The Statutory Residence Test (or SRT) determines an individual's UK tax residency. Under the SRT, an individual is either UK resident or non-UK resident for a full tax year (6 April to the following 5 April).
If an individual is UK resident under the SRT for a tax year, they would generally be taxable on their worldwide income and capital gains arising in that year.
In contrast, non-UK residents are only taxable on their UK income arising in that year (subject to certain exceptions. They usually do not pay UK CGT).
This means that an individual arriving in or leaving the UK could be outside of the UK for a significant part of the tax year and still have to pay UK tax on their worldwide income and capital gains for the entire tax year if they are UK resident for that year under the SRT.
Because of this, a provision in the UK tax system called ‘split year treatment’ may be available if an individual arrives in or leaves the UK during a tax year and certain specific conditions are met.
As the name suggests, this provision splits an individual’s tax year into two parts:
- A UK part , about which they are taxed as a UK resident (i.e. on their worldwide income and capital gains),
- An overseas part, about which they are taxed as a non-UK resident (i.e. on their UK income only and subject to exceptions, usually no CGT).
If the conditions are met, split-year treatment applies automatically.
How to qualify for split-year treatment
Split-year treatment is available for a tax year if an individual is a UK resident under the SRT for a tax year and their circumstances mean that they fall within one of the eight cases set out in the legislation.
In summary, the cases are:
Leaving the UK:
- Case 1: Starting full-time work overseas
- Case 2: Partner of someone starting full-time work overseas
- Case 3: Ceasing to have a home in the UK
Arriving in the UK:
- Case 4: Starting to have a home in the UK only
- Case 5: Starting full-time work in the UK
- Case 6: Ceasing full-time work overseas
- Case 7: Partner of someone ceasing full-time work overseas
- Case 8: Starting to have a home in the UK.
Each of these cases contains particular requirements that would need to be met for split-year treatment to be available.
There are also special rules if more than one case applies.
Split-year treatment example
Here is an example of how the split-year treatment could apply, providing eligibility criteria are met.
If an individual from overseas comes to the UK to start full-time work on the 1st of August 2023 and is a UK resident under the SRT, if they meet the conditions for case 5 (starting full-time work in the UK) to apply, they would be taxed as a non-UK resident from the start of the tax year (6th April 2023) until the day before they start full-time work (31st July 2023). From 1st August 2023 (the day they start full-time UK work) until 5th April 2024, they would be taxed as a UK resident.
Should you seek professional advice?
The split-year treatment rules are complex, and several factors must be considered when determining whether the conditions for the rules to apply have been met. Therefore, we recommend obtaining professional advice if you believe the rules may apply to you.
The Shorts team are happy to help with any questions you have about split-year treatment or any other issue relating to cross-border taxes for individuals.
Laura HayesView my articles
Tags: International Taxes