The amount of UK tax you pay is based on your UK residence and domicile status. If you’re non-resident your exposure to UK Income Tax and Capital Gains Tax is limited. As a result, the date you become non-resident is significant. And if you move to the UK, the date you become UK tax resident is also significant as, from that date, you may be exposed to UK taxation on your worldwide income and gains as they arise.
- Whilst you’re non-UK resident, and provided various conditions are met, you’ll only be charged UK Income Tax and Capital Gains Tax on income you earn in the UK or gains made selling UK land and property.
- When you’re UK resident and domiciled in the UK you’ll face tax on your worldwide income and gains.
- If you’re UK resident and aren’t domiciled in the UK you’ll be taxed on your UK income and gains as they arise. Your overseas income and gains can be excluded from UK tax provided various conditions are met.
Split year treatment works to divide the year into separate periods – one where you are resident in the UK and the other where you are non-resident. Generally, you pay less UK tax when you are non-UK tax resident, so being able to become non-resident earlier than the end of the tax year or delaying becoming a UK resident until a later date may help to reduce your UK tax bill.
What is a split year?
A split tax year separates a UK tax year into two distinct periods. For example, if you moved back to the UK from Dubai in September and met the conditions for split year treatment to apply, you’d only pay UK Income Tax on your worldwide income for the period of time from your return until the end of the tax year the following April.
When does split year apply?
Split year applies in particular circumstances. This is a complex area of tax planning and is governed by the Statutory Residence Test. The test allows you to ‘split’ a tax year into separate parts when leaving or move to the UK – one when you were UK resident and one when non-resident.
The rules allow the tax year to be split in different situations or ‘cases’, each with their own specific criteria.
What are the split year treatment cases?
There are eight cases in which split year treatment can be used. The three cases in which split year treatment can apply when leaving the UK are:
- When starting ‘full-time’ work overseas
- When accompanying a partner who has started work ‘full time’ overseas
- When leaving the UK to live abroad and ceasing to have any home in the UK
The criteria when leaving the UK is strict to ensure a distinct break is made. Expert advice is vital, as the rules are very specific. For example, it might feel natural to think that leaving the UK for a job overseas would allow a split year treatment. But you must have been UK resident in the previous year, your work overseas must be considered ‘full time’ and any visits made to the UK after departure have to remain within certain limits for a split year to apply.
The five circumstances when a tax year can be split when arriving in the UK are:
- When coming to live in the UK and establishing your only home here
- When starting to work ‘full time’ in the UK
- When ceasing ‘full-time’ work overseas and coming to live in the UK
- When accompanying a partner who has returned to the UK following a period of full-time work overseas
- When starting to have a home in the UK
Again, expert advice is essential. It’s important to know that the timing of the split in the tax year is not necessarily linked with your physical arrival in the UK and you might find yourself resident before even setting foot in the UK!
For example, if you plan to relocate to the UK with your only overseas property sold, and you already have a home in the UK, you’ll trigger UK residency from the date you start to have your only home in the UK. This might draw you into UK tax liabilities on your worldwide income and gains sooner than you intended. If you live overseas, but spend time in the UK, understanding the Statutory Residence Test is essential – again you might find yourself unknowingly resident by continuing to have specific ties here.
It’s important to seek advice from a professional to give you peace of mind in this complex area of tax planning. Our team of experts can help you understand your exposure to UK tax so please contact your nearest office to discuss your own situation.
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