Example 1: Leaving the
Mary Putt,
who has lived in the
Is the tax
year 2015-16 a split year for Mary?
Example 2: Arriving
in the
Helen Putt
has been working overseas for the last ten years and returns to the
Is the tax
year 2015-16 a split year for Helen?
Where a tax year qualifies as a split year, an individual is treated as resident for part of that tax year (referred to as the UK part of the tax year) and non-resident for the other part (referred to as the overseas part of the tax year).
Leaving the UK
Leaving the UK, per se, is not sufficient to give rise to a split year. The detailed conditions of one of each of two ‘cases’ need to be satisfied. Broadly, case 1 requires an individual to leave the UK to start full-time work overseas, and case 3 requires that an individual ceases to have a home in the UK (case 2 relates to a spouse of the individual).
Thus, Mary Putt in Example 1 may well satisfy case 1 (and possibly case 3 as well), in which case she will be treated as resident for the period 6 April 2015 to 10 November 2015 (UK part) and non-resident for 11 November 2015 to 5 April 2016 (overseas part).
Arriving in the UK
Similarly, arriving in the UK, per se, is not sufficient to give rise to a split year. Split year treatment applies if the detailed conditions of one of each of four cases are satisfied. Case 4 requires an individual to start to have a home in the UK only; case 5 requires starting full-time work in the UK; case 6 requires ceasing full-time work overseas; and case 8 requires starting to have a home in the UK (case 7 relates to the spouse of the individual).
Thus, Helen Putt in Example 2 may well satisfy case 5 (and possibly one or more of the other cases) in which case she will be treated as non-resident for the period 6 April 2015 to 30 November 2015 (overseas part) and resident for 1 December 2015 to 5 April 2016 (UK part).
Implications of split year treatment
Where a tax year is a split year, an individual is subject to income and capital gains tax with respect to income and gains arising in the UK part of the tax year, but not so subject with respect to income and gains arising in the overseas part of the tax year.
So Mary (in Example 1) is subject to income tax on, for example, any salary arising in the period 6 April 2015 to 10 November 2015, but not subject to income tax on any salary attributable to the period 11 November 2015 to 5 April 2016 (assuming she works overseas). If she also makes a capital gain on 1 January 2016 it will not be subject to capital gains tax (overseas part).
Helen (in Example 2) is not subject to income tax on, for example, any salary arising in the period 6 April to 30 November 2015 (assuming she works overseas) but is subject to income tax on any salary attributable to the period 1 December 2015 to 5 April 2016. If she also makes capital gains on 1 October 2015 and 2 December 2015 the first gain will not be subject to capital gains tax (overseas part) but the second gain will be subject to capital gains tax (UK part).
Failure to obtain split year treatment
If on arriving or leaving the UK none of cases 1 to 8 can be satisfied, then the tax year cannot qualify as a split year. In that case, the income and capital gains for the whole of that tax year are subject to income and capital gains tax. Thus, for Mary, income and gains arising after she has left the UK fall within the UK tax net and, for Helen, income and gains arising before she has arrived in the UK fall within the UK tax net. Such consequences could prove very expensive in tax terms.
It may seem that to satisfy one of the above cases must not be difficult; however, this is certainly not so. For example, a returning long-term expat may assume that satisfaction of case 6 (see above) should be straightforward. Unfortunately, case 6 does not apply where an individual has been non-resident for the previous five tax years.
Practical Tip:
As split year treatment is not automatic, make sure before leaving or arriving in the UK that the tax year of departure/arrival will qualify for split year treatment; adjust dates or departure/arrival where necessary.
