Split-year treatment for employees leaving the UK can divide a UK-resident tax year into a UK part and an overseas part. It does not arise merely because an employee relocates, starts foreign payroll or becomes resident in another country. The statutory conditions must be satisfied for the departure year and, under Case 1, the employee must also establish the required non-resident status in the following tax year.
The departure date, employment start date and beginning of the overseas part may therefore be different dates.
Conditions for Split-Year Treatment for Employees Leaving the UK
Case 1 can apply where an individual begins full-time work overseas. The individual must be UK resident in the departure year, must have been UK resident in the preceding tax year and must be non-UK resident in the following tax year because they satisfy the third automatic overseas test. They must also meet the overseas work criteria for the relevant part of the departure year.
The full Case 1 split-year conditions are cumulative. Failure to satisfy the following-year condition can prevent Case 1 from applying even where the individual worked overseas for most of the departure year.
Split-year treatment is not an election that can simply be claimed when convenient. Where the statutory conditions are met, the residence position must be considered under the relevant split-year case.
The Overseas Part Does Not Always Begin on Departure
For Case 1, the relevant period begins on a day in the tax year when the individual performs more than three hours of work overseas and continues to the end of the tax year. Travelling overseas, obtaining accommodation or entering the foreign employment contract may occur earlier without starting the relevant period.
This distinction is important where an employee takes annual leave immediately after leaving the UK, completes UK duties remotely or does not begin substantive overseas work for several weeks. The employment commencement date shown by payroll records does not automatically determine the split date.
The employee must satisfy the sufficient-hours overseas test over the relevant period, have no significant break from overseas work, stay within the permitted number of UK days and avoid exceeding the separate limit for UK workdays involving more than three hours of work.
Split-Year Treatment for Employees Leaving the UK: Days and Workdays
The permitted limits reduce according to how late in the tax year the relevant period begins. Someone beginning overseas work in April can have a larger number of UK days and UK workdays than someone beginning in January or March.
The Case 1 permitted-limits table must be applied separately to days spent in the UK and days on which more than three hours of UK work are performed. A UK day does not automatically become a UK workday, and a UK workday counts even where the individual also works overseas on the same date.
Travel diaries should record the location at midnight, hours worked, nature of the duties and evidence supporting annual leave, sickness and non-working days. Reviewing only passport stamps is insufficient because the workday test concerns hours worked rather than border movements.
Overseas Employment Income Still Requires Allocation
Where split-year treatment applies, the individual remains UK resident for the tax year as a whole but is treated as non-resident during the overseas part for most Income Tax and Capital Gains Tax purposes. UK-source income can remain taxable during the overseas part, and employment income must be allocated according to the relevant earnings and duties rules.
Salary received after departure is not automatically foreign income. Bonuses, share awards, deferred remuneration, termination payments and payments covering duties performed in both parts of the year require separate analysis. The receipt date alone may not determine the taxable allocation.
Split-year treatment also does not determine treaty residence. The effect of a double taxation agreement must be considered separately, particularly where both countries regard the employee as resident during part of the year. HMRC’s split-year guidance confirms that domestic split-year treatment does not alter treaty residence.
Evidence Should Cover the Following Tax Year
The departure-year return may be filed before the following tax year has ended, but Case 1 depends on the eventual following-year result. Employment schedules, overseas working hours, UK visits and accommodation records should therefore be retained for both periods.
A foreign income tax return should reconcile the residence analysis with foreign salary, UK duties and any double-taxation claim. Where UK visits, remote work or delayed commencement put the overseas work test at risk, specialist tax advice should review the complete day-count and workday record before split-year treatment is claimed.
Disclaimer: This article is provided for general guidance only and does not constitute personal tax, legal or financial advice. The correct tax treatment depends on the specific facts, applicable legislation and HMRC practice at the relevant time. You should contact us for advice tailored to your circumstances before taking or refraining from any action.
