What is UK non-resident split year treatment?

There are special UK tax rules that may apply if you arrive into or leave the UK in a single tax year. These rules allow you to split the tax year into two parts, one where you are taxed as a UK resident and another where you are taxed as a non-UK resident.

What is split year treatment?

For split year treatment to apply, there are eight situations which might be considered in a given tax year. Three of these are applicable for individuals who were residents in the United Kingdom in the tax year preceding any possibly split year and leave for overseas part way through the year (can also be referred as leavers). The remaining five are applicable for individuals who were not residents of the United Kingdom in the preceding tax year and arrive to the UK part way through the year (can also be referred to as arrivers).

There are special rules if an individual meets some criteria, then there might be a possibility for the tax year to be divided into two portions, so that an individual can have a UK part where he/she is charged the applicable UK tax rate as a UK resident, and an ‘out of the country’ part where he/she is charged to the applicable UK tax as a non-UK resident.

What date does split year treatment apply from?

It is imperative to determine the date from when the tax year is split – it must be noted that this date may not be the same as the date of arriving or departing from the United Kingdom.

Who is eligible for split year treatment?

Both leavers and arrivers may be eligible for split year treatments if they fall into one of the below mentioned cases.

Split year treatment for leavers

For individuals who were residents in the United Kingdom in the preceding tax year but then leave the UK.

For each of the below mentioned cases from 1 to 3, it is imperative for an individual to meet the following criteria:

• An individual must be a resident of the United Kingdom for the tax year in investigation.
• An individual must be a resident of the United Kingdom for the preceding tax year.
• An individual should be non-United Kingdom resident in the subsequent tax year.

Additionally, the below mentioned condition(s) must also be considered for the specific ‘cases’:

Case 1 – if an individual begins whole-time work in a foreign country

For an individual to be eligible to meet the requirements under this split year treatment, he/she should qualify for the ‘third automatic overseas test’ all the way through the subsequent tax year and abide by the ‘overseas work criteria.’

Generally, an individual should have left the United Kingdom to work whole-time in a foreign country for a period in excess of 35 hours for each week on average without any noteworthy breaks, and with only a pro-rated restricted durations of days spent in the United Kingdom (whether working or on leave) from the date of leaving and afterwards.

Case 2 – if either of the partner begins full-time work in a foreign country

If the partner (husband/wife/civil partner) of an individual who he/she was living with, in the United Kingdom, begins whole-time work in a foreign country and abides by the circumstances of Case 1, an individual might be eligible for split year treatment if he/she moves in a foreign country to begin living together.

Throughout the ‘out of the country’ part of the tax year an individual must either have no home in the United Kingdom, or if they have homes in both the ‘foreign country’ and stay for a longer period in the overseas home than in the United Kingdom home, and he/she must not stay more than the ‘allowed limit’ of days in the United Kingdom. The acceptable number of days in the United Kingdom is 90 days for the entire year and will be pro-rated basis depending on the tax year when an individual leaves the United Kingdom.

Case 3 – discontinuing to have a home in the United Kingdom

If an individual leaves the United Kingdom to stay in a foreign country and has a home in the United Kingdom at the beginning of the tax year, and then cease to have any home in the United Kingdom for the remaining part of that specific tax year, he/she might meet the requirements for split year treatment.

From the time when an individual ceases to have a United Kingdom home, he/she must spend less than 16 days in the United Kingdom and turn into a resident of the other country, for tax purposes, within six months; or be available in the foreign country at the end of every day for six months; or have his/her only home in that nation within six months.

Split year treatment for arrivers

Cases applicable for arrivers i.e. individuals who were not residents of United Kingdom in the preceding tax year

For Cases 4 – 8, an individual must abide by the below mentioned conditions:

• He/she must be a resident of the United Kingdom for the tax year in question.
• He/she must be a non-United Kingdom resident for the preceding tax year.

Additionally, the below mentioned condition(s) must also be met for the specific Cases:

Case 4 – beginning to have a home-base in the United Kingdom only

An individual might be eligible for split-year treatment within a tax year in which he/she began to have their only home in the UK, provided they did not have adequate United Kingdom ties to establish a UK resident tag for the remaining part of the tax year.

Case 5 – beginning whole-time work in the United Kingdom

If an individual comes to the United Kingdom between a tax year to begin whole-time work in the United Kingdom, he/she might be eligible for split year treatment, as long as the person meets the ‘third automatic United Kingdom test’ for the tax year being considered and did not have adequate United Kingdom ties to make him/her a United Kingdom resident for the remaining part of the tax year before he/she met this test.

Case 6 – ceasing whole-time work in a foreign country

If an individual gets back to the United Kingdom after a sufficient period of whole-time work in a foreign country, split year treatment may be applicable, provided the person was a United Kingdom resident in one or additional of the four tax years straightaway prior the preceding non-resident year. So, consideration needs to be given to 5 years before the year in question. An individual must also continue to be a resident of the United Kingdom all through the subsequent tax year.

Case 7 – if the partner of an individual is ceasing whole-time work in a foreign country

If an individual comes to the United Kingdom to stay with his/her partner who has stopped working whole-time in a foreign country, he/she may be eligible for split year treatment if his/her partner’s conditions fall within the boundaries of Case 6 (as stated above) and the person will continue to reside in the United Kingdom for the subsequent tax year.

Case 8 – beginning to have a home in the United Kingdom

All through a tax year in which an individual begins to have a home in the United Kingdom, he/she might be eligible split year treatment if he/she continues to stay in the United Kingdom during all the succeeding tax year and had no home in the United Kingdom at the beginning of the tax year.

The principal step in creating United Kingdom residence will be to focus on the below mentioned basic rules, which will institute whether a person is either:

• convincingly a UK non-resident through ‘the automatic overseas test,’ or
• convincingly a UK resident through ‘the automatic residence test’.

What if two or more cases apply to my situation?

If you are a leaver and your situation falls under 2 or more Cases of 1-3:

• Case 1 will have preference over Case 2 and 3
• Case 2 will have preference over Case 3

If you are arriving in the UK and your situation falls under 2 or more cases of 4-8:

What if I can’t split the year for split year treatment?

If you are considered non-resident, then it doesn’t matter if you are not able to split the year as you’ll be subject to UK tax on UK-sourced income only.

If you are resident but not eligible for split-year treatment in an arrival or departure year, it may be possible to make appropriate claims under double taxation agreements (if one exists between the UK and the country concerned) to limit or exclude the UK’s ability to tax your pre-arrival or post-departure income. The result may well be the same as being eligible for split year treatment but is more complex.

Additionally, if you are non-domiciled in the UK for tax purposes, then remittance basis could be available where the foreign income will be taxed only if remitted to the UK.

Does split year treatment apply to capital gains?

There are rules which allow split year treatment for capital gains of individuals who come to the UK part way through a tax year. If these apply, then capital gains tax would only apply to gains arising in the UK part of a split year (unless the gain is in respect of UK land and property, or the temporary non-residence rules apply). When leaving the UK things are far more complex, so we recommend you seek advice.

Split year treatment summary

For more HMRC guidance on split year treatment visit the gov.uk website.

Split year treatment is a very complex tax area, and you should take advice from tax advisors that are specialist in these areas. Here at dns accountants our tax team are experts in non-residence and UK residence taxes and can offer the best advice and handle everything with HMRC.

Contact us today to see how we can assist you in with split year treatmentand other non-resident tax queries. Speak to one of our dns experts right now on +44 (0) 3330 886 686, or you can also e-mail us at enquiry@dnsaccountants.co.uk.

About the author

Sumit Agarwal
Sumit Agarwal (ACMA ACA India), the Managing partner of dns accountants is a highly respected accountant with expertise in helping owner-managed businesses.