Complete guide to UK tax residency split year treatment

You could save thousands in tax by applying the split year treatment – does it apply to you?

If you move to or from the UK part way through a tax year, even if you are UK tax resident for the tax year according to the UK statutory residence tests, you may be able to ‘split’ the tax year in two so you only pay tax on your worldwide income proportionate to the time spent in the UK.

Have you tried reading through the split year treatment legislation on the official HMRC website? I have. It took me about 100 times of reading through them to understand them fully! They aren’t the easiest read... So this blog has (hopefully) condensed them down into easy to understand steps for you. Go make that coffee, you’re going to need it!

Leaving the UK

There are 3 ‘cases’ (as HMRC call them) where you can apply split treatment when leaving the UK.

If more than one of these cases apply to you then you will apply your split date as case 1 first, then case 2, with case 3 last.

Case 1 - you start working overseas full time

For this to apply:

· You must be UK resident for the tax year in question.

· You must have been UK resident in the previous tax year.

· You must be non UK resident in the following tax year (if you end up being UK resident in the following tax year and you have already applied split year treatment to the year in question, you must amend your tax return).

· You must be working at least 35 hours per week, self-employed or employed.

With reference to the period from when you leave the UK to the end of the tax year, there are limits on:

· How many days you can do more than 3 hours work in the UK.

· How many days you can spend in the UK whether you are working or not.

· How many days between work overseas you are allowed, should you move jobs or stop working.

How many days depends on when you left the UK. There is a fancy table HMRC has created which shows these limits. I will link it here:

 https://www.gov.uk/hmrc-internal-manuals/residence-and-fig-regime-manual/rfig21070

I will warn you, they aren’t easy to understand, so if you have had gaps in your overseas employment or have returned to the UK for periods of time, I recommend getting in touch with an expert (hint hint).

Case 2 - accompanying a partner who starts working full time overseas

For this to apply:

· Your partner must qualify under case 1.

· You must be UK resident for the tax year in question.

· You must have been UK resident in the previous tax year.

· You must be non UK resident in the following tax year (if you end up being UK resident in the following tax year and you have already applied split year treatment to the tax year in question, you must amend your tax return).

· You must have been living together in the UK at some point in the tax year or previous tax year.

· You must move overseas to live with them.

When you leave the UK you must either:

· Have had no UK home for the remainder of the tax year, or;

· If you did have a UK home, you must have spent the majority of days after you leave living in the overseas home.

Also, if you do travel back to the UK after your split date, then if you spend more than the allowed number days in the UK, (see link in case 1) you won’t be able to split the tax year.

Case 3 - you stop having a UK home

For this to apply:

· You must be UK resident for the tax year in question.

· You must have been UK resident in the previous tax year.

· You must be non UK resident in the following tax year (if you end up being UK resident in the following tax year and you have already applied split year treatment to the tax year in question, you must amend your tax return).

· You must cease to have a UK home part way through the tax year (this could be renting or selling your UK home).

· You must start having a home overseas.

· You must spend less than 16 days in the UK after leaving your UK home.

In relation to the country you are moving to, you must either:

· Become tax resident in the country you are moving to within 6 months, or;

· Be present in that country every day for 6 months, or;

· Have your home (or all of your homes if you have more than 1) in that country within 6 months.

Arriving in the UK

Now that we have covered leaving the UK, let’s discuss the 4 cases of arriving in the UK. You will see many of the cases are the opposite of leaving the UK – makes sense!

If more than one of these cases apply to you then you will use the case that gives you the earliest split date.

Case 4 - starting to have a home in the UK only

For this to apply:

· You must qualify as UK resident for the tax year.

· You must have been non UK resident for the previous tax year.

· You have a home overseas at the start of the tax year and part way through the tax year, started to have a UK home and moved out of your overseas one.

· Relating to the period from the start of the tax year to when you had your UK home – you must not have sufficient UK ties to be tax resident (look at the UK sufficient ties tests). The number of ties to be tax resident is usually:

16 to 45 days – 4 ties required to be UK resident

46 to 90 days – 3 ties required to be UK resident

91 to 120 days – 2 ties required to be UK resident

Over 120 days – 1 tie required to be UK resident

However, we are only considering the period from the start of the tax year to when you had your UK home, so the days are pro rated depending on when you started to have a home in the UK. See link to HMRC website below.

https://www.gov.uk/hmrc-internal-manuals/residence-and-fig-regime-manual/rfig21150

Case 5 - you start working in the UK full time

For this to apply:

·         You must qualify to be UK resident in the tax year.

·         You must have been non UK resident in the previous tax year.

·         You must start working in the UK full time (minimum 35 hours per week) employed or self employed.

·         The work in the UK must span at least 365 days (as long as some days fall into this tax year).

·         Similar to the case above, with reference to the period from the start of the tax year until you start working in the UK - you can’t be UK tax resident using the sufficient ties tests (look at the UK sufficient ties tests).

The number of ties to be tax resident is usually:

16 to 45 days – 4 ties required to be UK resident

46 to 90 days – 3 ties required to be UK resident

91 to 120 days – 2 ties required to be UK resident

Over 120 days – 1 tie required to be UK resident

However, we are only considering the period from the start of the tax year to when you started working in the UK full time, so the days are pro rated depending on when you started to have a home in the UK. See link to HMRC website below.

https://www.gov.uk/hmrc-internal-manuals/residence-and-fig-regime-manual/rfig21170

Case 6 - you stop working full time overseas and return to the UK

For this to apply:

· You must qualify to be UK resident for the tax year.

· You must have been non UK resident in the previous tax year.

· You must be UK resident in the following tax year.

· You must stop working full time abroad and return to live in the UK.

· You must have been UK resident in at least 1 of the 4 tax years before you left to go and work overseas.

The below 3 points are relating to the period from the start of the tax year up until you stop working full time overseas. Depending on when arrived in the UK, there are limits on:

· How many days you can do more than 3 hours work in the UK.

· How many days you can spend in the UK.

· How many days between work overseas you are allowed, should you move jobs or stop working.

See table below from HMRC which shows these limits:

https://www.gov.uk/hmrc-internal-manuals/residence-and-fig-regime-manual/rfig21220

Case 7 - accompanying a partner who ceases full time overseas and return to the UK

For this to apply:

· You must have been living abroad with your partner while they were in full time employment overseas.

· Your partner must stop working full time abroad and return to live in the UK.

· You must return to the UK with them.

· You must be UK resident in the tax year.

· You must not have been UK resident in the previous tax year.

· Your partner must meet the criteria in case 6 either in the current tax year or the previous tax year.

· You must be UK resident in the following tax year.

Before arrival in the UK you must either:

· Not have had a UK home available, or;

· Have had a home in the UK but spent more days in your overseas home.

· Relating to the period before you return to the UK, you must not exceed the permitted limit of days spent in the UK. The permitted limit of days depends on when you left the UK. It’s the same fancy table as case 6 (see column Y). I’ve put the link below too.

https://www.gov.uk/hmrc-internal-manuals/residence-and-fig-regime-manual/rfig21220

Case 8 – You start to have a home in the UK

This case is similar to case 4. The difference being with case 8 you could still have your overseas home. Case 4 is if you move out/sell your overseas home.

For this to apply:

· You must be UK resident in the tax year.

· You must not have been UK resident in the previous tax year.

· You must have had no home in the UK at the beginning of the tax year and started to have one part way through the tax year continuing until the end of the tax year.

· You must have had your UK home for all of the following tax year.

· Relating to the period from the start of the tax year to when you had your UK home – you must not have had sufficient UK ties to be tax resident (look at the UK sufficient ties tests). The number of ties to be tax resident is usually:

16 to 45 days - 4 ties required to be UK resident

46 to 90 days - 3 ties required to be UK resident

91 to 120 days - 2 ties required to be UK resident

Over 120 days - 1 tie required to be UK resident

However, we are only considering the period from the start of the tax year to when you had your UK home, so the days are pro rated depending on when you started to have a home in the UK. See link to HMRC table below showing the number of days.

https://www.gov.uk/hmrc-internal-manuals/residence-and-fig-regime-manual/rfig21270

Conclusion

This may all seem complicated, but if you are moving to/from the UK from/to another country without going back and forth during the year, then it should be relatively simple (and you won’t need to use HMRC’s fancy tables!). I hope this guide was of some use to you. If you need any help in calculating if split treatment applies to you, feel free to get in touch at:

info@blueedgeaccountants.co.uk

Tom Luckett FCCA

Director of Blue Edge Accountants