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UK tax resident split year

simon

Simon Misiewicz

3rd February 2021

Split years when moving to or from the UK – Case 1: Overseas criteria

You may be interested in our main Article on UK Tax status if you are looking to move to the UK or from the UK. You may also be interested to know more about our property tax services if you are looking to invest in the UK buy to let properties market.

You may be reading this article because you are either moving to the UK or moving from the UK. Either way you need to be aware of the various tax laws surrounding your residency. We have written a separate article that focuses on your movement and whether or not you are to become a UK tax resident.

This article focuses on you moving to or from the UK during the fiscal tax year that starts 6th April to the following 5th April.

You may have either

– Moved to the UK or
– Moved away from the UK

Whatever your situation, it is possible to have a split-year treatment to your taxable income. The tax year can be split if the taxpayer leaves the UK for the purposes of working abroad.   The overseas part of the tax year will start on the first overseas workday. FA 2013, Sch 45 para 44

However, you need to be a UK tax resident for you to benefit from the split year treatment or does not meet the overseas work test (see above for more details).

A split tax year means that the time you work and live in the UK based on the UK tax residence system decreases over the fiscal tax year. This means that you can still work or live in the UK without you being a UK tax resident.

– April – you can work 30 days / live 90 days in the UK
– May – you can work 27 days / live 82 days in the UK
– June – you can work 25 days / live 75 days in the UK
– July – you can work 22 days / live 67 days in the UK
– August – you can work 20 days / live 60 days in the UK
– September – you can work 17 days / live 52 days in the UK
– October – you can work 15 days / live 45 days in the UK
– November – you can work 12 days / live 37 days in the UK
– December – you can work 10 days / live 30 days in the UK
– January – you can work 7 days / live 22 days in the UK
– February – you can work 5 days / live 15 days in the UK
– March – you can work 2 days / live 7 days in the UK

The deemed departure day is the later of:

– the day an individual joins their partner to live together overseas
– the day which is the first day of the overseas part of the year under Case1 for their partner.

Split years when moving to or from the UK – Case 2: Partner starts work overseas

Like the case above, your husband/wife or civil partner can work abroad, and you are also deemed, non-UK tax resident. This is by the fact that they are non-UK tax resident because they meet the first condition (as above).

For the husband/wife or civil partner to benefit, they must be:

– UK tax resident in the previous tax years
– Non-UK tax resident in the forthcoming tax years
– Live with the husband/wife or civil partner from case 1
– Move abroad with their husband/wife civil partner

Split years when moving to or from the UK – Case 3: ceasing to have a home in the UK

Someone that was previously a UK tax resident can still benefit from a split year treatment if they cease to have a home in the UK and have a home abroad.  The overseas part of the tax year will start on the day on which the individual ceases to have a UK home. FA 2013, Sch 45 para 46

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

– spend fewer than 16 days in the UK
– in relation to a particular country, either:
– become resident for tax purposes in that country within 6 months
– be present in that country at the end of each day for 6 months, or
– have their only home, or all their homes, if they have more than 1, in that country within 6 months

Split years when moving to the UK – Case 4: Live in a UK home

Someone living abroad can benefit from the UK residence if they, during a tax year, start to have a UK home. The person must be:

– Non-tax resident in the previous tax year
– Tax resident in the tax year in question
– Have a UK home only part way through the tax year
– Do not meet the sufficient ties test as mentioned above.

Split years when moving to the UK – Case 5: Full time work in the UK

Someone living abroad can benefit from the UK residence if they, during a tax year, start a full time job in the UK. The person must meet the third automatic UK residence test of working in the UK.

The person must also meet the bullet points list in the previous section “Case 4: Live in a UK home”

Split years when moving to the UK – Case 6: Ceasing full time work abroad

A person can still claim UK residence under the spit year rules if they cease to work abroad and:

– Been a UK tax resident in one of the last four years
– meets the third automatic UK residence test of working in the UK.
– meets the bullet points list in the previous section “Case 4: Live in a UK home”
– was not a UK resident in the last tax year because they met the automatic overseas test for working abroad.

Split years when moving to the UK – Case 7: Husband/wife or civil partner ceasing full time work abroad

Similar to “Case 6: Ceasing full time work abroad” the husband, wife or civil partner of the person that ceases to work full time abroad also benefits from the split year tax treatment.

To gain this split year tax treatment, the person in question must:

– Be UK tax resident in the year in question and following tax year
– Not be a UK tax resident in the previous year
– Have a partner that met the conditions required in case 6 (see above)
– Live together with the husband, wife, or civil partner in the UK and abroad
– They spent more time in their home abroad than their UK home in the tax year in question
– Not exceed the permitted number of days either living or working in the UK

Split years when moving to the UK – Case 8: Starting to have a home in the UK

It is possible to benefit from the split tax year treatment if they start to have a UK home part way through the tax year. The split year tax treatment will be given if they are:

– UK resident in the tax year in question and for the forthcoming tax years
– Not a UK tax resident in the previous year
– Have no UK home at the beginning of the tax year but to have a UK home part way through the tax year
– Do not meet the sufficient ties test

Can you be a resident in 2 countries?

It is possible to be a tax resident in two different countries. This is the pitfall of not planning when you move to or from the UK to a foreign country. This could mean that you pay tax in two different countries.

Being resident in two counters is also known as dual residence.

Worse still you may have to pay tax in two countries on your worldwide income without any tax credits for the tax you paid in one or more other countries.

The IRS work on a calendar tax system from 1st January to 31st December. The UK use a fiscal tax system that starts 6th April to the following 5th April.

You would be tax resident in the US if you lived there for 183 days. For example,

Sarah lived in the United states until 5th July. This means she would have exceeded the 183 day limit and would be subject to IRS tax on her worldwide income. She moved to the UK and bought a home. Sarah moved into the UK from 6th July to following 5th April for tax purposes.

That means that she was in the UK for 274 days. She is deemed to be UK resident as she is in the UK for more than 183 days.

This means that she must complete two tax returns. One to the IRS in the united states and the other to HMRC in the United Kingdom. Fortuitously there is a double taxation agreement in place whereby the IRS will provide certain tax credits on her UK income.

The above is slightly more complex as the IRS in the United States look back at different tax years to get the average 183 days. For this example, we kept to the basics. It is important to work with Optimise Accountants to understand if you are tax resident in the UK or indeed countries like the United States, Hong Kong etc

Capital Gains Tax for non UK residents

A capital gain may be taxed in the UK when you sell an asset such as a buy to let property investment. There have been many Capital Gains Tax changes since 2015 for people leaving the UK and making a taxable gain.

You will still be subject to UK Capital Gains irrespective of where you live. This is of course if the asset you are selling is situated in the UK.

UK tax residence and Inheritance Tax

You need to consider Inheritance Tax law in the UK. You are deemed to be domiciled in the UK. Someone that lives in the UK for more than 15 years of the last 20 years will be deemed domiciled for inheritance tax purposes.

This means that your world-wide assets could be subject to UK inheritance tax law. You need to take tax advice from Optimise Accountants if you are not sure how Inheritance Tax (IHT) could affect your global assets.

We have written another article about basic tax planning tips when it comes to IHT. This is certainly worth a read if you are unsure what IHT is.

How does this affect our American readers.

You may be an American moving from the United States to the United Kingdom. I hope the above has helped you understand a little more about the UK tax system.

You may be an American that is moving out of the UK. It is important for you to understand how long it takes you to become a Non Uk tax resident. Do not forget that you will still need to file a UK tax return to HMRC for the rental income that you derive from UK buy to let properties.

You may also be a British citizen that is looking to move to the United States. Purser Tax has some useful articles to help you understand if you are to become a US tax resident. You will need to obtain an ITIN number which is the same as a UTR but for the IRS tax system.

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