Split Year Treatment: Can it reduce your UK tax exposure?

If you have been a tax resident of the UK for some of the tax year, but for the remainder you were considered a UK non-resident you may be able to split the tax year into two parts and therefore only be liable for UK tax in the part you were considered a tax resident rather than the whole year.

In the UK, you would normally be considered a tax resident in the UK if you meet the criteria set out in the Statutory Residence Test. Under UK tax rules anybody who is tax resident in the UK is required to pay tax on their worldwide income and capital gains to the HMRC.

The major benefit to expats and non-UK citizens is significant if part of the tax year is spent in a country that has favourable tax rules, such as the UAE where you are not required to pay tax on your income.

For working expats, it is very common to be required to move abroad part way through the tax year either with their existing employment or for new work that requires them to live abroad. While there are many considerations that will determine when or where somebody works, the tax scenarios should not be ignored, and you may wish to investigate whether you would benefit from one of the scenarios that split year treatment can offer.

Careful tax planning when you have international mobility considerations can significantly reduce your tax burden in the UK and other countries. This article provides an overview of the UK's Split Year Treatment and how it might help you reduce your UK tax exposure, however it is written as a guide only and should not be used to make a decision.

If you would like to speak to a tax residency specialist, we can connect you with one of our trusted UK tax partners >

Conditions when split year treatment may apply

There are six scenarios where split year treatment may apply, and we have looked at these in order of commonality below.

Split year treatment: conditions for UK leavers

The first three conditions specifically deal with people who were considered tax resident of the UK at the start of the tax year (i.e. on 6^th April of any given year):

• If you begin full time work outside the UK
  If you work overseas for 35+ hours per week, spend fewer than 30 days working full time (i.e. more than three hours per day) in the UK and spend fewer than 91 days in the UK, you would be considered a non-resident based on the sufficient hours overseas test.

• Your partner begins to work full time abroad and you join them
  If your partner (someone you live with) qualifies as a non-resident due to the sufficient hours test and you are required to move abroad during the tax year, you may be able to benefit from split year treatment – providing you spend more time living in your overseas home and do not spend too much time in the UK (i.e. more than 90 days generally or 30+ days working).

• You cease to have a home in the UK
  If you move abroad during the tax year, no longer have a home in the UK and subsequently spend fewer that 16 days in the UK, split year treatment may apply to you. However, this is on the provision that you are either a tax resident of another country within six months or have your only home by the end of six months.

Split year treatment: conditions for people arriving in the UK

If you begin the UK tax year as a non-resident, and were considered UK non-resident for the previous tax year and move to the UK during the tax year, you may be able to qualify for split year treatment using any of the following conditions:

• When you begin working in the UK
  Probably the most common scenario for people entering the UK is when an individual arrives in the UK for full time employment during the tax year. This applies to people who were not considered a tax resident in the previous year and begin working 35+ hours a week long term (i.e. over a year).

• Stopped working overseas, or are the partner of someone who stopped working overseas
  If you were considered a tax resident in at least one of the previous five tax years, except the previous tax year, and were working full time abroad but then stopped working (and have spent a limited number of days in the UK while working abroad), you may benefit from split year treatment if you return to the UK. This is a relatively complicated scenario and therefore will probably require further detailed analysis of your situation to establish whether you could benefit.
  
  Similarly, if you were the partner of someone who stopped working overseas using the above criteria and then remain a tax resident of the UK, you may benefit from split year treatment. To qualify, you would also have to have no home in the UK or spent more time in your non-UK home and spent a limited number of days in the UK.

• Establish a home in the UK
  Similar to people who establish a home overseas, if you enter the UK and establish a home, remain a tax-resident in the UK for the following year and could not be considered a tax resident of the UK before you established your UK home, you may apply for split year treatment. If the UK home you establish is your only home, you are probably more likely to qualify as you will not have to be careful about how much time you spend in the UK to remain a tax-resident.

How to plan your tax residence status more tax efficiently using Experts for Expats

Knowing and planning your UK tax residence status is vital to ensure that you are not overpaying - or underpaying - UK tax and help you correctly apply Split Year Treatment to your situation.

Requesting help from one of our trusted UK tax partners will ensure you know your UK tax residence status and enable you to create a plan to minimise your exposure to UK tax through legitimate tax planning, including the application of Split Year Treatment.

Our free introduction service includes a free initial consultation with a UK tax specialist who can help you:

• Establish your current UK residency status, including recommendations on how you could reduce your UK tax exposure
• Understand and apply any relevant double tax treaties to legally minimise your tax obligations
• Identify opportunities to make your income and gains more tax efficient