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July 1, 2022
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Don’t Leave without Saying Bye: Leaving the UK and Split-Year Treatment

What is Split-Year Treatment?

According to migration statistics in a Commons Library briefing paper published in May 2022, in the year ending June 2021, 334,000 people emigrated from the UK. When leaving the UK, careful consideration should be given to the Statutory Residence Tests (“SRT”). Under these tests, an individual will either be UK resident or non-UK resident for the tax year.

We have previously written a blog on the SRT which can be found here.

However, where an individual decides to leave or arrive in the UK during a particular tax year and meets the relevant conditions, their tax year will be split into two parts (which can have a number of crucial tax consequences):

  • The UK element where they will be taxed as a UK resident; and
  • An overseas element where they will be taxed as non-UK resident.

For these split-year treatments to apply, the individual needs to be UK resident in relevant tax year under the SRT and fall within any of Cases 1 to 8 set out in legislation.

Ultimately, the Cases that will apply depend on whether the individual is arriving or leaving the UK. If an individual is non-UK resident for the whole tax year, these split-year rules do not apply.

What are the implications of Split-Year Treatment?

The split-year rules apply for both income tax and capital gains tax.

Split year treatment is not an election. If an individual meets one of these Cases, it is not possible for them to choose whether the split-year treatment applies. It will apply automatically.

Please note that if an individual meets multiple cases, then then the priority goes to the superior Case number (e.g. Case 1 has priority over Case 2).

What are the cases?

This article will focus on those leaving the UK, i.e. Cases 1 to 3.

Case 1 – Starting Full Time Work Overseas

In order to meet this case, the individual needs to:

  • Be UK resident in the current tax year.
  • Be resident in the UK for the previous tax year (whether or not it was a split year) (i.e. the 2021/22 tax year as we are currently in the 2022/23 tax year).
  • Be non-UK resident in the following tax year by meeting the third automatic residence test (i.e. 2023/24 tax year as we are currently in the 2022/23 tax year).
  • Be able to satisfy all of the ‘overseas work criteria’ from the day they start working overseas to the end of the relevant tax year.

The ‘overseas work criteria’ is quite complex, but it includes that the individual works sufficient hours overseas in the ‘relevant period’, takes no ‘significant breaks’ from work and days spent in the UK and working in the UK do not exceed the ‘permitted limits’. The overseas part of the relevant tax year will start on the ‘first overseas workday’.

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

In order to meet this case, the individual needs to:

  • Be UK resident in the current tax year.
  • Be resident in the UK for the previous tax year.
  • Have a partner whose circumstances fall within Case 1 for the current tax year or previous tax year.
  • They have both been ‘living together’ in the UK in the current tax year or previous tax year.
  • During the relevant tax year, leave the UK to live with their partner whilst the partner works overseas.
  • Be non-UK resident for the tax year following the tax year of departure.
  • From the date of departure, the taxpayer has no home in the UK at any time or has homes in both the UK and overseas but spends the greater part of time in the overseas home.
  • Any days spent in the UK following departure are within the “permitted limit”.

Where Case 2 conditions are met, the overseas part will start from the ‘deemed departure day’.

Case 3 – Ceasing to have a home in the UK

In order to meet this case, the individual needs to:

  • Be UK resident in the current tax year.
  • Be resident in the UK for the previous tax year (whether or not it was a split year).
  • At the beginning of the relevant tax year have one or more homes in the UK and there is a day in the relevant tax year where they cease to have a home in the UK and not have one for the remainder of the tax year.
  • Be non-UK resident in the following tax year.

From the point the individual cease to have a home in the UK, they must:

  • Spend fewer than the necessary limits set out in legislation in the UK.
  • Within 6 months of ceasing to have a home in the UK, the individual needs to have a ‘sufficient link’ with the country overseas. This sufficient link could include becoming resident for tax purposes in that particular country or be present in the country at the end of each day for a 6-month period after ceasing to have a home in the UK.

If you have any queries on any of the information in this article, or need help with regards to split- year treatment and residency, please do not hesitate to contact a member of our team.

Disclaimer: This article is for general information only and is not intended to constitute individual advice. It is recommended that you seek independent tax advice before determining your split-year position and residency status.

Related Articles 

https://pd-taxconsultants.co.uk/deemed-domicile-for-uk-inheritance-tax/

Home and Away: An Overview of UK Tax Residence

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