What is Split Year Treatment and How It Works When You Arrive in the UK
Normally, the tax status of an individual is fixed for the entire tax year. However, in certain situations, the tax year can be divided into two parts: one where the individual is considered a UK resident (UK part) and another where they are considered a non-resident (overseas part).
What is split year treatment in the UK?
Split year treatment allows individuals moving to the UK to divide the tax year into non-resident and resident periods. When filing a non UK resident tax return, this ensures they are taxed only on UK income earned after becoming a resident.
Let’s Discuss a Scenario: Split Year Treatment on Arrival
Emma moved to the UK on 1 September 2024 to start a new job in London. Before her move, she was living and working in Canada. Emma qualifies for split year treatment from the date of her arrival in the UK.
Emma’s residence position for the tax year 2024/25 will be treated as follows:
- Non-resident period: From 6 April 2024 to 31 August 2024, Emma will be considered a non-resident in the UK. During this time, any income earned from a hr job in Canada or other foreign sources will not be taxable in the UK.
- Resident period: From 1 September 2024 to 5 April 2025, Emma will be treated as a UK resident for tax purposes. Any income earned after her arrival in the UK, including her salary from her new job in London, will be subject to UK tax.
For example, if Emma earned £15,000 in Canada between 6 April 2024 and 31 August 2024 and £40,000 in the UK after 1 September 2024, only the £40,000 will be subject to UK tax for the 2024/25 tax year.
This split year treatment allows Emma to avoid being taxed in the UK on income earned before her arrival, minimizing the potential for double taxation.
Arriving in the UK
For the split year tax treatment to apply, the individual must be a UK resident in the current tax year and not a UK resident in the previous year, according to the automatic residence tests or sufficient ties tests. The individual must also arrive in the UK partway through the current tax year for one of the following reasons:
1. Acquires a UK home
An individual may qualify for split-year treatment in a tax year if they established their only home in the UK, provided they did not have sufficient UK ties to be considered a UK resident for the rest of that tax year.
UK part begins from the date the UK home is acquired.
2. Begins working full-time in the UK
An individual begins working full-time in the UK for a continuous period of at least 365 days and does not have sufficient ties to be considered a UK resident before their arrival.
The UK part begins from the date work starts in the UK.
3. Ceases work abroad and returns to the UK
If an individual returns to the UK after a period of full-time work abroad, split-year treatment may apply, provided they were a UK resident in one or more of the four tax years immediately before the year of non-residence. Therefore, the five years leading up to the relevant year must be considered. Additionally, the individual must remain a UK resident throughout the following tax year.
UK part begins from the date the individual stops working overseas.
4. Accompanies or later joins a partner in the UK to continue living together
If an individual moves to the UK to join their partner who has finished working full-time abroad, they may be eligible for split-year treatment, and the person will continue to reside in the United Kingdom for the subsequent tax year.
UK part begins from: Later of date, the partner stops overseas work or the date when you join partner in the UK.
For more guidance, visit HMRC manual.
Does split-year treatment apply to capital gains?
Yes, split-year treatment applies to the capital gains. Capital gains tax is applicable only to gains arising in the UK part of the year. However, this may not apply to gains from UK land and property or cover temporary non-residence rules.
Split-year treatment is a provision for individuals who move to the UK partway through a tax year, allowing them to be taxed only on income and gains accrued from the date they become UK residents. This treatment simplifies tax obligations for those transitioning to UK residency, preventing double taxation on income earned before establishing UK residency.
Bottomline
Split year tax treatment can help you save on taxes when you move to the UK. It lets you divide the tax year into two parts: one where you're not a UK resident and another where you become a UK resident. This way, you only pay UK taxes on the income you earn after becoming a resident.
Taxd can provide expert advice to help you understand and make the most of this process, ensuring you follow the rules and get the best tax benefits.
If you want to learn about spilt year treatment when leaving the UK, check out this post: Understanding the split year basis: What to know when leaving the UK.
FAQs
1. Who is eligible for split year treatment?
Eligibility depends on various factors, including your arrival date, your intention to stay in the UK, and whether you meet specific conditions related to employment, home acquisition, or family relocation.
2. How do I apply for split year treatment?
Split year treatment is automatically applied if you meet the necessary criteria. However, you need to report your circumstances accurately on your self assessment tax return.
3. What income is taxed under split year tax treatment?
Only income earned during the UK resident part of the split year is subject to UK tax. Income earned before your arrival in the UK remains non-taxable in the UK.
4. Can I still claim split year treatment if I work abroad?
Yes, you may still be eligible for split year treatment if you work abroad, provided you meet the specific conditions for splitting the year, such as having a UK home or having your family relocate to the UK.
