Split year tax treatment and why when you trigger a specific tax your residency is a vital tool in your tax planning.
In a world where tax residency determines what income is taxable in a country, the question of when you trigger a specific tax residency becomes a vital tool in your tax planning. In the United Kingdom, you become a tax resident if you spent 183 days or more in a tax year or have sufficient ties to the UK which could trigger residency in a shorter period of time.
What happens when you meet the requirements to be tax resident in the final half of the year? Is all your income earned in that year taxable in the UK?
What is Split Year Tax Treatment?
It is possible to split the tax year into periods of residence, where your income would be taxable in the UK, and non-residence, where your offshore income would be considered exempt.
This split is conditional on a list of outlined cases, which include whether you start or stop working abroad or whether you are joined by your partner (among other vital considerations).
Consider Jane, who moved to the UK in August 2024 and meets all the requirements for split year treatment:
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With split year treatment as a tax planning tool, Jane only pays tax in the UK on income earned after her arrival and not before. It is important to note that that UK income arising to UK non-residents is still taxable in the UK.
Plan Ahead
If you are planning a move to or from the UK, or earning income offshore, now is the time to review your residency status and explore whether split year treatment could benefit you.
Reach out to SAIL today for assistance if you are moving country.