Split Year Treatment And Non Resident Tax

If you’re not a full-time resident of the UK, new legislation from 6 April 2013 lets you split a tax year in two parts, under five different circumstances.

With split year treatment, if you arrive in or leave the UK partway through a tax year, you can be treated as a UK non resident for just part of the tax year.

Why should I apply for split year treatment?

In general, UK residents must pay tax in the UK on any income or gains worldwide. Non UK residents, however, pay tax only for income earned in the UK. While some specific circumstances can change, such as eligibility for the UK personal allowance, this rule is broadly the case.

With split year treatment, you are taxed as a UK resident only for the part of the tax year when you live in the UK. This means you’ll not have to pay UK tax on your income when you are a non-resident and earning money outside the UK.

What are the rules for split year treatment?

There are five circumstances that can qualify for split year treatment, each with certain conditions.

1. Beginning full-time work overseas

If you are leaving the UK to work full-time abroad, you can apply split year treatment if you pass the AOT full-time working abroad test. The treatment will then apply for the tax year in which you leave the UK provided that:

• You were a UK resident during the previous tax year.
• Your full-time work abroad will last until at least the end of the tax year during which you leave the UK.

In the following year, you must meet the third condition of the AOT for non-resident UK status by working abroad full-time (typically 35 hours a week), and being in the UK for less than 91 days, with less than 31 days working (in the UK, a ‘working day’ is working for more than 3 hours).

2. Partners of people working abroad full-time

If you are the spouse, partner, or civil partner of a person who meets the first circumstance above, you can apply split year treatment if you leave the UK to live with your partner, provided you:

• Were a UK resident during the previous tax year.
• Maintain an only or main residence outside the UK for the remainder of the tax years.
• Spend the permitted 90 days or less in the UK for the rest of the tax year.
• Remain a non UK resident for the tax year following your leaving the UK.

In this circumstance, you are considered a non UK resident beginning either the day you go abroad, or the day your spouse, partner, or civil partner starts working abroad full-time, whichever is later.

3. Leaving the UK permanently to live abroad

This circumstance applies if you are moving abroad, but not working full-time—for example, if you are retiring abroad. The conditions for this case are:

• You must be UK resident for the previous tax year and non-UK resident for the following tax year.
• Your home must be in the UK at the beginning of the tax year, but you must no longer maintain a home in the UK prior to the end of the tax year.
• Once you no longer have a home in the UK, you must spend less than 16 days in the UK for the remainder of the tax year.
• Within six months of the date when you do not have any home in the UK, you must a) have a home overseas, or b) become resident in another country for tax purposes, or c) be present at the end of each day in another country for six months.

4. Moving to the UK to live or work full-time

Under this circumstance, the conditions to meet split year treatment are:

• You were not a resident of the UK in the previous tax year.
• Your home was not in the UK at the beginning of the tax year, but was in the UK by the end of the tax year, and / or you started work in the UK during the tax year and continued through the end of the tax year.
• Prior to your non-resident status or having an only home outside the UK, you do not meet the Sufficient Ties Test (STT) to qualify you as resident.
• You meet the second or third test in the Automatic Residence Test (ART).

5. You now have a home in the UK

If you have recently started to have a home in the UK, you may qualify for split year treatment if you meet the following conditions:

• At the start of the tax year, you do not have a home in the UK.
• For the previous tax year, you were non-resident in the UK.
• For the following tax year, you are UK resident and not entitled to split year treatment.
• You did not meet the Sufficient Ties Test (STT) prior to acquiring a first home in the UK.