United Kingdom: the impact of family circumstances on tax residency

01.09.2025

• Essence of the dispute
• The taxpayer’s position
• HMRC’s position
• Taxpayer’s account
• Decision
• Significance
• Contact our lawyer for more details

Essence of the dispute

HM Revenue & Customs (HMRC) assessed additional income tax of approximately £8 million on dividend income of an individual, treating him as a UK tax resident in the 2015/2016 tax year (the tax year ended on 5 April 2016). The taxpayer argued that during that period he was a tax resident of Ireland.

Background In the UK, the following tests are applied when determining an individuals’ tax residency: Automatic UK tests: Presence in the UK for at least 183 days during the year; The individual’s only place of residence is in the UK for at least 91 days during the year; Full-time work (35 working hours per week) in the UK for 365 days without significant breaks; Death of the individual during the tax year, provided that he had been automatically resident in the three preceding tax years and had a place of residence in the UK. For the purposes of calculating days, the rules say a calendar day is a day when an individual is present in the UK at the end of the respective day. Automatic overseas tests: The individual was UK-resident in one or more of the previous three tax years and spends fewer than 16 days in the UK in the respective year; The individual was not UK-resident in any of the previous three tax years and spends fewer than 46 days in the UK in the respective year; The individual works full-time abroad during the respective year, spends fewer than 31 working days in the UK, and spent fewer than 91 days in total in the UK. A UK working day is the one where more than three hours of work are carried out in the UK; Death of the individual during the tax year, provided that he was not UK-resident in the two preceding tax years and spent fewer than 46 days in the UK in the current year. If none of the automatic tests is met, residency is determined by the Sufficient Ties Test.

The taxpayer’s position

The taxpayer relied on the automatic overseas test: “the individual was not UK-resident in the previous three tax years and spent fewer than 46 days in the UK in the respective year.”

Taxpayer referred to the exception in paragraph 22(4) of Schedule 45 to the Finance Act 2013. According to this Act, if the individual intended to leave UK as soon as reasonably possible, but had to stay in the UK due to exceptional circumstances beyond his control, the day is not counting towards that person’s tax residency.

HMRC’s position

HMRC argued that the individual was present in the UK at the end of the day for a total of 50 days and was therefore UK-resident. The taxpayer’s arguments that personal circumstances prevented his departure were rejected: HMRC stated that the statutory exception only applies to legal or physical impediments (e.g. illness or a travel ban). Caring for a relative, even in a dire situation, was not accepted as such a reason.

Taxpayer’s account

According to the taxpayer, on the final six days (two in December 2015 and four in February 2016) he was in the UK at the end of the day because he was compelled to stay to assist his sister, who suffered from addiction, was suicidal, and was unable to care for her children. In those circumstances, immediate departure was impossible, but he left as soon as the situation had stabilised.

Decision

The Court of Appeal delivered the final judgment. It held that HMRC’s approach was excessively formalistic. The statute does not require that “exceptional circumstances” be confined to legal or physical impediments. A family crisis, especially where life or child’s welfare is at stake, may constitute a valid reason for remaining in the country beyond the permitted limit.

The court found that the taxpayer had acted in good faith; the days in question should be disregarded; and UK tax residency was not established. The additional assessment was cancelled.

Significance

This case set an important precedent: for the first time it was recognised that an acute family crisis and a moral obligation may qualify as “exceptional circumstances” for purposes of establishing tax residency. This is significant for individuals living across jurisdictions. Even in case the formal days’ limit is exceeded, court can give a protection when the circumstances were genuinely involuntary and were properly evidenced. The court made clear that real-life situations must be taken into account when applying strict tax rules.

Authors: Yaroslavna Zadesenskaya, Oksana Iashagyan

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