Finance Bill

House of Commons

Session 2013 - 14
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Finance Bill

Finance Bill
Schedule 43 — Statutory residence test
Part 3 — Split year treatment
525

The overseas part
53    (1)
“The overseas part” of a split year is the part of that year defined below—
(a)
for the Case in question, or
(b)
if the taxpayer’s circumstances fall within more than one Case, for
the Case which has priority (see paragraphs 54 and 55).
5
      (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
(b)
if there is more than one such period, the part beginning with the first
day of the longest of those periods.
10
      (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
in paragraph 46(3)(a).
      (5)
For Case 4, the overseas part is the part before the day mentioned in
15
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
before that period begins, and
(b)
if there is more than one such period, the part before the first of those
20
periods begins.
      (7)
For Case 6, the overseas part is—
(a)
if there is only one period falling within paragraph 49(3), the part
ending with the last day of that period, and
(b)
if there is more than one such period, the part ending with the last
25
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).
      (9)
For Case 8, the overseas part is the part before the day mentioned in
paragraph 51(3)(a).
30
Priority between Cases 1 to 3
54    (1)
This paragraph applies to determine which Case has priority where the
taxpayer’s circumstances for the relevant year fall within two or all of the
following—
Case 1 (starting full-time work overseas);
35
Case 2 (the partner of someone starting full-time work overseas);
Case 3 (ceasing to have a home in the UK).
      (2)
Case 1 has priority over Case 2 and Case 3.
      (3)
Case 2 has priority over Case 3.

Finance Bill
Schedule 43 — Statutory residence test
Part 3 — Split year treatment
526

Priority between Cases 4 to 8
55    (1)
This paragraph applies to determine which Case has priority where the
taxpayer’s circumstances for the relevant year fall within two or more of the
following—
Case 4 (starting to have a home in the UK only);
5
Case 5 (starting full-time work in the UK);
Case 6 (ceasing full-time work overseas);
Case 7 (the partner of someone ceasing full-time work overseas);
Case 8 (starting to have a home in the UK).
      (2)
In this paragraph “the split year date” in relation to a Case means the final
10
day of the part of the relevant year defined in paragraph 53(5) to (9) for that
Case.
      (3)
If Case 6 applies—
(a)
if Case 5 also applies and the split year date in relation to Case 5 is
earlier than the split year date in relation to Case 6, Case 5 has
15
priority;
(b)
otherwise, Case 6 has priority.
      (4)
If Case 7 (but not Case 6) applies—
(a)
if Case 5 also applies and the split year date in relation to Case 5 is
earlier than the split year date in relation to Case 7, Case 5 has
20
priority;
(b)
otherwise, Case 7 has priority
      (5)
If two or all of Cases 4, 5 and 8 apply (but neither Case 6 nor Case 7), the Case
which has priority is the one with the earliest split year date.
      (6)
But if, in a case to which sub-paragraph (5) applies, two or all of the Cases
25
which apply share the same split year date and that date is the only, or
earlier, split year date of the Cases which apply, the Cases with that split
year date are to be treated as having priority.
The UK part
56
“The UK part” of a split year is the part of that year that is not the overseas
30
part.
Special charging rules for employment income
57
ITEPA 2003 is amended as follows.
58    (1)
In section 15 (earnings for year when employee UK resident), for subsection
(1) substitute—
35
“(1)
This section applies to general earnings for a tax year for which the
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
40
(b)
are neither—
(i)
general earnings in respect of duties performed in the
United Kingdom, nor

Finance Bill
Schedule 43 — Statutory residence test
Part 3 — Split year treatment
527

(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
59
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).”
60    (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.”
61    (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 Bill
Schedule 43 — Statutory residence test
Part 3 — Split year treatment
528

      (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.”
62    (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
63
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
64    (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 Bill
Schedule 43 — Statutory residence test
Part 3 — Split year treatment
529

      (4)
In subsection (3), after “the earnings” insert “(or, in a case within subsection
(1A), the part of the earnings that is not “excluded”)”.
65    (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.”
66    (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,

Finance Bill
Schedule 43 — Statutory residence test
Part 3 — Split year treatment
530

(b)
the tax year is a split year because the circumstances of the
case fall within Case 1, Case 2 or Case 3 as described in Part 3
of Schedule 43 to FA 2013 (split year treatment: cases
involving actual or deemed departure from the United
Kingdom), and
5
(c)
had it not been a split year—
(i)
the earnings from the employment for that tax year
(or some of them) would have been general earnings
to which section 15, 22 or 26 applied, or
(ii)
if there had been any earnings from the employment
10
for that tax year, they (or some of them) would have
been general earnings to which any of those sections
applied.”
67
In section 474 (cases where Chapter 5 of Part 7 does not apply), for
subsection (1) substitute—
15
“(1)
This Chapter (apart from sections 473 and 483) does not apply in
relation to an employment-related securities option 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 are not general earnings
20
to which section 15, 22 or 26 applies (earnings for year when
employee UK resident), or
(b)
had there been any earnings from the employment, they
would not have been general earnings to which any of those
sections applied.
25
(1A)
This Chapter (apart from sections 473 and 483) does not apply in
relation to an employment-related securities option 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
30
the year are not general earnings to which section 15, 22 or 26
applies (earnings for year when employee UK resident), or
(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.
35
(1B)
This Chapter (apart from sections 473 and 483) does not apply in
relation to an employment-related securities option if the acquisition
occurs in the overseas part of a tax year that is a split year as respects
the employee.”
68    (1)
Section 554Z4 (residence issues) is amended as follows.
40
      (2)
For subsections (3) to (5) substitute—
“(3)
Subsection (4) applies if the value of the relevant step, or a part of it,
is “for”—
(a)
a tax year for which A is non-UK resident, or
(b)
a tax year that is a split year as respects A.
45
(4)
The value, or the part of it, is to be reduced—
(a)
in a case within subsection (3)(a), by so much of the value, or
the part of it, as is not in respect of UK duties, and

Finance Bill
Schedule 43 — Statutory residence test
Part 3 — Split year treatment
531

(b)
in a case within subsection (3)(b), by so much of the value, or
the part of it, as is both—
(i)
attributable to the overseas part of the tax year, and
(ii)
not in respect of UK duties.
(5)
The extent to which—
5
(a)
the value, or the part of it, is not in respect of UK duties, or
(b)
so much of the value, or the part of it, as is attributable to the
overseas part of the tax year is not in respect of UK duties,

is to be determined on a just and reasonable basis.”
      (3)
After subsection (5) insert—
10
“(5A)
Any attribution required for the purposes of subsection (4)(b)(i) is to
be done on a just and reasonable basis.
(5B)
“UK duties” means duties performed in the United Kingdom.”
69
In section 554Z6 (overlap with certain earnings), in subsection (1)(a), after
“UK resident” insert “(and, in the case of a tax year that is a split year as
15
respects A, are not “excluded” by virtue of section 15(1A)(a) and (b)(i))”.
70
In section 554Z9 (remittance basis: A is ordinarily UK resident), in
subsection (5)—
(a)
in paragraph (b), after “that income” insert “(or of so much of it as is
attributable to the UK part of the relevant tax year, if it was a split
20
year as respects A)”, and
(b)
in paragraph (c), after “tax year” insert “(or the UK part of it)”.
71    (1)
Section 554Z10 (remittance basis: A is not ordinarily resident) is amended as
follows.
      (2)
In subsection (1), for paragraph (a) substitute—
25
“(a)
the value of the relevant step, or a part of it, is “for” a tax year
(“the relevant tax year”) as determined under section
554Z4,”.
      (3)
For subsection (2) substitute—
“(2)
The overseas portion of (as the case may be)—
30
(a)
A’s employment income by virtue of section 554Z2(1), or
(b)
the relevant part of A’s employment income by virtue of that
section,

is “taxable specific income” in a tax year so far as the overseas portion
is remitted to the United Kingdom in that year.”
35
      (4)
After that subsection insert—
“(2A)
“The overseas portion” of A’s employment income by virtue of
section 554Z2(1), or of the relevant part of that income, is so much of
that income, or of the relevant part of it, as is not in respect of UK
duties.
40
(2B)
“UK duties” means duties performed in the United Kingdom.”
      (5)
In subsection (3), for “this purpose” substitute “the purposes of this section”.