Archive for month: April, 2025

A new case, a Taxpayer v HMRC [2025] EWCA Civ 106, has provided welcome guidance on the ‘exceptional circumstances’ in the statutory residence rules;

 

The facts

This was an appeal to the Court of Appeal from the Upper Tribunal and the first time the rules in Sch 45 FA 2013 have (“the statutory residence test”) have come before the courts.

The appeal from the Upper Tribunal (Tax and Chancery Chamber) (“the UT”) concerned the question whether the Appellant taxpayer was resident in the United Kingdom for the purposes of UK income tax in the tax year 2015/16, that is the year ended 5 April 2016. She received a large dividend in that year but claimed that she was not taxable in the UK on it as she was not resident in the UK but in the Republic of Ireland.

Normally if a person is present in the UK at the end of a day, that counts as a day spent by him or her in the UK. In the year 2015/16 the Appellant was in fact present in the UK at the end of the day on a total of 50 days. But she relied on para 22(4) of sch 45 to FA 2013  which provides that a day does not count for these purposes if the person would not be present in the UK at the end of that day but for exceptional circumstances beyond their control which prevent them from leaving the UK, and if they intend to leave as soon as those circumstances permit. Her case was that, for the last 6 of the days when she was in fact present at the end of the day (2 in December 2015 and 4 in February 2016), she was compelled to stay in the UK to help her sister who was suffering from alcoholism, was suicidal and was failing to look after her own children.  Disappointingly perhaps, HMRC did not accept that th4se amounted to ‘exceptional circumstances.’

The critical question therefore is how many days she spent in the UK in 2015/16. The question of what counts as a day spent in the UK is addressed in para 22. At the relevant time this provided as follows (under the heading “Days spent”):

“22

• If P is present in the UK at the end of a day, that day counts as a day spent by P in the UK.
• But it does not do so in the following two
• The first case is where—
  • P only arrives in the UK as a passenger on that day,
  • P leaves the UK the next day, and
  • between arrival and departure, P does not engage in activities that are to a substantial extent unrelated to P’s passage through the UK.
• The second case is where—
  • P would not be present in the UK at the end of that day but for exceptional circumstances beyond P’s control that prevent P from leaving the UK, and
  • P intends to leave the UK as soon as those circumstances
• Examples of circumstances that may be “exceptional” are—
  • national or local emergencies such as war, civil unrest or natural disasters, and
  • a sudden or life-threatening illness or
• For a tax year—
  • the maximum number of days to which sub-paragraph (2) may apply in reliance on sub-paragraph (4) is limited to 60, and
  • accordingly, once the number of days within sub-paragraph (4) reaches 60 (counting forward from the start of the tax year), any subsequent days within that sub-paragraph, whether involving the same or different exceptional circumstances, will count as days spent by P in the UK.”

 

The Appellant was in fact present in the UK at the end of the day on 50 days in 2015/16. The effect of para 22(1) is that each of these prima facie counted as a day spent by her in the UK (in which case she would have spent more than 45 days in the UK in the year). But she relied on para 22(4), arguing that of the 50 days, 6 do not count as they satisfy the requirements of para 22(4), namely that each of the 6 days was one where she would not have been present in the UK at the end of the day but for exceptional circumstances beyond her control that prevented her from leaving the UK.

 

A close emotional bond

The Appellant is married with two daughters. Up to and including the tax year 2014/15 the Appellant lived with her husband and their children in the UK and was resident in the UK for tax purposes. On 16 September 2014 her husband transferred a shareholding to her. In the accounting period ended 31 March 2016 she received dividends on this shareholding of approximately £8m.

 

In her tax return for 2015/16 she declared herself non-UK resident under the statutory residence test, having moved to Ireland on 4 April 2015 just before the start of the tax year. She set up home there with her younger daughter, who went to school in Dublin. Her husband remained in the family home in England (her older daughter was at university in England), but they were not separated, and it was the Appellant’s evidence that her husband intended to retire in a couple of years and join her in Ireland.

 

The Appellant had a close emotional bond with her twin sister.   The twin sister’s mental and physical health had gradually worsened over time but the Appellant’s evidence was that in 2015 matters worsened dramatically and her plunge into drug and alcohol addiction accelerated at a sudden and alarming rate; the Appellant said that with hindsight she realised that until then her sister had been a functioning alcoholic who was adept at hiding this illness from her and others.

 

The Appellant considered she had no choice but to visit her sister.  She further considered she had no option but to travel from Dublin to the UK. She and her husband had the use of a private jet, and she flew to Manchester Airport on the afternoon of Friday 18 December with her younger daughter. She returned on the evening of Sunday 20 December and so prima facie spent 18 and 19 December in the UK for the purposes of the statutory residence test. She had already before this spent 44 days in the UK of the 45 day allowance for the year.  Her evidence was that her sister was in a dreadful state which necessitated further visits to the UK.

 

Having weighted up the evidence (which included cross examination by HMRC) the FTT found the following facts:

 

‘181 It is clear that the Appellant was under no legal obligation to care for her twin sister’s minor children. As we have concluded earlier, however, we do not consider it necessary for there to be a legal obligation in order for there to be an exceptional circumstance or one which prevents a taxpayer leaving the UK. Moral obligations and obligations of conscience – including those arising by virtue of a close family relationship – can qualify as exceptional circumstances and those obligations may be strong enough to prevent a taxpayer leaving the UK.

182  In our view, the combination of the need for the Appellant to care for her twin sister and, particularly, for her minor children at a time of crisis caused by the twin sister’s alcoholism does constitute exceptional circumstances for the purposes of paragraph 22(4).

183  As we have already observed, there were a number of flaws in the Appellant’s evidence. For example, we did not find her evidence concerning the twin sister’s threats to commit suicide credible. In addition, we were not convinced by her claim that she and her husband only discovered the extent of her twin sister’s alcoholism when the twin sister was admitted to The Priory in April 2016 for the reasons put to her in cross-examination (summarised above at paragraph 84 above). We have also commented that in a number of respects the Appellant’s evidence was vague in relation to details. Nonetheless, we do consider her evidence concerning the state of affairs which she found upon her arrival at her twin sister’s house in December 2015 and February 2016 convincing.

184  The Appellant’s evidence, which we accept, was that when she arrived at the 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. When the taxpayer arrived at her twin sister’s house, she found both her sister and her children were unkempt and in need of care. The house was filthy. There was nobody else who could provide the care needed. We do not think that it was realistic to expect the twin sister’s two friends to devote the kind of care and attention which the children and the twin sister plainly needed. The role of the twin sister’s friends was described as one of checking up on the twin sister several times a day. We do not consider that there was any evidence that their role extended beyond that or embraced the more hands-on care which the Appellant gave to her twin sister and her minor children.

185  We think it more probable than not that, when coming to the UK in December 2015 and February 2016, the Appellant did not appreciate the seriousness of the situation (i.e. the extent to which the twin sister was no longer able to cope with running her household and looking after her children), until she actually arrived. Although she was aware that her twin sister was an alcoholic, she did not appreciate the extent to which her twin sister was incapable of coping with the running of the household and the care of her minor children. The immediate need to seek to establish a stable household in which the minor children could be cared for does seem to us to be an exceptional circumstance outside the Appellant’s control. We accept that the Appellant would not have been in the UK at the end of each day relevant to this appeal but for the fact that she needed to care for both her twin sister and her minor children. We further accept that this need prevented the Appellant from leaving the UK until such time as she had stabilised the situation and that she intended to leave the UK as soon as possible once those circumstances permitted.

186 In that context, we accept that the Appellant could not remember in any detail what she was doing on each day that she was present in the UK. Her evidence was that she spent her time keeping her sister occupied and looking after the children. We accept her evidence and do not consider that an itemised timeline for each day, as was suggested by HMRC, was necessary. Instead, we accept Mr Kessler QC’s submission that if the reason for the Appellant remaining in the UK was the same each day and if that reason constituted exceptional circumstances, then that reason remained valid for each relevant day.

187  The Appellant accepted in cross-examination that, contrary to her witness statement, she had not researched obtaining private care, nursing care or assistance for someone with alcoholism. However, the Appellant’s evidence was that she believed that she was the only person from whom her twin sister would accept help and guidance. We accept that evidence, which was based on the exceptionally close relationship between the twin sisters. We also anticipate that there may have been significant practical difficulties in obtaining outside household help in circumstances where the twin sister was an alcoholic with periods when she was non-functioning. In that respect, we consider that the circumstances were beyond the Appellant’s control.”

 

The Tribunal therefore allowed the appeal.  The decision was, however, reversed by the Upper Tribunal.

 

HMRC put forward four Grounds of Appeal to the UT, each of which was accepted by the UT. They were as follows:

(1)            Ground 1 was that the FTT erred in deciding that the requirement that the circumstances prevented the Appellant from leaving the UK could be met by a moral or conscientious obligation.

(2)            Ground 2 was that the FTT erred in failing to apply each element of the statutory test to each individual day.

(3)            Ground 3 was that the FTT’s decision on exceptional circumstances was internally contradictory and perverse, and that the circumstances were not exceptional.

(4)            Ground 4 was that the FTT erred in that having found that there were exceptional circumstances in the Appellant’s case, they failed to consider whether those circumstances satisfied the remaining elements of the statutory test.

 

In the Court of Appeal

 

In their judgement, the Court of Appeal (“the CA”) dealt with each of the four grounds as follows (ground 2 was withdrawn by agreement).

 

Ground 1 – prevention. 

In the CA’s view, the term ‘prevent’ was wide enough to encapsulate the circumstances suffered by the Appellant.

The CA said:

‘45.          Before us, Mr Stone (Counsel for HMRC) submitted that the UT was right. He did not go so far as to say that a person could only be said to be prevented from leaving the UK if they were legally or physically prevented from doing so. Thus he accepted that if a person broke their leg and was advised by their doctor not to fly, that could be a case of prevention even if it was physically possible to fly with a broken leg. But subject to matters like that, he submitted that if a person had a choice and either chose to come to the UK in the first place, or chose not to leave the UK, then the element of prevention was not met, and it did not affect matters that the choice might have been made because of a moral obligation or obligation of conscience.

46. I do not accept this submission. I agree that “prevent” is an ordinary English word; that it is a stronger word than “hinder”; and that the sense of it is well captured by saying it refers to stopping something or making it impossible rather than merely impeding it or making it more difficult. But where I differ from Mr Stone’s submission is that I do not think that what prevents someone from leaving the country can be limited to certain defined categories: legal obligations, physical impossibility, medical advice and the like. There may be any number of reasons why a person in any particular case has to stay in the UK, and as a matter of ordinary experience we can distinguish between cases where they are compelled or obliged to stay (and hence are prevented from leaving) and cases where they simply find it more convenient or attractive or otherwise preferable for them to stay…….

49  In those circumstances I agree with the FTT that one of the things that can prevent someone leaving the UK is a sufficiently compelling moral obligation or obligation of conscience, and that there is nothing in the statutory language of para 22(4) which suggests otherwise.’

 

Ground 3 – exceptional circumstances

HMRC argued that the circumstances found by the Appellant when she visited her sister in December 2015 and February 2016 were not exceptional.  The CA did not agree.  Distilling down  the relevant authorities to their principles ,  the CA found that an appellate court which can only hear an appeal  on a point of law has a limited ability to disturb the decision of the fact finding tribunal.  Here, the FTT had found on the facts that the circumstances were indeed exceptional.     It could not be said that the Tribunal, in making its  findings of  fact has erred in law  in accordance with the principles laid down  in the well know case of Edwards v Bairstow Edwards v Bairstow [1956] AC 14): UT [109 which , as HMRC acknowledged, was still good law.

 

Ground  4 – can a moral obligation be part of exceptional circumstances?

The FTT held that it was not necessary for there to  be a legal obligation in order for there to be an ‘exceptional circumstance’ – moral obligations and obligations of conscience can qualify as exceptional circumstances and those obligations may be strong enough to prevent a taxpayer leaving the UK.  The CA agreed.

 

The CA said:

 

‘……….61.  The question to be asked under para 22(4) is whether there are “exceptional circumstances

… that prevent P from leaving the UK”, and, as Mr Stone himself said, this is a composite phrase that must be construed as a whole. What I consider it therefore requires the FTT to do (in a contested case) is (i) find as a fact what the circumstances are; (ii) decide whether those circumstances prevented P from leaving the UK; and (iii) decide whether they were exceptional. That to my mind requires the FTT to look at all the relevant circumstances, and ask whether those circumstances taken as a whole prevented P from leaving, and whether those circumstances taken as a whole were exceptional.

62. Read like this, para 22(4) works in a simple and straightforward way in the case where P’s close relative is ill. Both the fact that the relative is ill, and any moral obligation that P has to care for the relative are part of the overall circumstances; and the FTT then has to consider whether those matters really do amount to sufficiently compelling circumstances as to prevent P from leaving, and whether the situation that P found himself or herself in was exceptional. To try to divorce the relative’s illness from the consequences for P seems to me neither warranted by the statutory language nor tomake any sense, and to lead into the sort of difficulties that flow from the UT’s analysis.’

 

Conclusion

The decision is a welcome one in that it provides confirmation that the Courts are taking a broader, rather than restrictive, interpretation of the statutory interpretation rules; however, it remains to be seen whether HMRC will appeal the decision and if so whether the Supreme Court will be prepared to hear it.