Finance (No. 2) Bill

Session 2012 - 13
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Finance (No. 2) Bill

Finance (No. 2) Bill
Schedule 43 — Statutory residence test
Part 3 — Split year treatment
515

      (3)
There is at least one period (consisting of one or more days) that—
(a)
begins with the first day of the relevant year,
(b)
ends with a day that—
(i)
falls within the relevant year, and
(ii)
is a day on which the taxpayer does more than 3 hours’ work
5
overseas, and
(c)
satisfies the overseas work criteria.
      (4)
The taxpayer is resident in the UK for the next tax year (whether or not it is
a split year).
      (5)
A period “satisfies the overseas work criteria” if—
10
(a)
the taxpayer works sufficient hours overseas, as assessed over that
period,
(b)
during that period, there are no significant breaks from overseas
work,
(c)
the number of days in that period on which the taxpayer does more
15
than 3 hours’ work in the UK does not exceed the permitted limit,
and
(d)
the number of days in that period falling within sub-paragraph (6)
does not exceed the permitted limit.
      (6)
A day falls within this sub-paragraph if—
20
(a)
it is a day spent by the taxpayer in the UK, but
(b)
it is not a day that is treated under paragraph 23(4) as a day spent by
the taxpayer in the UK.
      (7)
To work out whether the taxpayer works “sufficient hours overseas” as
assessed over a given period, apply paragraph 14(3) but with the following
25
modifications—
(a)
for “P” read “the taxpayer”,
(b)
for “year X” read “the period under consideration”,
(c)
for “365 (or 366 if year X includes 29 February)” read “the number of
days in the period under consideration”, and
30
(d)
in paragraph 28(9)(b), as it applies for the purposes of step 3, for “30”
read “the permitted limit”.
      (8)
The permitted limit is—
(a)
for sub-paragraphs (5)(c) and (7)(d), the number found by reducing
30 by the appropriate number, and
35
(b)
for sub-paragraph (5)(d), the number found by reducing 90 by the
appropriate number.
      (9)
The appropriate number is the result of—

where—
  “A” is—
40
(a)
30, for sub-paragraphs (5)(c) and (7)(d), or
(b)
90, for sub-paragraph (5)(d), and
“B” is the number of whole months in the part of the relevant year after
the 365-day period in question ends.

Finance (No. 2) Bill
Schedule 43 — Statutory residence test
Part 3 — Split year treatment
516

Case 7
50    (1)
The circumstances of a case fall within Case 7 if they are as described in sub-
paragraphs (2) to (6).
      (2)
The taxpayer was not resident in the UK for the previous tax year.
      (3)
The taxpayer has a partner whose circumstances fall within Case 6 for—
5
(a)
the relevant year, or
(b)
the previous tax year.
      (4)
On a day in the relevant year, the taxpayer moves to the UK so the taxpayer
and the partner can continue to live together on the partner’s return or
relocation to the UK.
10
      (5)
In the part of the relevant year before the deemed arrival day—
(a)
the taxpayer has no home in the UK at any time, or has homes in both
the UK and overseas but spends the greater part of the time living in
the overseas home, and
(b)
the number of days that the taxpayer spends in the UK does not
15
exceed the permitted limit.
      (6)
The taxpayer is resident in the UK for the next tax year (whether or not it is
a split year).
      (7)
If sub-paragraph (3)(a) applies, the “deemed arrival day” is the later of—
(a)
the day mentioned in sub-paragraph (4), and
20
(b)
the first day of what is, for the partner, the UK part of the relevant
year as defined for Case 6 (see paragraph 54).
      (8)
If sub-paragraph (3)(b) applies, the “deemed arrival day” is the day
mentioned in sub-paragraph (4).
      (9)
The permitted limit is the number found by reducing 90 by the appropriate
25
number.
     (10)
The appropriate number is the result of—

where—
  “A” is 90, and
“B” is the number of whole months in the part of the relevant year
30
beginning with the deemed arrival day.
Case 8
51    (1)
The circumstances of a case fall within Case 8 if they are as described in sub-
paragraphs (2) to (5).
      (2)
The taxpayer was not resident in the UK for the previous tax year.
35
      (3)
At the start of the relevant year, the taxpayer had no home in the UK but—
(a)
there comes a day when, for the first time in that year, the taxpayer
does have a home in the UK, and
(b)
from then on, the taxpayer continues to have a home in the UK for
the rest of that year and for the whole of the next tax year.
40

Finance (No. 2) Bill
Schedule 43 — Statutory residence test
Part 3 — Split year treatment
517

      (4)
For the part of the relevant year before the day mentioned in sub-paragraph
(3)(a), the taxpayer does not have sufficient UK ties.
      (5)
The taxpayer is resident in the UK for the next tax year and that tax year is
not a split year as respects the taxpayer.
      (6)
Paragraphs 17 to 20 (and Part 2 of this Schedule so far as it relates to those
5
paragraphs) apply for the purposes of sub-paragraph (4) with the following
adjustments—
(a)
references in those paragraphs and that Part to year X are to be read
as references to the part of the relevant year mentioned in sub-
paragraph (4), and
10
(b)
each number of days mentioned in the first column of the Table in
paragraphs 18 and 19 is to be reduced by the appropriate number.
      (7)
The appropriate number is found by multiplying the number of days, in
each case, by—

where “A” is the number of whole months in the relevant year beginning
15
with the day mentioned in sub-paragraph (3)(a).
      (8)
Sub-paragraph (6)(a) does not apply to the references to year X in
paragraphs 32(1)(b) and 33 of this Schedule (which relate to the residence
status of family members) so those references must continue to be read as
references to year X.
20
General rules for construing Cases 1 to 8
52    (1)
This paragraph applies for the purposes of paragraphs 44 to 51.
      (2)
A reference to “the previous tax year” is to the tax year preceding the
relevant year.
      (3)
A reference to “the next tax year” is to the tax year following the relevant
25
year.
      (4)
“Partner”, in relation to the taxpayer, means—
(a)
a husband or wife or civil partner,
(b)
if the taxpayer and another person are living together as husband
and wife, that other person, or
30
(c)
if the taxpayer and another person of the same sex are living together
as if they were civil partners, that other person.
      (5)
If calculation of the appropriate number results in a number of days that is
not a whole number, the appropriate number is to be rounded up or down
as follows—
35
(a)
if the first figure after the decimal point is 5 or more, round the
appropriate number up to the nearest whole number,
(b)
otherwise, round it down to the nearest whole number.
The overseas part
53    (1)
“The overseas part” of a split year is—
40
(a)
the part of that year defined below for the Case in question, or

Finance (No. 2) Bill
Schedule 43 — Statutory residence test
Part 3 — Split year treatment
518

(b)
if the taxpayer’s circumstances fall within more than one Case, the
shortest of the parts so defined for those Cases.
      (2)
For Case 1, the overseas part is—
(a)
if there is only one period falling within paragraph 44(3), the part
beginning with the first day of that period, and
5
(b)
if there is more than one such period, the part beginning with the first
day of the longest of those periods.
      (3)
For Case 2, the overseas part is the part beginning with the deemed
departure day as defined in paragraph 45(7) and (8).
      (4)
For Case 3, the overseas part is the part beginning with the day mentioned
10
in paragraph 46(3)(a).
      (5)
For Case 4, the overseas part is the part before the day mentioned in
paragraph 47(3).
      (6)
For Case 5, the overseas part is—
(a)
if there is only one period falling within paragraph 48(3), the part
15
before that period begins, and
(b)
if there is more than one such period, the part before the first of those
periods begins.
      (7)
For Case 6, the overseas part is—
(a)
if there is only one period falling within paragraph 49(3), the part
20
ending with the last day of that period, and
(b)
if there is more than one such period, the part ending with the last
day of the longest of those periods.
      (8)
For Case 7, the overseas part is the part before the deemed arrival day as
defined in paragraph 50(7) and (8).
25
      (9)
For Case 8, the overseas part is the part before the day mentioned in
paragraph 51(3)(a).
The UK part
54
“The UK part” of a split year is the part of that year that is not the overseas
part.
30
Special charging rules for employment income
55
ITEPA 2003 is amended as follows.
56    (1)
In section 15 (earnings for year when employee UK resident), for subsection
(1) substitute—
“(1)
This section applies to general earnings for a tax year for which the
35
employee is UK resident except that, in the case of a split year, it does
not apply to any part of those earnings that is excluded.
(1A)
General earnings are “excluded” if they—
(a)
are attributable to the overseas part of the split year, and
(b)
are neither—
40
(i)
general earnings in respect of duties performed in the
United Kingdom, nor

Finance (No. 2) Bill
Schedule 43 — Statutory residence test
Part 3 — Split year treatment
519

(ii)
general earnings from overseas Crown employment
subject to United Kingdom tax.”
      (2)
After subsection (3) insert—
“(4)
Any attribution required for the purposes of subsection (1A)(a) is to
be done on a just and reasonable basis.
5
(5)
The following provisions of Chapter 5 of this Part apply for the
purposes of subsection (1A)(b) as for the purposes of section 27(2)—
(a)
section 28 (which defines “general earnings from overseas
Crown employment subject to United Kingdom tax”), and
(b)
sections 38 to 41 (which contain rules for determining the
10
place of performance of duties of employment).
(6)
Subject to any provision made in an order under section 28(5) for the
purposes of subsection (1A)(b), provisions made in an order under
that section for the purposes of section 27(2) apply for the purposes
of subsection (1A)(b) too.”
15
57
In section 22 (chargeable overseas earnings for year when remittance basis
applies and employee outside section 26), for subsection (7) substitute—
“(7)
Section 15(1) does not apply to general earnings within subsection
(1).”
58    (1)
Section 23 (calculation of “chargeable overseas earnings”) is amended as
20
follows.
      (2)
In subsection (3), for step 1 substitute—
“Step 1
Identify—
(a)
in the case of a tax year that is not a split year, the full
25
amount of the overseas earnings for that year, and
(b)
in the case of a split year, so much of the full amount
of the overseas earnings for that year as is attributable
to the UK part of the year.”
      (3)
In that subsection, in step 2, for “those earnings” substitute “the earnings
30
identified under step 1”.
      (4)
After that subsection insert—
“(4)
Any attribution required for the purposes of step 1 or step 2 in
subsection (3) is to be done on a just and reasonable basis.”
59    (1)
Section 24 (limit on chargeable overseas earnings where duties of associated
35
employment performed in UK) is amended as follows.
      (2)
After subsection (2) insert—
“(2A)
If the tax year is a split year as respects the employee, subsection (2)
has effect as if for “the aggregate earnings for that year from all the
employments concerned” there were substituted “so much of the
40
aggregate earnings for that year from all the employments concerned
as is attributable to the UK part of that year”.”

Finance (No. 2) Bill
Schedule 43 — Statutory residence test
Part 3 — Split year treatment
520

      (3)
After subsection (3) insert—
“(3A)
Any attribution required for the purposes of subsection (2A) is to be
done on a just and reasonable basis.”
60    (1)
Section 26 (foreign earnings for year when remittance basis applies and
employee meets section 26A requirement) is amended as follows.
5
      (2)
In subsection (1), for the words from “if the general earnings” to the end
substitute “if the general earnings meet all of the following conditions—
(a)
they are neither—
(i)
general earnings in respect of duties performed in the
United Kingdom, nor
10
(ii)
general earnings from overseas Crown employment
subject to United Kingdom tax, and
(b)
if the tax year is a split year as respects the employee, they are
attributable to the UK part of the year.”
      (3)
After subsection (5) insert—
15
“(5A)
Any attribution required for the purposes of subsection (1)(b) is to be
done on a just and reasonable basis.”
      (4)
For subsection (6) substitute—
“(6)
Section 15(1) does not apply to general earnings within subsection
(1).”
20
61
In section 232 (giving effect to mileage allowance relief), after subsection (6)
insert—
“(6A)
If the earnings from which a deduction allowed under this section is
deductible include earnings that are “excluded” within the meaning
of section 15(1A)—
25
(a)
the amount of the deduction allowed is a proportion of the
amount that would be allowed under this section if the tax
year were not a split year, and
(b)
that proportion is equal to the proportion that the part of the
earnings that is not “excluded” bears to the total earnings.”
30
62    (1)
Section 329 (deduction from earnings not to exceed earnings) is amended as
follows.
      (2)
After subsection (1) insert—
“(1A)
If the earnings from which a deduction allowed under this Part is
deductible include earnings that are “excluded” within the meaning
35
of section 15(1A)—
(a)
the amount of the deduction allowed is a proportion of the
amount that would be allowed under this Part if the tax year
were not a split year, and
(b)
that proportion is equal to the proportion that the part of the
40
earnings that is not “excluded” bears to the total earnings.”
      (3)
In subsection (2), after “those earnings” insert “(or, in a case within
subsection (1A), the part of those earnings that is not “excluded”)”.

Finance (No. 2) Bill
Schedule 43 — Statutory residence test
Part 3 — Split year treatment
521

      (4)
In subsection (3), after “the earnings” insert “(or, in a case within subsection
(1A), the part of the earnings that is not “excluded”)”.
63    (1)
Section 394 (charge on employer-financed retirement benefits) is amended
as follows.
      (2)
In subsection (4C), omit “or” at the end of paragraph (b) and after that
5
paragraph insert—
“(ba)
an amount which would count as employment income of the
employee or former employee under that Chapter but for the
application of section 554Z5 (overlap with earlier relevant
step), or”.
10
      (3)
In that subsection, for paragraph (c) substitute—
“(c)
an amount which would be within paragraph (a), (b) or (ba)
apart from—
(i)
the employee or former employee having been non-
UK resident for any tax year, or
15
(ii)
any tax year having been a split year as respects the
employee or former employee.”
64    (1)
Section 421E (income relating to securities: exclusions about residence etc) is
amended as follows.
      (2)
For subsection (1) substitute—
20
“(1)
Chapters 2, 3 and 4 do not apply in relation to employment-related
securities if the acquisition occurs in a tax year that is not a split year
as respects the employee and—
(a)
the earnings from the employment for that tax year are not
general earnings to which section 15, 22 or 26 applies
25
(earnings for year when employee UK resident), or
(b)
had there been any earnings from the employment for that
tax year, they would not have been general earnings to which
any of those sections applied.
(1A)
Chapters 2, 3 and 4 do not apply in relation to employment-related
30
securities if the acquisition occurs in the UK part of a tax year that is
a split year as respects the employee and—
(a)
the earnings from the employment attributable to that part of
the year are not general earnings to which section 15, 22 or 26
applies, or
35
(b)
had there been any earnings from the employment
attributable to that part of the year, they would not have been
general earnings to which any of those sections applied.
(1B)
Chapters 2, 3 and 4 do not apply in relation to employment-related
securities if the acquisition occurs in the overseas part of a tax year
40
that is a split year as respects the employee.”
      (3)
After subsection (2) insert—
“(2A)
But Chapters 3A to 3D do apply in relation to employment-related
securities in relation to which they are disapplied by subsection (2)
if—
45
(a)
the acquisition takes place in the overseas part of a tax year
that is a split year as respects the employee,