Statutory residence test: Exceptional circumstances

The Upper Tribunal has overturned a First-tier Tribunal decision that allowed a taxpayer to utilize the “exceptional circumstances” provision regarding the UK’s Statutory Residence Test. Last year, a case (A Taxpayer v HMRC) saw the taxpayer argue that certain days spent in the UK during a tax year should be disregarded due to exceptional circumstances. However, the Upper Tribunal ruled that the circumstances were not truly “exceptional,” making the taxpayer a UK tax resident for that year.

The “exceptional circumstances” provision allows ignoring up to 60 days for SRT purposes under specific conditions. The recent judgment clarified that this provision must be objectively verified, emphasizing that circumstances must truly prevent the taxpayer from leaving the UK, not merely hinder them. Additionally, moral or conscientious inhibitions don’t qualify as exceptional circumstances.

The ruling raises questions about when moral obligations may constitute exceptional circumstances, creating a challenge for taxpayers dealing with circumstances affecting family members. The Tribunal’s decision suggests a stringent interpretation of exceptional circumstances, requiring clear evidence for each day a taxpayer seeks to discount. Practitioners should warn clients that HMRC may challenge claims based on moral obligations, emphasizing the importance of comprehensive record-keeping for substantiating exceptional circumstances claims. Despite the judgment’s implications, further discussions and debates are expected to reconcile tensions between the Tribunal’s remarks and existing legislation or HMRC guidance. Taxpayers and advisors should be prepared for thorough scrutiny of exceptional circumstances claims by HMRC.