A Significant Ruling on the Interpretation of Exceptional Circumstances

In A Taxpayer v Revenue and Customs Commissioners [2025] EWCA Civ 106, the Court of Appeal has provided key clarification on the interpretation of “exceptional circumstances” under the Statutory Residence Test (SRT). The ruling overturns the Upper Tribunal's (UT) restrictive approach and restores the original decision of the First-tier Tribunal (FTT), which had found that the taxpayer's personal circumstances justified an exemption from the SRT’s day-counting rules.

This decision will be of particular interest to individuals managing UK tax residence status, as it broadens the potential application of the exceptional circumstances exception within paragraph 22(4) of Schedule 45 to the Finance Act 2013.

The Case: A Taxpayer’s Need to Stay in the UK

The case concerned a taxpayer who, due to her twin sister’s severe alcoholism and depression, remained in the UK to care for her sister and her sister’s minor children. The FTT originally ruled that these circumstances constituted "exceptional circumstances," allowing six days to be disregarded from the taxpayer's UK residence calculation. This resulted in the taxpayer being treated as non-UK resident for the 2015–16 tax year, exempting her from UK taxation on an £8 million dividend.

However, the UT overturned the FTT’s decision, holding that the taxpayer was not "prevented" from leaving the UK under the SRT rules and that moral obligations should not be considered exceptional circumstances.

Key Findings from the Court of Appeal

The Court of Appeal ruled in favor of the taxpayer, finding that the UT had applied an unduly narrow interpretation of the law. The key points from the judgment include:

  1. Exceptional Circumstances Are Not Limited to Legal or Physical Barriers
    The Court found that the UT erred in its restrictive interpretation of what can prevent someone from leaving the UK. The statutory test does not require that the taxpayer be physically or legally unable to leave—moral obligations, if sufficiently compelling, can also be taken into account.
  2. Moral or Societal Obligations Can Constitute Exceptional Circumstances
    The Court confirmed that a taxpayer’s sense of duty to care for an ill relative can be a relevant factor when determining whether they were "prevented" from leaving the UK. The exceptional circumstances test is holistic, considering both external facts and the taxpayer’s reaction to them.
  3. FTT’s Discretion in Determining Exceptional Circumstances
    The judgment emphasized that it is ultimately a question of fact for the FTT to determine whether circumstances prevented a taxpayer from leaving the UK. It rejected the UT’s attempt to impose a rigid legal definition of "exceptional," affirming that the term should be interpreted in its ordinary sense.
  4. Consistency with the Statutory Examples in the Finance Act 2013
    The decision aligns with paragraph 22(5) of Schedule 45 to the Finance Act 2013, which includes "sudden or life-threatening illness or injury" as an example of exceptional circumstances. The Court pointed out that the legislation does not specify that the illness or injury must be the taxpayer’s own, supporting the argument that a moral or societal obligation to stay can be a valid consideration.

Implications for Taxpayers

This ruling has important implications for taxpayers relying on the exceptional circumstances exemption under the SRT. It confirms that:

  • The test for being "prevented" from leaving the UK includes moral and societal obligations, not just legal or physical barriers.
  • The FTT has discretion to assess whether circumstances are exceptional based on a broad set of factors.
  • HMRC’s application of the exceptional circumstances rule should be flexible, recognizing that the taxpayer’s response to events is part of the overall assessment.

Conclusion

The Court of Appeal’s decision in A Taxpayer v HMRC restores a more practical and fair approach to the exceptional circumstances exemption under the SRT. This case will serve as an important precedent for non-UK residents managing their tax status in situations where personal crises necessitate an extended stay in the UK.