The general premise when the Statutory Residence Test was first introduced on 6th April 2013, was that you are either considered as UK tax resident or not resident for UK taxation.
Your residence position needs to be looked at closely in a UK tax year, when you either leave the UK or arrive into the UK.
It is important to consider the complexity of the rules and everyone’s circumstances will be different.
In this article and subsequent articles the concept of split year treatment will be looked at and this is just an overview. It is vital that if you are considering either leaving the UK or moving to the UK that you seek specific advice.
What is split year treatment?
Ordinarily you are considered as UK tax resident for the entire UK tax year even if:
- You leave the UK
- You move to the UK
in that year.
There are special rules which enable you to split a tax year if you leave the UK or move to the UK during the tax year but only if specific conditions are met. If the conditions are met then a claim for split year treatment can be made and this effectively splits the tax year into two parts:
- The part of the UK tax year where you are residing overseas and considered as not resident
- The part of the UK tax year where you are residing in the UK and considered as UK tax resident.
Split year treatment does not apply if you are considered as not resident for the entire UK tax year.
When will split year treatment apply?
There are eight different tests known as “Cases” where the conditions for split year treatment may apply to you in a particular UK tax year.
- Cases 1-3, apply if you leave the UK part way through the year.
- Cases 5-8, apply if you move to the UK part way through the year.
Each of the Cases has specific criteria which have to be met to enable a split year claim to be made. Once the relevant Case or Cases have been established then this will determine when the date of UK residence either commences or ceases.
Split year treatment can cause unexpected results as the date of residence commencing or ceasing may not be the same as the physical date of arrival or departure.
What are the Cases?
The Cases are:
Case 1 – Starting full time work overseas
Case 2 – The partner of someone starting full time work overseas
Case 3 – Ceasing to have a home in the UK
Case 4 – Starting to have a home in the UK only
Case 5 – Starting full time work in the UK
Case 6 – Ceasing full time work overseas
Case 7 – The partner of someone ceasing full time work overseas
Case 8 – Starting to have a home in the UK
An overview of each of the cases will be discussed in later articles.
What happens if two cases of split year treatment are met?
In the scenario where two cases of split year treatment are met, then there is a specific ordering to determine which case applies.
If you leave the UK and your circumstances fall within two or more of Cases 1 – 3, then the priority is:
- Case 1 has priority over Cases 2 and 3
- Case 2 has priority over Case 3
If you move to the UK and your circumstances fall within two or more of Cases 4 – 8 then the following should be applied:
|First Case Applying||Second Case Applying||Case taking priority|
|Case 5||Case 6||Case with the earlier split year date|
|Case 7 (but not Case 6)||Case 5||Case with the earlier split year date|
|Two or all of Cases 4, 5 and 8 (but not Cases 6 or 7)||Case or Cases with the only (or earlier) split year date|
Where a claim for split year treatment is going to be made, your circumstances need to be looked at carefully. Ideally, advice should be sought between six to nine months before moving to or leaving the UK so any tax planning opportunities can be actioned.
If you do not meet any of the conditions for split year treatment, then you will be UK tax resident for the entire tax year. This could lead to you being taxed in two different countries on the same sources of income. In this scenario, it will need to be established whether you are dual-resident and where there is a Double Taxation Agreement in place this will need to be looked at.
If you would like to discuss this further, please contact our tax team on firstname.lastname@example.org.
Author: Plus Accounting
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