was due.

The taxpayer then appealed to the First-tier Tax Tribunal (FTT).

The First-tier Tax Tribunal’s decision

The appeal focused on two visits the taxpayer made to the UK (one in December 2015 and the other in February 2016).

It was common ground the taxpayer had been in the UK for 50 nights in the relevant year – five days more than the 45 days allowed by the Statutory Residence Test (SRT). It was also accepted the taxpayer would be UK resident for the relevant year unless the extra five days fell under the ‘exceptional circumstances’ exemption.

The taxpayer said she was in the UK for all the extra days because her twin sister, who suffered from alcoholism and depression, had threatened to commit suicide. She argued this was “exceptional circumstances beyond her control” and that she was prevented from leaving the UK until the sister was “in a place of safety”.

The taxpayer also said her sister was unable to care for her two minor dependent children, so the taxpayer was also prevented from leaving the UK until appropriate care had been arranged for those children.

The FTT found the taxpayer’s evidence as to the risk of the sister committing suicide lacked credibility. But it agreed with her appeal that the need for her to care for her twin sister – and, particularly, for her minor children – at a time of crisis caused by the twin sister’s alcoholism did constitute exceptional circumstances.

Following the FTT ruling, HMRC launched an appeal with the Upper Tribunal (UT).

The Upper Tribunal’s ruling

The Upper Tribunal allowed HMRC’s appeal on each of its grounds and remade the FTT’s decision.

The UT decided:

  • The circumstances of the first and second visits weren’t exceptional
  • The taxpayer wasn’t prevented from leaving the UK by exceptional circumstances
  • The taxpayer was tax resident in the UK during 2015-16

The UT found the events that led to the taxpayer remaining in the UK weren’t sudden because she was aware of her sister’s difficulties before the visits. (The taxpayer’s own evidence was that the sister’s problems with alcohol and mental health issues began in 1996.)

Our thoughts on the ‘exceptional circumstances’ tax appeal

It’s not surprising the Upper Tribunal has overturned the FTT’s decision, given that HMRC’s manuals state an event must be unforeseeable to qualify as exceptional.

This dispute is a reminder that tax can be subjective in matters like this. So, it’s crucial to pay close attention to HMRC’s guidance, as well as the Statutory Residence Test rules when considering your residence position.

Although the UT decision went against the taxpayer, it means you can be a little more certain the courts will interpret the SRT rules in line with HMRC guidance.

HMRC guidance isn’t legally binding, but it does serve to help taxpayers understand how HMRC is likely to interpret the legislation and whether it’s likely to raise a challenge if you’re interpreting the guidance differently.

The decision being reversed is also a reminder that winning at the FTT doesn’t always mean that’s the end of the matter. You should be prepared for a case to go to appeal.

So, if you’ve filed your 2022-2023 tax return relying on the FTT’s decision, you should consider whether you now need to amend this.

Advice on exceptional circumstances and the SRT

If you’re looking for expert advice on the complex residency rules, get in touch with our team of UK tax specialists.

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

Contact Churchill Taxation today on 07813 434195 or email:

Nicole Andrews

Nicole Andrews

Tax Director & Co-owner of Churchill Taxation