A tax on conscience? A moral dilemma for non-residents

Published on 19 September 2023

This article was originally published in Tax Journal

In HMRC v A Taxpayer, the Upper Tribunal (UT) considered the meaning of ‘exceptional circumstances’ for the purposes of the statutory residency test (SRT) in FA 2013. In overturning the decision of the First-tier Tribunal, the UT held that moral obligations, specifically the need to care for close relatives, were not exceptional circumstances, creating a potential dilemma for individuals when it comes to managing their tax residency status and their family life.

The statutory residence test

FA 2013 s 218 and Sch 45 introduced the statutory residency test (SRT), replacing the previous common law test for determining tax residency. The basic rule under the SRT is that a person is resident in the UK for a year if either an ‘automatic residence test’ or a ‘sufficient ties test’ is met. The automatic residence test requires a person to meet none of the ‘automatic overseas tests’ set out in the SRT provisions, and at least one of the ‘automatic UK tests’. Many of the automatic overseas tests depend on the number of days the person spends in the UK.

If the automatic residence test is not met, the sufficient ties test applies. Under the sufficient ties test, a person’s residence is determined by a combination of the number of UK ties and the number of days the person spends in the UK. The number of ties sufficient to make a person UK resident depends on whether the person was resident in the UK for any of the previous three tax years, and the number of days the person spends in the UK in the tax year in question.

The number of days a person spends in the UK is determined by Sch 45 para 22, which provides that if the person is present in the UK at the end of a day, that day counts as a day spent in the UK. However, and of relevance to A Taxpayer, para 22(4) provides that a day does not count as a day spent in the UK if the person would not be present in the UK at the end of that day but for ‘exceptional circumstances’ beyond their control that prevent them from leaving the UK, and they intend to leave the UK as soon as those circumstances permit. Paragraph 22(5) provides a non-exhaustive list of examples of circumstances that may be exceptional, which includes war, civil unrest, natural disasters and sudden or life-threatening illness or injury.

The examples suggest that the threshold for exceptional circumstances is high, and it is the meaning of exceptional circumstances that was in issue in HMRC v A Taxpayer [2023] UKUT 182 (TCC).

Background facts in A Taxpayer

In 2015, the taxpayer moved to the Republic of Ireland, while her husband remained in the UK. During 2015/16, the taxpayer’s husband transferred shares to her, on which she received approximately £8m of dividends. The taxpayer completed her 2015/16 return on the basis she was not UK resident. HMRC enquired into the return, determining she had exceeded the permissible number of days in the UK and was therefore UK resident for tax purposes. HMRC amended the return, resulting in additional tax of around £3m. The taxpayer appealed.

In accordance with the table in Sch 45 para 18, the taxpayer would be resident in the UK if she spent more than 45 days in the UK. It was common ground that the taxpayer had exceeded those 45 days, and that she would be UK resident for the relevant year unless the additional days satisfied the exceptional circumstances test.

The appeal focused on two visits the taxpayer made to the UK in December 2015 and February 2016. The taxpayer argued that, in respect of both visits, she was in the UK because her twin sister, who suffered from alcoholism and depression, had threatened to commit suicide, which constituted exceptional circumstances (the primary case). The taxpayer also argued that her sister was unable to care for her two dependent children, such that the taxpayer was prevented from leaving the UK until appropriate care had been arranged, which also amounted to exceptional circumstances (the secondary case).

The FTT decision

The FTT rejected the taxpayer’s evidence on her sister’s risk of suicide as not credible. That was because, inter alia, a report from the sister’s consultant indicated the sister had no suicidal ideation, there was no suggestion in her medical records that the sister was threatening suicide and the taxpayer did not seek medical psychiatric assistance during either visit, which the FTT found strange and implausible. The FTT therefore concluded that the taxpayer had not shown that she came to and remained in the UK because her sister had threatened to commit suicide and rejected the taxpayer’s primary case.

In contrast, the FTT accepted the taxpayer’s evidence on the secondary case, namely that during her visits she found a dysfunctional household in which her sister was incapable of caring for herself or her children, and nobody else could provide the care needed. The FTT held that moral obligations and obligations of conscience, including those arising by virtue of a close family relationship, could qualify as exceptional circumstances and could be strong enough to prevent a taxpayer leaving the UK. Further, the combination of the need for the taxpayer to care for her sister and her children at a time of crisis caused by alcoholism constituted exceptional circumstances, and if the reason for the taxpayer remaining in the UK was the same each day, then that reason remained valid for each relevant day. Accordingly, the FTT allowed the taxpayer’s appeal on the secondary case. HMRC appealed to the UT.

The UT decision

The taxpayer did not appeal the FTT’s decision on the primary case. The only issue before the UT was therefore whether the secondary case constituted ‘exceptional circumstances’.

The UT found that the requirements in para 22(4) were not similar to a ‘reasonable excuse’ test, but were instead entirely objective. To be ‘exceptional, ’ circumstances must be ‘out of the ordinary course, or unusual, or special, or uncommon’ and not ‘regularly, or routinely, or normally encountered’. Further, for the purposes of para 22(4) ‘prevent’ meant ‘stopping something from happening or making an intended act impossible, ’ which was different from mere ‘hinderance’. It is the ‘exceptional circumstances’ that must prevent the person from leaving the UK.

The UT disagreed with the FTT’s finding that a moral or conscientious inhibition could satisfy the requirements in para 22(4). The statutory question was not whether a person was prevented by an inhibition from leaving the UK, but whether exceptional circumstances prevented the person leaving. In that regard, the UT found that it was not correct to say that because a person genuinely thinks it necessary to be in the UK because a relative is ill or dying, then exceptional circumstances exist. That was because serious illness and death are, themselves, not ‘exceptional, ’ and it was also not ‘out of the ordinary course, or unusual, or special, or uncommon’ for a person to have a sense of moral obligation towards a relative in that position. Objectively commonplace circumstances, such as serious illness, could not be converted into exceptional circumstances by adding a moral obligation.

Further, the UT determined that the person claiming that para 22(4) applied had the burden of proving that each of the statutory conditions was satisfied for every one of the days in issue. Accordingly, if the person failed to provide evidence sufficient for the FTT to make findings of fact, the appeal must be dismissed. In that regard, the UT held that there was insufficient evidence before the FTT to support its conclusion on the secondary case, which was an error of law.

As to the taxpayer’s specific circumstances, the UT agreed with HMRC that it could not be inferred that the degree of suffering and distress caused by the sister’s alcoholism and depression was more than that which commonly arose in families affected by those conditions, and the FTT’s findings in that regard were inconsistent and perverse. In particular, the FTT could not reasonably find both that alcoholism and depression did not constitute exceptional circumstances for the purposes of the primary case, but that the combination of the need for the taxpayer to care for her sister and children at a time of crisis caused by her alcoholism constituted exceptional circumstances for the purposes of the secondary case.

Finally, the UT rejected the taxpayer’s submission that her circumstances were similar to the example in para 22(5)(b) on the basis they were not ‘life threatening’ or ‘sudden’. That was because the evidence showed that her sister was not at risk of suicide, and her alcoholism and mental health issues had existed for many years. Therefore, the circumstances the taxpayer found on her visits did not constitute ‘exceptional circumstances’ and, having regard to its earlier finding that objectively commonplace circumstances do not become ‘exceptional’ by adding a moral obligation, the UT held that the FTT was 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. Even if the taxpayer’s need to care for her sister and for her children did constitute exceptional circumstances, the UT found that the FTT made a further error of law by failing to consider whether this was the case on each of the relevant days.

Accordingly, the UT allowed HMRC’s appeal, and found that the taxpayer was tax resident in the UK during 2015/16.


Offshore taxation has been a hot button issue in recent years, and individuals find themselves navigating an increasing range of regulatory measures when it comes to the protection of their foreign income and assets. Given the current economic climate, those measures are likely to remain a key focus for HMRC in the short-term, emphasising the need for careful management of tax residency status for overseas-based individuals with ties to the UK.

A Taxpayer is the first time the courts have considered the meaning of ‘exceptional circumstances’ in the context of the SRT, and it is clear from the UT’s judgment that the bar has been set extremely high. That is perhaps unsurprising given the examples of exceptional circumstances the drafter has chosen to include in para 22(5)(b), but it does result in some potentially harsh outcomes. While managing tax residency status is likely to be relatively straightforward for most individuals, the circumstances in A Taxpayer demonstrate that tough choices, with potentially significant financial consequences, can arise where difficult family circumstances abut against the ‘hard edges’ of the bright line rules contained in the SRT.

The moral dilemmas created by those choices are not difficult to imagine, and while A Taxpayer is unequivocal that the run-of-the mill complexities of family life will not suffice for the test in para 22(4), it takes little creativity to hypothesize the circumstances in which the application of the UT’s decision is less clear-cut. It is not clear that the UT’s view of what is ‘run-of-the-mill’ in this case would be widely shared. What of the individual required to remain in the UK to fulfil certain religious obligations, for example? And does it add anything to the analysis that the moral obligation may arise from a protected characteristic under the Equality Act 2010?

The UT’s decision in A Taxpayer presents individuals seeking to avail themselves of para 22(4) with a significant hurdle. However, when it comes to matters of conscience, the range of circumstances that may fall at the interstices of what can properly be described as ‘regularly, or routinely, or normally encountered’ vis-à-vis circumstances that are truly exceptional are endless, and deciding where the boundaries lie may require HMRC and the courts to draw some fine, potentially controversial, distinctions between competing values. Indeed, the increasing complexities of modern life mean that there is likely more for the courts to say on the SRT exceptional circumstances test. Watch this space.

For related reading visit taxjournal.com.

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