What is a Split Year?
A split year is an instance wherein the statutory residence test is applied to an individual who has become a UK resident—or ceased to be one—in the middle of a tax year. In such a scenario, the person is assumed to have been resident/non-resident for the entire year. But if certain conditions are satisfied, it is possible to divide the tax year into two parts—one where the person is a UK resident and is subject to UK taxes, and the other where they are non-resident and are liable to UK taxes.
When will split year treatment apply?
It is essential to identify which of the eight potential split year situations applies in order to figure out when to apply the split year treatment. Three of these cases revolve around taxpayers who were living in the UK during the year before the split year and the other five involve those who were not UK residents in the prior year. Once the proper split year scenario is ascertained, it is then necessary to determine the date for when the split year will take effect, which is not necessarily the date of the individual’s arrival or departure from the UK.
In order to be applicable for Cases 1 -3, one must have been a resident of the UK in the tax year in question, as well as the previous tax year and be non-resident of the UK in the upcoming tax year. On top of this, the following condition(s) must also be met for the specified Cases.
- be UK resident for the tax year in question
- be UK resident for the previous tax year
- be non-UK resident in the following tax year
In addition, the following condition(s) must also be met for the particular Cases:
Case 1 – starting full time work overseas
To qualify for the split year tax treatment, you must meet the ‘third automatic overseas test’ during the following fiscal year and meet the ‘overseas work criteria.’ Basically, you must have left the UK to work full-time abroad for a minimum of 35 hours per week on average, with only a limited amount of days spent in Britain (whether on leave or working) from the day of your departure and onward.
Case 2 – the partner of someone starting full time work overseas
If you and your partner were residing in the UK and your partner begins to work abroad full-time and meets the requirements of Case 1, you may be eligible for split year treatment if you follow them to the overseas destination. For the period of the fiscal year outside the UK, you must either not have a UK home at all, or else possess properties in both countries and spend more time in the foreign residence than the British one. Additionally, you must not stay in the UK for more than a maximum of 90 days during the entire year; this figure is reduced if you leave the UK at a point during the tax year.
Case 3 – ceasing to have a home in the UK
If you have been living in the UK and decide to move abroad, you may qualify for split year treatment. However, you must spend fewer than 16 days in the UK after you cease to have a UK home and become a resident of another country within a period of six months. Additionally, you must be present in that other country at the end of each day for six months or have your only home in that country within six months.
Arrivers – Individuals who were not UK resident in the previous tax year
For each of Cases 4 – 8 you must meet the following conditions:
- be UK resident in the tax year in question
- be non-UK resident for the previous tax year
In addition, the following condition(s) must also be met for the particular Cases:
Case 4 – starting to have a home in the UK only
If you begin to have your only home in the UK during a specific tax year, and you do not possess sufficient connections to the UK before the day on which you pass the only home test, you may be eligible to receive split year treatment for that tax year.
Case 5 – starting full time work in the UK
If you relocate to the UK for employment partway through a tax year, you might be eligible for split year treatment depending on whether you meet the ‘third automatic UK test’. This means that you must have worked in the UK for a minimum of one year with no significant gaps and must not have established enough ties with the UK to be considered a resident prior to meeting the test.
Case 6 – ceasing full time work overseas
If you have been employed abroad for a specified period of time and then return to the UK, split year treatment may be applicable, assuming you were a UK resident during at least one of the preceding four tax years preceding your non-resident year. Additionally, you must remain a resident of the UK throughout the tax year after your return and have met the ‘overseas work criteria’ over the time period before you ended your overseas job, consisting of a limited number of days spent in the UK as a portion of this period.
Case 7 – the partner of someone ceasing full time work overseas
If you migrate to the UK to be with your partner who is no longer employed outside the country, you may be eligible for split year treatment, if your partner’s situation meets the requirements of Case 6 (mentioned above). Moreover, you would have to be a UK resident for the upcoming tax year. During the period of the overseas part of the tax year, you should not have any dwelling place in the UK or if you do have houses in both the UK and overseas, you must have spent more time in the latter than in the former. Additionally, you should have spent a proportionate limited number of days in the UK during this time.
Case 8 – starting to have a home in the UK
If you start having a home in the UK during a particular tax year and you remain a resident of the UK throughout the following tax year, and you did not have a UK residence at the beginning of the tax year and you do not have enough ties to the UK that would make you a resident during the timeframe of April 6th to the point you begin having a home in the UK, you may be eligible for split year treatment.
For ‘Arriver’ cases, the amount of days for the ‘sufficient UK ties’ calculation will be reduced based on when you arrived in the UK, and if more than one Split Year Case applies, there are precise rules to decide which one is the priority. If none of the Split Year cases are met, then you will stay a resident of the UK for the complete tax year, and it may also be necessary to assess whether you are a dual resident for all or a portion of the year, and the Double Taxation Agreement with the other nation involved.
We have outlined the taxation rules for those entering or leaving the UK during the tax year, yet due to the intricate intricacies in the conditions, we were unable to include everything in this broad guide. Consequently, it is recommended that you seek personalized advice for your individual situation.
If you’re looking for Tax Accountants in Manchester, please feel free to contact us today