What is Split Year Treatment?
As per the Statutory Residence Test (SRT), if an individual becomes a United Kingdom citizen between a tax year, the preliminary proposition is that the individual is considered a resident for that entire tax year. In the same way, if an individual becomes a non-United Kingdom resident in-between a tax year, he/she will, at the outset, be considered a United Kingdom resident are the remaining part of the entire tax year. On the other hand, if an individual meets some criteria there might be a possibility for the tax year to be divided into two portions, so that an individual can have a United Kingdom part where he/she is charged the applicable United Kingdom tax rate as a UK resident, and an ‘out of the country’ part where he/she is charged to the applicable United Kingdom tax as a non-UK resident.
For split year treatment to apply, there are eight situations which might be considered in a given tax year. Out of the eight situations, three are applicable for individuals who were residents in the United Kingdom in the tax year preceding to any possibly split year (can also be referred as leavers) and the remaining five are applicable for individuals who were not residents of the United Kingdom in the preceding tax year (can also be referred to as arrivers). Once an agreement has been reached on which split year ‘Case’ will apply, it is also imperative to determine the date from when the tax year is split – it must be noted that this date may not essentially be similar as the date of arriving or departing from the United Kingdom.
Understanding the cases
Cases applicable for Leavers i.e. individuals who were residents in the United Kingdom in the preceding tax year
For each of the below mentioned cases from 1 to 3, it is imperative for an individual to meet the following criteria:
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 time 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 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 period 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.
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:
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. 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 as long as 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 as long as he/she continues to stay in the United Kingdom during all of the succeeding tax year, and had no home in the United Kingdom at the beginning of the tax year.
Simple rules of the Statutory Residence Test (SRT)
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: