What is split year treatment?
If you leave the UK, the default tax position is that you will be treated as resident in the UK for tax purposes for the whole of the UK tax year of departure. This generally means that you will be subject to UK tax on all of your worldwide income and gains for that tax year, including that arising during the part of the year when you are outside the UK.
However if you meet certain conditions it is possible that you will qualify for what is known as “split year treatment”, under which you will be treated as resident only for the part of the tax year before your departure. This means that income and gains arising during the part of the tax year when you are outside the UK will not be taxable in the UK. This is particularly desirable if you are moving to a low tax area.
How do you apply for split year treatment?
It is not possible to claim to have split year treatment in advance, it is just up to you based on the facts to ensure that your circumstances fit one of the scenarios detailed below. It will then be possible to complete your UK self-assessment tax return for the year of departure on the basis that it includes only your income and gains for the period up to your departure and to show which case of split year treatment is applicable in your particular circumstances. The rules are as follows:
There are three possible scenarios under which you may qualify for split year treatment and these are:
Case 1 – Starting to work full time overseas
Case 2 – The partner of someone starting full time work overseas
Case 3 – Ceasing to have a home in the UK
Each of these Cases have criteria which all need to be met
As a starting point for all of Cases 1 – 3 the following have to be met:
- You must be UK resident in the tax year of leaving
- You must be UK resident for the previous UK tax year
- You must be non-UK resident for the following UK tax year
In addition, there are other conditions which have to be met and these are different for each Case.
Case 1 – Starting full time work overseas
To qualify for split year treatment under this Case, you must:
- Meet the third automatic overseas test in the tax year following your departure
- Satisfy the overseas work criteria from the date you leave the UK until the 5th April of the tax year of your departure.
Generally speaking, this means that you must work on average more than 35 hours per week overseas, without any significant breaks from overseas work and any time spent in the UK (whether on leave or business) is within the parameters set by the Statutory Residence Test.
Case 2 – The partner of someone starting full time work overseas
If your partner meets the conditions of Case 1 and you lived together in the UK before they moved overseas, then it is also possible for you to claim split year treatment if you join them overseas.
To qualify you must:
- Move overseas so you can live together whilst your partner is working overseas
- From the date of your deemed departure and 5th April of the tax year concerned you either
- Have no home in the UK or, if you have homes in both the UK and overseas the greater part of your time is spent living in the overseas home.
- Spend no more than the “permitted limit” of days in the UK.
The number of days which can be spent in the UK are prorated and are based on when you leave the UK.
Case 3 – Ceasing to have a home in the UK
Split year treatment may be claimed under this Case if you leave the UK and cease to have a home. This means if you had one or more homes in the UK at the start of the tax year concerned you must at some point in the year cease to have any home in the UK for the rest of the tax year.
At the time you cease to have a home in the UK, you must also:
- Spend fewer than 16 days in the UK (after cessation of having a UK home)
- In regard to the overseas country you have moved to, either:
- Become resident for tax purposes in that country within six months
- Be present in that country at the end of each day for 6 months, or
- Have your only home or all of your homes in that country within 6 months
Where a successful claim is made for split year treatment when leaving the UK, this means you are UK tax resident from 6thApril to the date of your deemed departure and not resident from the date of your deemed departure to 5th April.
If your circumstances mean you meet more than one of the Cases for split year treatment then the ordering rules outlined in our earlier blog “Split Year Treatment and the Statutory Residence Test” will need to be looked at.
Advice should be sought well in advance of any departure from the UK so that you are aware of the UK tax implications and potential planning opportunities.
Author: Plus Accounting
Any views or opinions represented in this blog are personal, belong solely to the blog owner and do not represent those of Plus Accounting. All content provided on this blog is for informational purposes only. The owner of this blog makes no representations as to the accuracy or completeness of any information on this site or found by following any link on this site.
First Published: 04 April 2017
Last Updated: 10 November 2021