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Split year treatment – the detail

Under the UK statutory residency test, you are either UK resident or non-UK resident for a full tax year and at all times for that tax year. If, however, during the year you either leave the UK to live or work abroad, or come from abroad to live or work in the UK, you may be eligible for the tax year to be split into two parts.

What is a split year?

The UK Statutory Residence Test (SRT) makes a distinction between individuals who:

  • are UK resident or non-UK resident at all times for a full tax year
  • either started work abroad or have come from abroad to live or work in the UK during the year.

In order for the tax year to be split into two parts, specific criteria must be met:

  • there must be a UK part for which the individual was charged to UK tax as a UK resident; and
  • there must be an overseas part for which, for most purposes, the individual is charged to UK tax as a non-UK resident.

The individual must be UK resident for a tax year under the SRT to meet the criteria for split year treatment for that year. They will not meet the split year criteria for a tax year during which they are non-UK resident under the SRT.

Who does a split year apply to?

In the context of the SRT, a split year applies only to individuals in their individual capacity. It does not apply to individuals acting as personal representatives and only in a limited way to individuals acting as trustees.

When will split year treatment apply?

There are eight sets of circumstances where the criteria for a split year treatment for a particular tax year may apply.

Cases 1-3

These cover situations where an individual may go overseas part way through a tax year.

Cases 4-8

These cover situations where an individual might come to the UK part way through the tax year.

What priority will the split year classes be applied in?

Where the individual was UK resident in the year prior to the tax year in question, and the individual’s circumstances fall within two or more of cases 1 to 3:

  • case 1 has priority over cases 2 and 3
  • case 2 has priority over case 3.

Where the individual was not UK resident in the year prior to the tax year in question, and the individual’s circumstances fall within two or more of cases 4 to 8, the cases should be applied as follows:

First case applying Second case applying Case taking priority
Case 5 Case 6 Case with earlier split year date
Case 7 (but not Case 6) Case 5 Case with 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 the earlier) split year date.

What is the split year date?

With regards to split year cases 4 to 8, the split year date means the final day of the overseas part of the year for that case.

Case 1 – Starting work overseas

To meet the criteria for split year treatment for a tax year in which they begin full-time work overseas, the individual must:

  • be UK resident for the tax year in question
  • be UK resident for the previous tax year (whether or not it was a split year)
  • be non-UK resident in the following tax year because they meet the third automatic overseas test
  • satisfy the overseas work criteria during a relevant period.

Case 1 - Relevant period

A relevant period is any period consisting of one or more days that:

  • begins with a day that falls within the tax year
  • is a day on which the individual does more than three hours’ work overseas
  • ends with the last day of the tax year.

Case 1 – Overseas work criteria

An individual will meet the overseas work criteria where they:

  • work full-time overseas during a relevant period
  • have no significant break from overseas work during that period
  • do not work for more than three hours in the UK on more than the permitted limit of days during that period
  • spend no more than the permitted limit of days in the UK during that period.

Case 1 – Calculating whether an individual works full-time overseas during the relevant period

Apply the sufficient hours’ overseas calculation to the relevant period with the following modifications:

  • The maximum number of days you can subtract from the reference period for gaps between employments is reduced from 30 days to the permitted limit of days that can be subtracted for gaps between employments. This is best illustrated by the example shown in Table E on page 53 of Guidance Note: Statutory Residence Test (SRT).

Case 1 – Overseas part of a tax year

The overseas part of the tax year starts on the first day of the relevant period, as long as the individual meets the overseas work criteria for that period.

Case 1 – UK part of a tax year

The UK part of the tax year is the period from the start of the tax year until the start of the overseas part.

Example

David has always been UK tax resident.  He is seconded abroad by his employer for a 4 year period. His overseas contract starts on 27 October 2014. This example assumes David fails the third automatic overseas test for 2014-15 but meets it for 2015-16.

On 2 December 2014 he returns to the UK office for an urgent project. His work is completed on 16 December 2014 (11 UK workdays and four non-work days). He returns to his overseas work place and works there until 5 April 2015.

David meets case 1 split year treatment for the following reasons:

  • He was UK tax resident for the previous tax year (2013-14).
  • He is resident in the UK for the current tax year (2014-15) and does not meet the third automatic overseas test.
  • He is non-UK resident for 2015-16.
  • He calculates that he meets the sufficient hours’ overseas test for the period 27 October 2014 to 5 April 2015.
  • He had no significant break from overseas work during the period.

Case 2 – The partner of someone starting full-time work overseas

An individual may receive split year treatment for a tax year if their partner meets the conditions for case 1 split year treatment for that year or the previous year, and they move overseas so that they can continue to live with their partner while they are working overseas.

For more detail on the requirements see the Statutory Residence Test.

Case 3 – Ceasing to have a home in the UK

Where an individual leaves the UK to live abroad and they cease to have a UK home this may mean that the split year treatment may apply.

To meet the criteria the individual must:

  • be UK resident in the tax year
  • be UK resident for the previous tax year (whether or not it was a split year)
  • be non-UK resident for the following year
  • have one or more homes in the UK at the start of the tax year and at some point in the year cease to have any home in the UK for the rest of the tax year.

From the point of no longer having a UK home the individual must:

  • spend fewer than 16 days in the UK
  • in relation to a particular country, either:

- become tax resident in the country within six months

- be present in that country at the end of each day for six months, or

- have the individual’s only home, or all the individual’s homes if they have more than one, in that country within six months.

For more detail on the requirements see the Statutory Residence Test.

Case 4 - Starting to have a home in the UK

For more detail on the requirements see the Statutory Residence Test.

Case 5 – Starting full-time work in the UK

An individual may receive split year treatment for a tax year if they start to work full-time in the UK and they meet the third automatic UK test over a period of 365 days. If there is more than one such period then the UK part will run from the beginning of the first such period.

In order to meet the criteria an individual must:

  • be UK resident in the tax year
  • be non-UK resident for the previous tax year
  • not meet the sufficient ties test for the part of the tax year before the point the individual first met the third automatic UK test. When the individual is considering whether they have sufficient UK ties in this part year the individual should reduce the day count limits shown in Table F (see page 60 of the Guidance Note: Statutory Residence Test (SRT) published December 2013).

Case 5 - Overseas part of the year

The overseas part of the tax year starts at the beginning of the tax year and ends at the point the individual first meets the third automatic UK test by working full-time in the UK.

Case 5 - UK part of the year

The UK part of the tax year is the period from the end of the overseas part until the end of the tax year.

Case 6 – Ceasing full-time work overseas

If a client was non-UK resident in a previous tax year because they worked full time overseas and the client ceased to work full-time overseas in the tax year during which the split year treatment applies then it may be possible to apply split year treatment.

In order to meet the criteria an individual must:

  • be UK tax resident for the tax year in question
  • have not been UK resident for the tax year before the year in question because they either:

- satisfied the third automatic overseas test for that year or,

- if the year was 2012-13, worked full-time overseas for the whole of the tax year under the rules in force prior to the SRT (see HMRC 6)

  • have been UK resident for one or more of the four tax years before the year in which they are not UK resident under the bullet above
  • be UK resident in the tax year following the year in question (whether or not it is split year)
  • satisfy the overseas work criteria for a relevant period.

Example

Darren left the UK on 1 October 2010 to work full-time in the Middle East. He did not return to the UK at any time while working overseas.  Darren leaves employment on 30 September 2015.  He returns to the UK after an extended holiday on 12 December 2015.

Darren will receive split year treatment under case 6 for 2015-16 for the following reasons:

  • He is not resident in the UK for 2014-15 because he met the test for full-time work overseas for that year.
  • From 6 April 2015 until 30 September 2015 he worked full-time overseas.
  • Darren will be UK resident for the tax year following his return to the UK 2016-17.

Case 7 - The partner of someone ceasing full-time work overseas

For more detail on the requirements see the Statutory Residence Test.

Case 8 - Starting to have a home in the UK

If a client has no home in the UK but at some point in the tax year starts to have a home in the UK then they may meet the criteria for case 8.

Example

Helen is non-UK resident and resides in Spain.  She buys a property in the UK in September 2014, which she moves into and regards as her permanent home.

Helen meets the criteria for case 8 for 2014-15 on the basis that:

  • she was non-UK resident for the tax year 2013-14
  • she is UK resident for tax year 2015-16
  • she has a home in the UK for Sept 2014-April 2015.

Conclusion

A client’s individual circumstances need to assessed to see if the split year treatment will apply. This is a complex area and it is essential to consider the SRT guidance in full.  This article is a summary of some of the issues.

The information provided in this article is not intended to offer advice.

It is based on Old Mutual Wealth's interpretation of the relevant law and is correct at the date shown at the top of this article. While we believe this interpretation to be correct, we cannot guarantee it. Old Mutual Wealth cannot accept any responsibility for any action taken or refrained from being taken as a result of the information contained in this article.

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