UK Tax Residence: When Do Exceptional Circumstances Prevent Leaving the UK?
A non-UK resident may unintentionally expose themselves to a tax liability in the UK on overseas income - but only in ‘exceptional circumstances’ might they avoid taxation.
In what is the first time the courts have considered the statutory residence test under the Finance Act 2013, the Court of Appeal has ruled in favour of a taxpayer who argued she was prevented from leaving the UK because of her obligations to her seriously ill sister.
Residence
Under the statutory residency test (Sch 45 of the 2013 Act), a non-UK resident is not usually liable to tax in the UK on their foreign income or other gains. But with all rules, there are exceptions. Further, the rules are not always clearcut and its application can be complex.
A person’s residency under Sch 45 is determined by the number of days the individual has spent in the UK during the relevant tax year. The residency test is satisfied if the individual spends at least 183 days in the UK in the tax year; or has their only home in the UK - satisfied if they have a home for at least 91 consecutive days (30 or more falling within the relevant tax year) and they used the home for at least 30 days in the tax year; or they work full time in the UK.
Unexpected events
But what is the tax status of an individual who, because of unexpected circumstances, overstays in the UK? Sch 45 provides for this potentially unfair scenario and allows a certain amount of days to be disregarded in the case of ‘exceptional circumstances’ beyond the individual’s control, such as sudden or life-threatening illness or injury.
In this case1, the tax payer (P) said she was prevented from returning to Ireland because of the need to help her suicidal twin sister who suffered worsening alcoholism and depression (and had two young children whose welfare P was concerned for). She argued this amounted to exceptional circumstances. She had been in the UK for 50 days during the relevant tax year (in her specific circumstances, she would not be considered UK resident for tax purposes if she had been in the UK for 45 or fewer days).
The appeal judge Lord Justice Nugee rejected the proposition that exceptional circumstances should be “limited to certain defined categories”. He said: “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.”
An interesting question specifically considered by the court was whether moral obligations can be part of exceptional circumstances. “A sufficiently compelling moral obligation or obligation of conscience” could, said the judge, “prevent someone leaving the UK”. Nothing in the statutory language suggested otherwise.
As to whether P was prevented from leaving the UK, it really was a simple question of whether there were “exceptional circumstances … that prevent P from leaving the UK”. To determine that questions, all the relevant circumstances needed to be considered.
‘Exceptional’
The CA considered the meaning of ‘exceptional’ - an ordinary English word - to be a question of fact. It was for the FTT as the fact-finding tribunal to decide if P’s actual circumstances qualified as exceptional – it was not a question of law.
The FTT had concluded that P’s need to care for her twin sister and, particularly, for her minor children during a crisis caused by her sister’s alcoholism” did constitute exceptional circumstances.
The FTT’s decision in P’s favour (which had been overturned by the UTT) was restored.
What does this mean?
The decision is particularly important given it’s the first time the issue has been considered by the court. It could yet go to the Supreme Court but, in the meantime, the guidance on the correct approach to the application of the exceptional circumstances exception is significant.
1A Taxpayer v HMRC [2025] EWCA Civ 106
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