Split Year Treatment for UK Expats
UK Expats relocating from the UK can enjoy split year tax savings under double taxation treaties.
You could potentially enjoy a full year’s personal allowances in two countries over the same year.
Here is an example of how this could work:
Annual earnings are £48k for a full year, and you relocate from the UK 3 months after the start of the UK tax year.
You effectively earned £12k during the 3 months you were located in the UK.
Split year treatment is applied, which means that the UK personal allowance of £12k is also applied.
No income tax applies on this amount, and any tax that you’d paid on the amount you earned whilst in the UK (assuming you were paid on the basis that it was considered you would be working in the UK for a year) means that a tax rebate may be due.
This could save £2,400 tax for basic rate tax payers. If you earn more and save 40%, tax the saving could be £4,800.
TIMING SPLIT YEAR TREATMENT
Split-year tax savings is dependent on the timing of your relocation date.
If you relocate at the start of the tax year, there is no income to offset against the new tax year.
Even if you have been in a country for a full 9 months since the start of the UK tax year in April, you could still apply a split year in relocation by applying the split year treatment on the following January 1st, to use the full UK personal allowances this year, and have 6 months to qualify as tax resident in your new overseas country, if that country has a calendar year tax year January to December.
TWO TIMES SAVINGS
Depending on the country in which you are splitting your time, this can be very effective in terms of tax savings. As an example, for an Expat Living and Working Abroad in Cyprus and applying a split year treatment, the UK £12k personal allowance plus CY £17k personal income tax allowance allows a total of up to £29k personal allowances across a 12 month period.
This can work in reverse also when returning to the UK. Timing is everything to avoid full year assessment, including overseas earnings rather split year treatment.
TO BE NON RESIDENT
To be considered fully non-resident and not subject to statutory resident test of ties, an Expat must be Living and Working Abroad for 3 FULL years. If not, split year treatment could be denied or reassessed.
The split year rules allow for the principle that the first and last year of Living and Working Abroad are split years if 3 full tax years are in-between. That is a 5 tax-year period of time.
In the worse case scenario, an 18 month contract could mean that split year tax savings are denied on travel out and on return.
Timing and preparation are everything!
ProACT FREE REVIEW
ProACT offer a free review online to help assess your situation and guide you on the steps to take for the best tax efficiency.
