Split Tax Treatment For UK Leavers

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The Split year treatment works in the UK under different conditions and strategies. This rule is generally for the expatriates leaving during the tax year or returning to the country during the year.  This also applies to the individuals who enter or leave the country due to marriage during the tax year. 

So this system is arranged In order to facilitate the people to enhance the features of convenience, certainty, and economical aspects of the tax system. Therefore it is important to be more specific with the conditions for all the expatriates who fall under the taxation procedures.  If not, unnecessary burdens are recreated among the people causing inefficiency in the economy. 

There are numerous people leaving or returning during each tax year. Basically, people will tend to apply for the Split year treatment but they are automatically activated when they arrive in the United Kingdom or leave the country. The tax professionals of the country work with due concern for this purpose. You can study the basics and the required knowledge through the following content about split tax treatment in the UK. 

Despite the Statutory Residence treatment and ex-pat tax, this particular initiative will support and ease the foreign movement of the UK and non-UK residents. This is done in two different ways.

1. UK residents – Payments of tax on earnings, gains and investments
2. Separate taxation conditions for non-UK residents

Therefore these categories and the procedures relevant to those automatically began when they choose to travel during the tax year. 

There are various personal circumstances created and influenced when these split year rules are implemented on people but at that cause, the situations are arranged according to the priority and not according to the desire. Hence it is important to check the residency of the person in the UK during the part of the tax year. 

Application of Split Year Treatment

The rule divides into 8 sets of rules 

• Three for ex-pats leaving the UK during the tax period
• Five for those who are returning the UK during the tax period

So as said before when the ex-pats fall under more than one case of the above, that’s when the priority system falls.

Example: Case one will be prioritized before case 2 and case 3

When considering those who leave and their priority system works, 

Source: HMRC

For Cases 4-8, the split year date is the final day of the overseas part of the year. 

All different 8 cases can be differentiated as follows which will explain how any person can fall under any of the conditions. 

Case 01: Beginning to work full-time overseas

The basic conditions to look after under this case are,

• Have to be a UK resident during the tax year and before
• Should make sure that they are a non-UK resident in the following tax year to facilitate the Statutory Resident Test
• Following the relevant period overseas work rules of the UK 

These overseas work rules are considered to be, 

• A full-time overseas job during the stated period
• No any long breaks/ holidays during the period
• No jobs done more than 3 hours in the UK during the time
• Has spent only a certain less number of days during the period.

The following also should be taken into consideration,

1. The HMRC will keep on monitoring the above conditions when working full-time overseas.
2. There will be a sufficient hour test conducted in the below manner

• Counting the disregarded days
• Counting the hours worked overseas
• Calculating the relevant period
• Calculating the sufficient hours
• Finding the final score

Also, the treatment recognizes the conditions of people being unemployed during the time period. But there are few situations that can be looked at as appropriately exceptional cases,

1. Random gap spent as unemployed
2. Number of days spent not working is deducted

This is not applicable to self-employed individuals.

Generally, there is a 15-30 days limitation available in calculating this unemployed gap. 

Case 02: Partners of ex-pats flying to work full-time overseas (civil married partners or partners living together)

To fall under this case,

• Have to be a UK resident during and the year before the Split year treatment
• A non-UK resident after following the split tax treatment year
• Having a partner of someone who falls under the qualifications of Case 01
• Moving overseas with a partner who’s working full-time overseas

During this time of consideration, they cannot have a home in the UK, if they have both in the UK and overseas they should spend living more overseas.

Case 03: No shelter

This is exclusively for the ex-pats who left the UK and have no home in the country. 

The conditions are, 

• Have to  be a non-UK resident for the tax year following the split year
• Should have had one or more homes at the beginning of the tax and lost/didn’t have in the rest of the period.

During this period they are supposed to stay only less than 16 days in the UK and should become a resident in another country within 6 months/have their home in that country within 6 months/stay overnight in that country within 6 months

Now let’s look on to the situations where the individuals returning to the UK,

Case 04: Returning to a home in the UK

The conditions are, 

• UK resident for part of the tax year
• Non-UK residents in the previous tax year 
• The Case 4 accommodation tie applies to someone who does not have somewhere to live in the UK  at the start of the split year, but finds a home during the year and meets the following conditions until the end of the split year:
• The accommodation is available for them to live in for 91 days or more during the tax year

And

• They spend one or more nights there during the year
• They stay at the home of a close relative for 16 or more nights during the year

Close relatives are parents, grandparents, brothers, sisters, or grandchildren aged 18 or over. The definition includes full and half-blood relatives and adopted children.

Gaps in availability of 16 days or less count as available accommodation.

Expats only meet the accommodation tie if they have gone home and that home is in the UK or, if they have more than one home, all their homes are in the UK.

• Fail the sufficient ties test for the part of the split year before the day that they met the accommodation tie. 

When working out if they have sufficient UK ties in this part of the year, they should reduce the day count limits in the sufficient ties tables with the values 

The part of the tax year is the period from the end of the overseas part until the end of the tax year.

HMRC worked example of Case 4 Split Year Treatment

Case 05: Beginning to work full time in the UK

Along with the Statutory Residence Test, an ex-pat may receive Split Year Treatment for a tax year if they start working full-time in the UK, and they meet the Statutory Residence Test third automatic UK test for 365 days in a row. 

If the rules are met in two or more periods, then the UK part of the split year will run from the start of the first period.

Returning ex-pats must be:

• UK residents in the tax year
• Non-UK resident for the previous tax year
• Not pass the Statutory Residence Test sufficient ties test for the part of the tax year before the day they meet the third automatic UK test when they are considering whether they have sufficient UK ties.

For this part of the year, they should change day count limits in the sufficient UK ties tables with the Case 4 Days v Ties Split Year Treatment adjustment table above

For case five, the overseas part of the tax year starts on April 6 and ends when the ex-pat first meets the Statutory Residence Test third automatic UK test by working full-time in the UK.

HMRC worked example of Case 5 Split Year Treatment 

Case 06: Left the full-time work overseas

So the people who were technically non-residents in the UK during the year before the tax year left their full-time work while being overseas during the tax period.

They must be:

• UK resident for the tax year in question
• Non-UK residents for the tax year before the tax year in question because they either:
• Satisfied the third automatic overseas test for that year

Or

• UK residents for at least one of the four tax years before the year in which they were non-residents under the old rules. 
• UK resident in the tax year following the year in question
• Meet the overseas work rules for a relevant period

Case 07: Calculating if an ex-pat has worked full-time overseas in the relevant period

The individual needs to apply the sufficient hours overseas calculation to the relevant period, but the maximum number of days for subtraction from the reference period for gaps between jobs reduces from 30 days to the limit laid out.

Case 08: Split year treatment for partners of ex-pats giving up full-time work overseas

If an ex-pat stops working full-time overseas and returns to the UK, their partner may qualify for Case 7 Split Year Treatment.

They must be:

• UK resident for the tax year
• Non-UK residents in the previous tax year
• The partner of an ex-pat who qualifies for Case 6 Split Year Treatment in the tax year in question or the previous tax year
• Moving to the UK so they can live together with their partner on their return to the UK
• UK resident in the year following the split year
• In the part-year before their deemed arrival either:
• Not have had a home in the UK

Or

• If they have had homes in the UK and overseas, they spend the greater part of the time living in the overseas home
• Not spend more than the allowed number of days in the UK during the overseas part of the split year

HMRC worked example of Case 7 Split Year Treatment

Case 09: Starting to have a home in the UK

If an ex-pat has no UK home but during a tax year set up a home in the country, they may qualify for split year treatment under Case 8 rules.

To do so, they must be:

• UK residents in the tax year
• Non-UK resident for the previous tax year
• UK resident for the following tax year but this must not be a split year
• Not have a home in the UK on April 6 in the year in question, but move to a UK home during the tax year and continue to have the UK home for the rest of the tax year and the following tax year
• Tied to the UK so they are the UK from April 6 to when they have the UK home – but they should reduce the day count limits in the sufficient ties tables by substituting values from the Case 4 adjustment table 

HMRC worked example of Case 8 Split Year Treatment

Non-residents are subject to US tax on income from US sources. US-source income that is not effectively connected with a US trade or business (generally investment income) is taxed on a gross basis at a flat 30-per cent rate unless a treaty provides for a lower rate. A non-resident engaged in a trade or business within the United States during the taxable year is taxed on the income effectively connected with the US trade or business, less allowable deductions, at the same graduated rates that apply to the income of citizens and residents. Generally, income effectively connected with a US trade or business includes compensation for personal services performed in the United States.

A foreign national who changes from US resident status to non-resident status or vice versa during a year (a dual-status taxpayer) is subject to US tax as if the year were divided into two separate periods, one of residence and one of non-residence. The dual-status foreign national is generally subject to tax on worldwide income for the period of residence, and only on US-source income for the period of non-residence.

Under domestic law, if a non-resident is in the United States for 90 days or less during a calendar year, performs services for a foreign employer that is not engaged in a US trade or business, and earns 3,000 US dollars (USD) or less for such US services, the compensation is treated as a foreign source and is not subject to US tax. Most treaties provide broader exemptions from US tax for earned income, allowing a higher, or no, limit if the non-resident is present in the United States for no more than 183 days during a 12-month period, provided certain requirements are met.

Federal income tax rates range from 10 per cent to 37 per cent.