Statutory Residence Test: Exceptional and Prevent mean what they say

/ 22 September 2023

David Simpson

In our recent posting on tax residence, we commended the bright-line test of the UK’s statutory residence test (‘SRT’) and the clarity it brings.

Slightly ironic, then, that less than two months later we are now reporting on an Upper Tribunal (‘UT’) decision in a case concerning one of the few grey areas of the SRT (although – spoiler alert – it turns out to be not as grey as you might have thought).

Residence is crucially affected by the number of days for which you are present in the UK (meaning, normally, present at midnight at the end of the day).

However, you ignore any day where:

  • You would not be present in the UK at the end of that day but for exceptional circumstances beyond your control that prevent you from leaving the UK; and
  • You intend to leave the UK as soon as those circumstances permit.

The legislation helpfully gives examples of exceptional circumstances:

  • National or local emergencies such as war, civil unrest or natural disasters; and
  • A sudden or life-threatening illness or injury.

A taxpayer (anonymised in the case – we shall call her Mrs X ) had been present in the UK for 50 days in the relevant tax year.  However, she had persuaded the First-tier Tribunal that six of the days fell to be ignored under the ‘exceptional circumstances’ test, rendering her non-resident.  HMRC appealed to the UT – [2023] UKUT 182 (TCC).

The case records that Mrs X’s sister (who lived in the UK) was an alcoholic and drug abuser.  The crucial six days covered two occasions on which Mrs X had come to the UK because of concerns about her sister’s mental health (Mrs X was concerned that she was a suicide risk) and the care of her sister’s young children.

Mrs X’s main case before the First-tier Tribunal (‘FTT’) had been that the risk that the sister would commit suicide constituted ‘exceptional circumstances’.  The FTT rejected her evidence on that issue as not credible: it was not satisfied that Mrs X had in fact come to the UK for that reason.  Mrs X had not appealed that aspect of the decision and it was therefore not before the UT.

Mrs X’s secondary case was that her sister was unable to care for her minor children and that she was therefore unable to leave the UK until her sister was in a place of safety and appropriate care arranged for the children.  She had won on that case before the FTT: HMRC had appealed.

The UT decision contains detailed and helpful guidance on the interpretation of the ‘exceptional circumstances’ rule, including the following:

  • The test must be applied on a day-by-day basis by reference to the facts subsisting at the end of the relevant day.
  • The test is entirely objective: what matters is not whether the person reasonably believes that all the necessary elements are present but whether they are objectively present.
  • A good working definition of an ‘exceptional circumstance’ is one which is ‘out of the ordinary course, or unusual, or special, or uncommon. To be exceptional, a circumstance need not be unique, or unprecedented, or very rare; but it cannot be one that is regularly, or routinely, or normally encountered.’
  • ‘Prevent’ does not, in this context, mean ‘hinder’: it means ‘stopping something from happening or making an intended act impossible’. A person who is in the UK because he thinks it necessary to be present because of serious illness (or at the death bed) of a close relative is not thereby ‘prevented’ from leaving the UK.
  • It must be the ‘exceptional circumstances’ which prevent departure from the UK. ‘Where a person feels a moral obligation towards (say) a relative whose circumstances are exceptional, the moral obligation does not form part of those circumstances. Accordingly, the person is not prevented by exceptional circumstances from leaving the UK; he is instead prevented by his sense of moral obligation.’

In the case of Mrs X, the FTT had correctly found that alcoholism and depression are not unusual or uncommon illnesses such as to be ‘exceptional circumstances’.  It had nonetheless found that the combination of the need for Mrs X to care for her sister and her sister’s minor children did constitute exceptional circumstances.  This was wrong, said the UT: ‘moral obligations are not in themselves exceptional circumstances; they are instead part of normal social and familial interaction.  Objectively commonplace circumstances do not become “exceptional” by adding a moral obligation.  The FTT was therefore wrong to find that the Taxpayer’s sense of obligation and/or her “need to care” for her sister and the children changed the position.’

The case therefore confirms that the test is a strict one.  You may feel unable to leave the UK – as indeed did Mrs X – but that is not enough.  Two of the key questions are: is there anything physically (or possibly legally) preventing your leaving the UK? And if there is, does that amount to an ‘exceptional circumstance’?

For more information, please get in touch with your usual BKL contact or use our enquiry form.

David Simpson

Partner, International Tax

T +44 (0)20 8922 9275
E david.simpson@bkl.co.uk

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