Finance Act 2013

Section 218, Schedule 45: Statutory Residence Test

Summary

1. Section 218 and Schedule 45 introduce rules which determine an individual’s residence for tax purposes. The rules are referred to collectively as the statutory residence test. The Schedule determines an individual’s tax residence status by applying three sets of tests in order of priority: five automatic overseas tests; four automatic UK tests; and the sufficient ties test. An individual who is resident under the test will be resident for a full tax year. The Schedule provides cases in which the rule that a resident individual is taxed on the basis of residence for the whole year is relaxed in certain circumstances; in those circumstances the year is known as a “split year”. The Schedule also provides that certain income and gains that arise during a period of temporary non-residence shall be charged to UK tax when the individual resumes UK residence.

Details of the Section

2. This section introduces the Schedule which contains the statutory residence test and makes related provision. The section also contains a power allowing the Treasury to make any incidental, supplemental, consequential, transitional or saving provision in consequence of the Schedule. Any such Order is subject to the negative resolution procedure and must be laid before the House of Commons only.

Details of the Schedule

Part 1.The Rules

Introduction

3. Paragraph 1 defines the purpose of this Part of the Schedule.

4. Sub-paragraph (3) of paragraph 1 states that the rules do not provide a residence test for parts of the UK but for the UK as a whole.

5. Sub-paragraph (4) of paragraph 1 specifies the different taxes covered by the statutory residence test:

• income tax;

• capital gains tax; and

• inheritance tax and corporation tax (to the extent that the residence status of individuals is relevant to them).

Interpretation of enactments

6. Paragraph 2 specifies how the statutory residence test applies to the interpretation of other enactments.

7. Sub-paragraph (3) of paragraph 2 provides that the tax residence status determined by the statutory residence test applies for a full tax year, so that an individual is resident for every day in a tax year or not at all in that year. Sub-paragraph (4) of paragraph 2 explains that there are rules in Part 3 of this Schedule which relax the effect of that rule (without changing residence status) in certain circumstances.

8. Sub-paragraph (5) of paragraph 2 provides that the effect of this Schedule may be overridden by any express provision to the contrary in, or falling to be recognised and acknowledged in law by virtue of, any other legislation.

9. Examples of such provision include section 41 of the Constitutional Reform and Governance Act 2010 (which treats members of the House of Commons and House of Lords as resident in the UK for tax purposes) and Articles 12 and 13 of the Protocol on the Privileges and Immunities of the European Communities (which provides rules on the tax status of individuals who work for the European Union).

The basic rule

10. Paragraphs 3 and 4 provide that an individual (P) is UK resident if either the automatic residence test (see paragraph 5) or the sufficient ties test (see paragraph 17) is met for a tax year. If neither test is met for a tax year P is non-resident for that year.

The automatic residence test

11. Paragraph 5 sets out the automatic residence test. The automatic residence test is met if P meets at least one of the automatic UK tests (see paragraphs 6 to 10) and none of the automatic overseas tests (see paragraphs 11 to 16).

The automatic UK tests

12. Paragraph 7 specifies the first automatic UK test, which is met for a tax year if P spends 183 days or more in the UK in that year.

13. Paragraph 8 specifies the second automatic UK test.

14. Sub-paragraph (1) of paragraph 8 applies if P has a home in the UK during all or part of the tax year and P spends a “sufficient amount of time” in that home in that year. P will be UK resident for the tax year if, while P has that home, there is at least one period of 91 consecutive days (at least 30 of which fall within the tax year) throughout which condition A or condition B (or a combination of those conditions) is met.

15. Sub-paragraph (2) of paragraph 8 sets out condition A, which is that P has no home overseas.

16. Sub-paragraph (3) of paragraph 8 sets out condition B, which is that P has one or more homes overseas but each of those homes is a home at which P spends no more than a “permitted amount of time” in the tax year.

17. Sub-paragraph (4) of paragraph 8 specifies that P spends a “sufficient amount of time” in a UK home if P is present there at any point on at least 30 separate days in the tax year.

18. Sub-paragraph (5) of paragraph 8 specifies that P spends no more than a “permitted amount of time” in an overseas home is P is present there at any point on fewer than 30 days in the tax year.

19. Sub-paragraph (6) of paragraph 8 provides that the references to P being present in a home on at least, or fewer than, 30 days are to 30 separate days, whether consecutive or intermittent, and that for these purposes P is present at a home only if, at the time, it is a home of P’s.

20. Sub-paragraph (7) of paragraph 8 states that the test will be met so long as there is at least one period of 91 days where the conditions are satisfied, even if the period is in fact longer than 91 days.

21. Sub-paragraph (8) of paragraph 8 states that, if P has more than one home in the UK, the test must be applied to each of those homes individually.

22. Paragraph 9 specifies the third automatic UK test, usually known as “full time work in the UK”.

23. Sub-paragraph (1) of paragraph 9. specifies that the test is met if P works sufficient hours in the UK over a period of 365 days without a significant break from work (defined in paragraph 29), and all or part of the 365-day period falls within the tax year. More than 75 per cent of P’s working days in the 365-day period must be UK work days. A UK work day is a day in which P does more than 3 hours’ work in the UK. There must be at least one day falling within both the 365-day period and the tax year that is a UK work day.

24. Sub-paragraph (2) of paragraph 9 sets out the steps to follow for the purposes of assessing whether or not P has worked sufficient hours in the UK over a period of 365 days. P will have worked sufficient hours in the UK if P has worked on average 35 hours a week or more in the UK, as calculated by following the steps set out.

25. Sub-paragraph (3) of paragraph 9 specifies that the third automatic UK test does not apply if P has a relevant job on board a vehicle, aircraft or ship at any time in the tax year (as defined in paragraph 30) and makes, as part of the job, at least six cross-border trips in the tax year that either begin or end in the UK (or both begin and end in the UK).

26. Paragraph 10 specifies the fourth automatic UK test which applies to a year of death. The broad effect of this provision is that where P has been resident under one of the automatic UK residence tests in each of the previous three tax years and has a home in the UK, P stays resident in the year of death unless P went abroad in the previous year in circumstances such that split year treatment applied (provided none of the automatic overseas tests is met).

27. Sub-paragraph (1) of paragraph 10 sets out five conditions. P is treated as UK resident for a tax year if P dies during the year, P had a home in the UK when P died, if P had a home overseas then P did not spend a sufficient amount of time there in year X, for the three preceding tax years P had met the automatic residence test (see paragraph 5), and, even assuming P was not resident in the year of death, the preceding year would not be a split year as defined in Part 3 of this Schedule.

28. Sub-paragraphs (2) and (3) of paragraph 10 define what is meant by a “sufficient amount of time”. P must have been present in an overseas home for at least 30 days in the tax year, or have been there on every day from the beginning of the tax year (to meet the case where P died within 30 days of the start of the year).

29. Sub-paragraph (4) of paragraph 10 says that if P has more than one overseas home then the requirement of presence in the overseas home is met so long as it is met for each overseas home. So P need only satisfy the sufficient amount of time condition in respect of one such home in order to avoid being UK resident under this test.

The automatic overseas tests

30. Paragraphs 11 to 16 set out five automatic overseas tests. If P meets the conditions for any one of these, P will be non-resident for the tax year for which the test is applied.

31. Paragraph 12 specifies the first automatic overseas test, which is that P will be non-resident for a tax year if P spends fewer than 16 days in the UK in that year, does not die during the year, and was resident for one or more of the three tax years immediately preceding that year. The exclusion for cases of death ensures that P does not automatically become non-resident if P dies early in the tax year.

32. Paragraph 13 specifies the second automatic overseas test, which is that P will be non-resident for a tax year if P spends fewer than 46 days in the UK in that year and was resident for none of the three tax years immediately preceding that year.

33. Paragraph 14 specifies the third automatic overseas test, usually known as “full time work overseas”. P will be non-resident for a tax year if P works sufficient hours overseas for that year without a significant break from work (defined in paragraph 29), has fewer than 31 UK work days in that year and spends fewer than 91 days in the UK in that year (as defined in paragraph 22). A UK work day is a day on which P does more than 3 hours’ work in the UK.

34. Sub-paragraph (2) of paragraph 14 ensures that the special rule in paragraph 23(4) (under which certain days on which P is present in the UK other than at midnight count as days spent in the UK) does not apply for the purposes of the third automatic overseas test.

35. Sub-paragraph (3) of paragraph 14 sets out the steps to follow for the purposes of assessing whether or not P has worked sufficient hours overseas in the tax year. P will have worked sufficient hours overseas if P has worked on average 35 hours or more a week overseas, as calculated by following the steps set out.

36. Sub-paragraph (4) of paragraph 14 specifies that the third automatic overseas test does not apply if P has a relevant job on board a vehicle, aircraft or ship at any time in the year (as defined in paragraph 30) and makes, as part of the job, at least six cross-border trips in the tax year that either begin or end in the UK (or both begin and end in the UK).

37. Paragraph 15 specifies the fourth automatic overseas test. P is non-resident for a tax year if P dies during the year and spends fewer than 46 days in the UK in that year, and either P was non-resident for the two tax years immediately preceding the tax year in which P dies or was non-resident for the tax year immediately preceding that tax year and the tax year before that was a split year by virtue of Case 1, 2 or 3 of Part 3 of this Schedule (see paragraphs 44 to 46). The effect of this provision is to ensure that an individual who dies without establishing three full years of non-residence may in certain circumstances benefit from a 46-day rule equivalent to that in paragraph 13.

38. Paragraph 16 specifies the fifth automatic overseas test which ensures that P’s non-resident status is preserved in certain circumstances where P dies while working overseas. P is automatically non-resident if P dies during a tax year, having already been non-resident under the third automatic overseas test for the two preceding tax years (or for the year preceding the current tax year, with the year before that qualifying for Case 1 split year treatment) and if P meets the third automatic overseas test as modified.

39. Sub-paragraph (3) of paragraph 16 sets out the modifications to be applied to the third automatic overseas test in this situation. The third overseas test (in paragraph 14) is applied so that instead of assessing whether P has worked sufficient hours overseas for the whole tax year, the period assessed is that from the start of the tax year up to the day before the date of death. The permitted number of UK work days and days spent in the UK allowed under paragraph 14(1)(c) and (d) are not reduced.

The sufficient ties test

40. Paragraph 17 sets out the sufficient ties test. P will be resident under the sufficient ties test if P meets none of the automatic UK tests and none of the automatic overseas tests and if P has sufficient ties, as defined in Part 2 of this Schedule, for the tax year.

41. Sub-paragraph (3) of paragraph 17 specifies that the number of UK ties sufficient to make P UK resident for a tax year depends on whether P was UK resident for any of the three tax years immediately preceding that year and the number of days P spends in the UK in the year. The number of ties required is set out in paragraphs 18 and 19.

Sufficient UK ties

42. Paragraph 18 sets out how the number of days P spends in the UK in a tax year determines the number of UK ties sufficient to make P resident for that year if P was UK resident in one or more of the three tax years immediately preceding the year.

43. Paragraph 19 sets out how the number of days P spends in the UK in a tax year determines the number of UK ties sufficient to make P resident for that year if P was UK resident in none of the three tax years immediately preceding the year.

44. Paragraph 20 sets out how paragraphs 18 and 19 are modified in order to apply the sufficient ties test to an individual who dies during the year.

45. Sub-paragraph (1) of paragraph 20 specifies that if an individual dies then the lower limit of 15 days spent in the UK is removed when applying paragraph 18.

46. Sub-paragraphs (2) to (4) of paragraph 20 set out how the day counts in paragraphs 18 and 19 are time-apportioned if the individual dies before 1 March in the tax year to which the test is applied.

Part 2.Key concepts

Days spent

47. Paragraph 22 specifies what counts as a day spent in the UK for the purposes of this Schedule.

48. Sub-paragraphs (1) and (2) of paragraph 22 specify that if P is in the UK at the end of a day, that day will count as a day spent in the UK, subject to the two exceptions set out in sub-paragraphs (3) to (6) of paragraph 22.

49. Sub-paragraph (3) of paragraph 22 specifies that where P is in transit through the UK, leaves the UK the day after arrival, and does not engage in any activities substantially unrelated to their transit, then the day of arrival will not count as a day spent in the UK.

50. Sub-paragraphs (4) and (6) of paragraph 22 specify that where P is only present in the UK at the end of a day because of exceptional circumstances beyond P’s control that prevented P from leaving, and P intends to leave as soon as those circumstances permit, that day will not count as a day spent in the UK up to a maximum of 60 days in a tax year.

51. Sub-paragraph (5) of paragraph 22 gives examples of circumstances that may be exceptional.

52. Paragraph 23 provides that if P is not present in the UK at the end of a day that day does not count as a day spent in the UK, subject to the exception provided by the deeming rule in sub-paragraph (4).

53. Sub-paragraphs (2) to (4) of paragraph 23 provide that even if P is not present in the UK at the end of a day, that day will count as a day spent in the UK if P was UK resident in one or more of the 3 tax years immediately preceding the tax year in which the day falls, P has 3 or more UK ties for the tax year in which the day falls and P is present in the UK at some point (but not at the end of the day) on more than 30 days in that tax year. Where this deeming rule applies, only the excess over 30 such days is added to the tally of days spent in the UK.

54. Sub-paragraph (5) of paragraph 23 provides that in establishing whether P has 3 UK ties for a tax year, the deeming rule in sub-paragraph (4) does not itself apply in calculating whether P has a 90-day tie.

Days spent “in” a period

55. Paragraph 24 specifies that days spent in the UK are aggregated for any period specified in this Schedule.

Home

56. Paragraph 25 contains provisions to assist in interpreting the word “home”. Sub-paragraph (1) of paragraph 25 provides that a person’s home could be a building or part of a building or, for example, a vehicle, vessel or structure of any kind. Sub-paragraph (2) of paragraph 25 states that whether there is a sufficient degree of permanence or stability about P’s arrangements for a place to count as P’s home will depend on all the circumstances of the case. Sub-paragraph (3) of paragraph 25 provides that somewhere that P uses periodically as nothing more than a holiday home or temporary retreat (or something similar) does not count as a home of P’s. Sub-paragraph (4) of paragraph 25 provides that a place may count as a home whether or not P holds any estate or interest in it. This means, for example, that rented property or property which P lives in but which is owned by someone else, such as P’s parents, may still count as P’s home in appropriate circumstances. Sub-paragraph (5) of paragraph 25 provides that somewhere that was P’s home does not continue to count as such merely because P continues to hold an estate or interest in it after P has moved out. This would apply, for example, where P had rented out the property on arms’ length commercial terms and was unable to live in the property.

Work

57. Paragraph 26 specifies when an individual is considered to be working for the purposes of this Schedule.

58. Sub-paragraphs (1) to (3) of paragraph 26 specify that P is considered to be working if P is doing something in the performance of duties of an employment held by P or in the course of a trade carried on by P. In deciding whether or not something is being done in the course of duties of an employment, regard must be had to whether, if value were to be received by P for doing that thing, it would be employment income as defined in section 7 of ITEPA. Similarly, in deciding whether or not something is being done in the course of a trade, regard must be had to whether, if expenses were incurred by P, they could be deducted in calculating the profits of the trade for income tax purposes.

59. Sub-paragraph (4) of paragraph 26 specifies that time spent travelling counts as time spent working if the cost of the journey, if met by P, could be deducted in calculating P’s earnings from the associated employment under one of the ITEPA provisions specified or in calculating the profits from the associated trade (making the assumption that P is chargeable to tax). Time spent working while travelling also counts as work for the purposes of this Schedule, irrespective of the tax deductibility position of that travel.

60. Sub-paragraph (5) of paragraph 26 specifies that time spent training counts as time spent working if the training is provided or paid for by the employer to help P perform the employment, or the cost of the training could be deducted in calculating the profits of the trade for income tax purposes.

61. Sub-paragraph (8) of paragraph 26 provides that a voluntary post where P has no contract of service does not count as employment for the purposes of this Schedule.

Location of work

62. Paragraph 27 sets out the rules for determining where work is actually carried out for the purposes of the statutory residence test.

63. Sub-paragraph (1) of paragraph 27 specifies that, for the purposes of this Schedule, work is considered as being done at the location where it is actually done rather than where an employment is held or a trade is carried on.

64. Sub-paragraph (2) of paragraph 27 specifies that, for the purposes of this Schedule, work done during travel to or from the UK by air or sea or via a tunnel under the sea will be assumed to be work done overseas, including work done during the part of the journey in or over the UK.

65. Sub-paragraph (3) of paragraph 27 specifies that, for the purposes of this Schedule, travelling to or from the UK begins when P boards an aircraft, ship or train and ends when P disembarks.

66. Sub-paragraph (4) of paragraph 27 specifies that the location of work rules are subject to the specific rules for people with relevant jobs on board vehicles, aircraft or ships. Such people are defined in paragraph 30 and the special rules are in paragraph 36.

Rules for calculating the reference period

67. Paragraph 28 sets out supplementary rules that feed into the calculation of the “reference period” which is part of the “sufficient hours in the UK” test at paragraph 9 and the “sufficient hours overseas” test at paragraph 14. Paragraph 28 sets out how certain days reduce the reference period, as required by step 3(b) within paragraphs 9(2) and 14(3). The days in question are days of annual, parenting or sick leave, non-working days embedded within a block of such leave, and days that are part of certain gaps between employments.

68. Sub-paragraph (2) of paragraph 28 sets out that the reference period may be reduced to take account of reasonable amounts of annual leave, parenting leave and absences from work at times during the period when P is on sick leave and cannot reasonably be expected to work. Reductions may also be made for non-working days embedded within each block of such leave.

69. Sub-paragraph (3) of paragraph 28 ensures that no day may reduce the reference period under paragraph 28 if it already reduces the reference period by virtue of being a “disregarded day”. So there is to be no reduction from the reference period for the types of leave set out in this paragraph in relation to any disregarded days, which are defined at sub-paragraph 9(2) of the “sufficient hours in the UK” test and at sub-paragraph 14(3) of the “sufficient hours overseas” test and which are deducted from the reference period by virtue of step 3(a) within those sub-paragraphs.

70. Sub-paragraph (4) of paragraph 28 sets out that the nature of P’s work and where P does the work will be relevant to what is considered to be ‘reasonable amounts’ of annual or parenting leave.

71. Sub-paragraph (5) of paragraph 28 sets out that non-working days will be considered to be “embedded within” a block of leave if there are three or more consecutive days of leave taken before and after the non-working days in question. The effect of these rules is that only non-working days that form part of a longer period of leave (such as a block of several months of maternity leave) reduce the reference period. Without this such non-working days would form part of the reference period and P would have to work longer hours in P’s working weeks to make up for them. But other non-working days (not embedded within a longer block of leave) are effectively part of P’s normal working week and so do form part of the reference period over which the 35-hour test is measured.

72. Sub-paragraph (6) of paragraph 28 sets out that a non-working day is defined as a day on which P is not normally expected to work for contractual reasons or as part of P’s normal pattern of work and is a day on which P does not in fact work.

73. Sub-paragraph (7) of paragraph 28 sets out that the total of reasonable amounts of annual leave, parenting leave and absences from work on sick leave are to be rounded down for the purposes of reductions to the reference period where those totals do not add up to a whole number of days.

74. Sub-paragraphs (8) and (9) of paragraph 28 provide that gaps between changes of P’s employment (during which time P does not work) may also be excluded from the reference period up to a total of 15 days for each change in employment, and subject to a maximum of 30 days in the tax year.

Significant breaks from UK or overseas work

75. Paragraph 29 sets out the definition of “significant break” for the purposes of the “sufficient hours in the UK” test at paragraph 9 and the “sufficient hours overseas” test at paragraph 14. A significant break is a period of at least 31 consecutive days on each of which P does less than three hours’ work, and where those days were not annual leave, sick leave, or parenting leave.

Relevant jobs on board vehicles, aircraft or ships

76. Paragraph 30 identifies the individuals to whom special rules apply because they have a job the duties of which are carried out when travelling and where substantially all the trips undertaken involve crossing international borders. P will be within this group of workers even if, for example, P occasionally performs duties on domestic journeys.

77. Examples of such individuals include international airline pilots and lorry drivers, fishermen who fish in international waters and people working on cruise ships.

UK ties

78. Paragraph 31 lists what counts as a UK tie for the purposes of this Schedule, depending on whether or not P was UK resident for one or more of the 3 tax years immediately preceding the tax year for which the test is applied. The UK ties are defined in paragraphs 32 to 38. Paragraph 31 specifies the requisite number of ties set out in paragraphs 18 and 19 must consist of different types of tie. So, for example, a family tie only counts once for a year regardless of the number of relatives that P has in the UK.

Family tie

79. Paragraph 32 specifies that P is considered to have a family tie for a tax year if P has a relevant relationship with another person in that tax year and that other person is someone who is resident in the UK in that tax year. P will have a relevant relationship with another person if that other person is P’s husband or wife or civil partner (so long as they are not separated) or someone P is living together with in that manner. P also has a family tie for a tax year if P has a child under age 18 who is UK resident in that tax year, unless P sees that child on no more than 60 days in that tax year, or the part of that tax year before the child reaches the age of 18.

80. Paragraph 33 sets out special rules for establishing whether, for the purposes of paragraph 32 only, a person with whom P has a relevant relationship is UK resident for a tax year. Sub-paragraph (2) of paragraph 33 provides that, in working out whether that other person is resident for the purposes of determining whether P has a family tie, their own family tie to P is to be disregarded. Sub-paragraphs (3) to (6) of paragraph 33 provide that a child of P’s under the age of 18 who is UK resident is to be treated as non-resident if they are in full-time education in the UK and would not be UK resident if the time spent in full-time education were to be disregarded. This test will only apply if the child spends fewer than 21 days in the tax year in the UK outside term-time. Half-term breaks and other breaks during a term are treated as term-time.

Accommodation tie

81. Paragraph 34 specifies that P is considered to have an accommodation tie for a tax year if P has a place to live in the UK and that place is available to P for a continuous period of 91 days or more during the tax year (ignoring gaps of fewer than 16 days when it is unavailable). P is considered to have a place to live in the UK if P has one or more homes in the UK, a holiday home, temporary retreat or something similar in the UK or if accommodation is otherwise available to P where P can live when P is in the UK. P does not need to own or have an interest in the accommodation, but must spend at least one night in it during the tax year or, if it is the home of a close relative as defined in sub-paragraph (6) of paragraph 34, P must spend at least 16 nights in it during the tax year in order to have an accommodation tie.

Work tie

82. Paragraph 35 specifies that P has a work tie for a tax year if P does more than 3 hours’ work a day in the UK on at least 40 different days in the tax year.

83. Paragraph 36 specifies that if P has a job within the scope of paragraph 30, then any day on which P starts a work-related cross-border trip in the UK is treated as one on which P did more than 3 hours’ work in the UK. Any day on which P completes a work-related cross-border trip in the UK that began overseas is treated as one on which P did less than 3 hours’ work in the UK. Any day on which P both starts a cross-border trip in the UK and completes it in the UK is treated as one on which P did more than 3 hours’ work in the UK. If a cross-border trip is undertaken in stages across a number of days, the trip is considered to have started, or to be completed, on the day during which P crosses the UK border. Any day on which a stage of the trip takes place wholly within the UK will, so long as it takes more than 3 hours, be considered to be a UK work day.

90-day tie

84. Paragraph 37 specifies that P is considered to have a 90-day tie for a tax year if P spends more than 90 days in the UK in either or both of the two tax years immediately preceding that year.

Country tie

85. Paragraph 38 specifies that P is considered to have a country tie for a tax year if the country P is in at midnight for the greatest number of days in that year is the UK. P will also have a country tie for a tax year if P is in more than one country at midnight for the same number of days in that tax year if one of those countries is the UK and there is no country in which P has spent a greater number of midnights in that tax year.

Part 3.Split year treatment

Introduction

86. Paragraph 39 gives an overview of the content of this Part.

87. Paragraph 40 explains that the effect of a tax year being split into a UK part and an overseas part is as specified in the paragraphs in this Part amending the provisions concerned. But the individual’s tax residence status for the whole year is not affected.

88. Paragraph 41 specifies that this Part does not apply when determining the residence status of personal representatives and applies only in a limited way in establishing the residence status of trustees of a settlement. For trustees see also the amendments to section 475 of ITA and section 69 of TCGA made by paragraphs 102 and 103.

89. Paragraph 42 provides that split year treatment is not intended to affect whether an individual would be regarded as UK resident for the purposes of double taxation arrangements.

Definition of a “split year”

90. Paragraph 43 specifies that a tax year is a split year in relation to an individual if the individual is UK resident for that year and their circumstances fall within any of Cases 1 to 8 (set out in paragraphs 44 to 51). Split year treatment does not apply if the individual is non-UK resident for the year.

91. Cases 1 to 3 deal, broadly, with individuals going abroad. Cases 5 to 8 deal, broadly, with individuals coming to either work or live in the UK.

Case 1: starting full-time work overseas

92. Paragraph 44 specifies that an individual (the taxpayer) will fall within Case 1 for a tax year if they were UK resident for the previous tax year, are non-resident for the following tax year because they meet the third automatic overseas test (see paragraph 14), work sufficient hours overseas (without a significant break) and keep days in the UK within permitted limits over a period to the end of the year. In establishing the number of days the individual spends in the UK, days treated as spent in the UK by virtue of sub-paragraph (4) of paragraph 23 are to be ignored. The permitted limits are found by carrying out the calculation in sub-paragraphs (8) and (9) of paragraph 44.

Case 2: the partner of someone starting full-time work overseas

93. Paragraph 45 specifies that an individual (the taxpayer) will fall within Case 2 for a tax year if they were UK resident for the previous tax year, are non-resident for the following tax year and have a partner who falls within Case 1 for the relevant year or the previous tax year. ‘Partner’ is defined in sub-paragraph (4) of paragraph 52. The taxpayer must join the partner overseas so they can continue to live together while the partner is working overseas. After their deemed departure day, which is the later of the date the taxpayer joins the partner and the date the partner starts to work overseas, the taxpayer must either have no UK home or, if they have homes in both the UK and overseas, must spend the greater part of the time living in the overseas home. The number of days the taxpayer spends in the UK after the deemed departure day must not exceed the permitted limit (which is calculated in the same way as in sub-paragraphs (8)(b) and (9) of paragraph 44).

Case 3: ceasing to have a home in the UK

94. Paragraph 46 specifies that a taxpayer will fall within Case 3 for a tax year if they were UK resident for the previous tax year, are non-resident for the following tax year, and at the start of the tax year had at least one home in the UK but at some point in that year they cease to have any UK home and this continues until the end of that year. In addition, from the date of ceasing to have any UK home the taxpayer must not spend more than 15 days in the UK until the end of the tax year and must, within 6 months of ceasing to have any home in the UK, have a sufficient link with a country overseas (as defined in sub-paragraph (7) of paragraph 46).

Case 4: starting to have a home in the UK only

95. Paragraph 47 specifies that a taxpayer will fall within Case 4 for a tax year if that person was non-resident for the previous tax year and, at the start of the tax year, the taxpayer did not meet the only home test but there comes a point in the year when that ceases to be the case and the taxpayer then continues to meet the only home test for the rest of the tax year. The taxpayer will satisfy the only home test if their only home, or all their homes if they have more than one, is in the UK.

96. In addition, for the part of the year before the point where the taxpayer meets the only home test in the UK, or the earliest of these points if there is more than one, the taxpayer must not have sufficient UK ties to make them UK resident for that part of the year considered in isolation. The UK ties are determined by applying paragraphs 17 to 20 (and Part 2 to the extent that it applies to these paragraphs) and reducing the numbers of days in the Tables in paragraphs 18 and 19 by the factor specified in sub-paragraph (7) of paragraph 47.

Case 5: starting full-time work in the UK

97. Paragraph 48 specifies that a taxpayer will fall within Case 5 for a tax year if they were non-resident for the previous tax year and are coming to work in the UK in circumstances such that they meet the third automatic UK test in paragraph 9.

98. In addition, the taxpayer must not have sufficient UK ties to make them UK resident during the part of the year before the period in which the period of 365 days begins. The UK ties are determined by applying paragraphs 17 to 20 (and Part 2 to the extent that it applies to these paragraphs) and reducing the number of days in the Tables in paragraphs 18 and 19 by the factor specified in sub-paragraph (6) of paragraph 48.

Case 6: ceasing full-time work overseas

99. Paragraph 49 specifies that a taxpayer will fall within Case 6 for a tax year if they were non-resident for the previous tax year because they met the third overseas test (see paragraph 14), was UK resident for at least one of the four years before that, are UK resident for the following tax year (whether or not it is a split year) and satisfy the overseas work criteria for a period from the beginning of the year. The overseas work criteria require the taxpayer to have worked sufficient hours overseas (without a significant break) and to have kept days in the UK within permitted limits up to the end of the period. The permitted limits are found by carrying out the calculation in sub-paragraphs (8) and (9) of paragraph 49.

Case 7: the partner of someone ceasing full-time work overseas

100. Paragraph 50 specifies that a taxpayer will fall within Case 7 for a tax year if they were non-resident for the previous tax year and are UK resident for the following year (whether or not it is a split year) and have a partner whose circumstances fall within Case 6 (see paragraph 49) for the previous tax year or the relevant year. Case 7 will apply if on a day in the relevant year the taxpayer moves to the UK so that the taxpayer and partner can continue to live together.

101. In addition, for the part of the year before the deemed arrival date the taxpayer must not have a home in the UK, or if having homes both in the UK and overseas must spend a greater part of the time living in the overseas home and keep days spent in the UK within the permitted limit. The permitted limit of days in the UK is found by carrying out the calculation in sub-paragraphs (9) and (10) of paragraph 50.

102. The deemed arrival date is the later of the day the taxpayer moves to the UK or the first day of the UK part of the year under Case 6 for the partner.

Case 8: starting to have a home in the UK

103. Paragraph 51 specifies that a taxpayer will fall within Case 8 for a tax year if they were non-resident for the previous tax year, are UK resident for the following tax year (which must not be a split year) and from the point at which the taxpayer starts to have a home in the UK, they continue to do so for the rest of the tax year and all of the following tax year.

104. In addition, for the part of year before the point at which the taxpayer starts to have a home in the UK, they must not have sufficient ties to make them UK resident. The UK ties are determined by applying the Tables in paragraphs 18 and 19 (and Part 2 as far as it relates to those paragraphs) with the adjustments specified in sub-paragraphs (6) and (7) of paragraph 51.

General rules for construing Cases 1 to 8

105. Paragraph 52 defines the meaning of terms used in paragraphs 44 to 51 and sets out how to calculate numbers of days in applying those paragraphs.

106. Sub-paragraph (2) of paragraph 52 specifies that the previous tax year is the one immediately before the tax year that is being considered.

107. Sub-paragraph (3) of paragraph 52 specifies that the next tax year is the one following the tax year that is being considered.

108. Sub-paragraph (4) of paragraph 52 specifies the meaning of a partner for the purposes of this schedule.

109. Sub-paragraph (5) of paragraph 52 specifies the method of rounding where a permitted limit calculation results in a number of days that is not a whole number.

The overseas part

110. Sub-paragraph (1) of paragraph 53 defines “the overseas part” of a split year as the part of the year as defined for the case in question or, if the taxpayer falls within more than one case, as defined in the case that has priority under paragraph 54 or 55.

111. Sub-paragraphs (2) to (9) of paragraph 53 specify the overseas part of a split year as the part of the year which:

• for Case 1, begins with the first day on which the individual meets the full-time work overseas criteria or, if there is more than one such period, the part beginning with the first day of the longest of those periods;

• for Case 2, begins on the deemed departure day;

• for Case 3, begins when the individual ceases to have any home in the UK;

• for Case 4, the part before the day on which the individual meets the only home test;

• for Case 5, the part before the first day of the period in which the individual works sufficient hours in the UK or, if there is more than one such period, the part before the first of those periods begins;

• for Case 6, the part ending with the last day of the period in which the individual satisfies the overseas work criteria or, if there is more than one such period, the last day of the longest of those periods;

• for Case 7, the part before the deemed arrival day;

• for Case 8, the part before the point in the tax year on which the taxpayer begins to have a home in the UK.

Priority between Cases 1 to 3

112. Paragraph 54 sets out the priority between Cases 1, 2 and 3 which deal with individuals who were UK resident in the previous year (i.e. are ‘leaving’ the UK).

Priority between Cases 4 to 8

113. Paragraph 55 sets out the priority between Cases 4, 5, 6, 7 and 8 which deal with individuals who were not resident in the UK in the previous year (i.e. are ‘coming’ to the UK).

The UK part

114. Paragraph 56 defines the “UK part” of a split year as the part of that year that is not the overseas part (see paragraph 53).

Special charging rules for employment income

115. Paragraphs 57 to 71 amend certain provisions in ITEPA that charge various types of employment income to tax where the charge depends on the residence status of the taxpayer. The individual is charged for the overseas part of a year as if non-UK resident.

116. Paragraph 58 amends section 15 of ITEPA so that general earnings attributable to the overseas part of a split year are not charged to tax unless the earnings relate to duties performed in the UK or to overseas Crown employment that is subject to UK tax. Attribution of earnings between the two parts of the year is to be done on a just and reasonable basis.

117. Paragraph 59 amends section 22 of ITEPA to exclude general earnings taxable as chargeable overseas earnings on the remittance basis (as specified in section 23 of ITEPA) from the charge to tax on general earnings set by the amended section 15 of ITEPA. The provisions of section 22 are further amended by Schedule 46 on ordinary residence.

118. Paragraph 60 amends the definition of chargeable overseas earnings in section 23 of ITEPA to take into account whether a year is a split year. Attribution of earnings between the two parts of the year is to be done on a just and reasonable basis.

119. Paragraph 61 amends section 24 of ITEPA to take into account whether a year is a split year. Attribution of earnings between the two parts of the year is to be done on a just and reasonable basis.

120. Paragraph 62 amends section 26 of ITEPA so that it only applies to foreign earnings taxable on the remittance basis that are attributable to the UK part of a split year. Attribution of earnings between the two parts of the year is to be done on a just and reasonable basis. The provisions of section 26 are further amended by Schedule 46 on ordinary residence.

121. Paragraph 63 amends section 232 of ITEPA so that the deduction for mileage allowance relief is restricted where earnings include ‘excluded earnings’ within section 15 of ITEPA.

122. Paragraph 64 amends section 329 of ITEPA so that the limit on deductions from earnings allowable for a split year takes into account that overseas earnings for the overseas part of the year may have been excluded from the charge to tax.

123. Paragraph 65 amends the definition of ‘other relevant income’ in section 394 of ITEPA. Section 394 provides that the value of a relevant benefit that a person receives under an employer-financed retirement scheme (EFRBS) is chargeable to tax as employment income only to the extent that the value received exceeds ‘other relevant income’ which that benefit gives rise to.

124. Sub-paragraphs (2) and (3) of paragraph 65 provide that when a relevant benefit is received under an EFRBS the following amounts in respect of the EFRBS are included in ‘other relevant income’ to determine how much of the relevant benefit counts as employment income by virtue of section 394(1):

• Such amounts chargeable to tax as general earnings or counting as employment income under Chapter 2 of Part 7A of ITEPA (employment income provided through third parties) in any tax year and

• Such amounts that would have been chargeable to tax as general earnings but not so chargeable because the employee either was not resident in the UK or was entitled to split year treatment for any tax year and

• Such amounts that would have counted as employment income under Chapter 2 of Part 7A of ITEPA but did not so count because the employee either was not resident in the UK or was entitled to split year treatment for any tax year.

‘Relevant benefits’ are defined in section 393B of ITEPA and are most commonly but not exclusively received in connection with retirement. Part 3 of this Schedule makes provisions for split year treatment.

125. Paragraph 66 amends section 421E of ITEPA to set out the conditions attaching to the exclusions from charges under Chapters 2, 3 and 4 of Part 7 of ITEPA that apply to employment-related securities respectively acquired in a tax year of residence (new subsection (1)), in the UK part of a split year (new subsection (1A)) and in the overseas part of a split year (new subsection (1B)). It also amends section 421E so that the charges under Chapters 3A to 3D of Part 7 apply to employment-related securities if they were acquired in the overseas part of a year which is split under Case 1, 2 or 3 (as specified in paragraphs 44, 45 and 46) and, had it not been a split year, all or part of earnings (or if there had been earnings, those earnings) at the time of acquisition would have been general earnings under sections 15, 22 or 26 of ITEPA.

126. Paragraph 67 amends section 474 of ITEPA so that Chapter 5 (apart from sections 473 and 483) of Part 7 does not apply in the circumstances specified to an employment-related securities option respectively acquired in a tax year of residence (new subsection (1)), in the UK part of a split year (new subsection (1A)) and in the overseas part of a split year (new subsection (1B)).

127. Paragraph 68 amends section 554Z4 of ITEPA so that, where a tax year is split, the value of a relevant step is reduced by the amount of the value that is attributable to the overseas part of the year and is not in respect of UK duties. Attribution of value between the two parts of the year is to be done on a just and reasonable basis.

128. Paragraph 69 amends section 554Z6 of ITEPA so that relevant earnings are excluded from the application of section 554Z6 if they are earnings attributable to the overseas part of a split year and are not earnings relating to duties performed in the UK or to overseas Crown employment that is subject to UK tax.

129. Paragraph 70 amends section 554Z9 of ITEPA so that employment income of the UK part of a split year is treated in the same way as employment income of a full year of residence for the purposes of that section. The provisions of section 554Z9 are further amended by Schedule 46 on ordinary residence.

130. Paragraph 71 makes changes to section 554Z10 of ITEPA that are consequential to the changes made to section 554Z4 and introduces a new term ‘the overseas portion’ to identify the employment income not attributable to UK duties. The provisions of section 554Z10 are further amended by Schedule 46 on ordinary residence.

Special charging rules for pension income

131. Paragraph 72 amends section 575 of ITEPA so that, in the case of a split year, the taxable foreign pension income for the year is that arising in the UK part of the year.

PAYE income

132. Paragraph 73 amends section 690 of ITEPA so that an officer of Her Majesty’s Revenue & Customs can authorise a direction under that section if it appears likely to that officer that split year treatment applies in a tax year and that the employee works or will work both in the UK and overseas.

Special rules for trading income

133. Paragraph 75 amends section 6 of ITTOIA so that, in the case of a split year, for the overseas part of the year the section has effect as if the individual is non-UK resident.

134. Paragraph 76 amends section 17 of ITTOIA so that if an individual is carrying on a trade, profession or vocation wholly or partly outside the UK other than in partnership, in the case of a split year the individual is treated as ceasing and immediately recommencing a new trade, profession or vocation at the beginning of whichever is the later of the UK part and the overseas part of the year.

135. Paragraph 77 amends section 243 of ITTOIA so that, in the case of a split year, for the overseas part of the year the section has effect as if the individual is non-UK resident.

136. Paragraph 78 amends section 849 of ITTOIA so that, in the case of a split year, for the overseas part of the year the section has effect as if the partner is non-UK resident.

137. Paragraph 79 amends section 852 of ITTOIA so that if a partner has a change of residence the partner is treated as ceasing one notional trade and immediately commencing another and, in the case of a split year, is treated as ceasing and immediately recommencing at the beginning of whichever is the later of the UK part and the overseas part of the year.

138. Paragraph 80 amends section 854 of ITTOIA so that if a partner has a change of residence the partner is treated as ceasing one notional business and immediately commencing another and, in the case of a split year, is treated as ceasing and immediately recommencing at the beginning of whichever is the later of the UK part and the overseas part of the year.

Special charging rules for property income

139. Paragraph 81 amends section 270 of ITTOIA so that where an individual is carrying on an overseas property business, in the case of a split year, tax is charged only on profits of the business that arise in the UK part of the year. Apportionment of profit between the two parts of the year is to be done on a just and reasonable basis.

140. New subsection (4)(b) of section 270 introduces a rule to determine how capital allowances and balancing charges are taken into account in a split year.

Special charging rules for savings and investment income

141. Paragraph 83 amends section 368 of ITTOIA so that if income within Part 4 of ITTOIA arises to an individual in the overseas part of a split year it is treated as arising to a non-UK resident. Income arising to a non-resident is generally only chargeable if it is UK source income, but this is subject in particular to the rules for temporary non-residents (see Part 4 of this Schedule).

142. Paragraph 84 amends section 465 of ITTOIA so that, in the case of a split year, the individual is not liable to tax under Chapter 9 of Part 4 on gains arising in the overseas part of the year. But see Part 4 of this Schedule in relation to an individual who is temporarily non-resident.

143. Paragraph 85 amends section 467 of ITTOIA to include an additional absent settlor condition under subsection (4), which is that the gain arises in the overseas part of a split tax year applicable to the individual who created the trusts.

144. Paragraph 86 amends section 528 of ITTOIA to take into account days in the overseas part of a split year as well as days in a full year of non-residence in reducing the amount of the gain to be charged. This section is substituted by Schedule 8 to this Act dealing with chargeable event gains but continues in force for policies not covered by the new section. Accordingly, the amendments made by sub-paragraphs (3) to (6) of paragraph 86 apply to the new section 528 and the amendments made by sub-paragraphs (8) to (10) of paragraph 86 apply to the old section 528. If the period being considered is before 6 April 2013 then the reference to a split year is applied as if it referred to the relevant Extra-Statutory Concession then in force (usually ESC A11) – see paragraph 155.

145. Paragraph 87 amends section 528A of ITTOIA which is inserted by Schedule 8 to this Act dealing with chargeable event gains. It provides relief in respect of a deceased person’s policy corresponding to that for individuals in section 528 of ITTOIA. The amendments correspond to those made by paragraph 86.

146. Paragraph 88 amends section 536 of ITTOIA (as itself amended by Schedule 8 to this Act dealing with chargeable event gains) to reflect the changes made to section 528 of ITTOIA.

Special charging rules for miscellaneous income

147. Paragraph 89 amends section 577 of ITTOIA so that if income falling under Part 5 arises to an individual in the overseas part of a split year it is treated under this section as arising to a non-UK resident.

Special charging rules for relevant foreign income charged on remittance basis

148. Paragraph 90 amends section 832 of ITTOIA to provide that an individual who is taxed on the remittance basis will be subject to UK tax on all relevant foreign income remitted in a tax year in which they are UK resident, or, if that year is a split year as respects the individual, on all relevant foreign income which they remit in the UK part of that year.

149. Paragraph 91 amends three provisions in Chapter 2 of Part 13 of ITA as a consequence of the amendments made to section 832 of ITTOIA.

Special charging rules for capital gains

150. Paragraph 93 amends section 2 of TCGA so that, in the case of a split year, an individual is not chargeable to capital gains tax on chargeable gains accruing to the individual in the overseas part of the year. This rule does not apply where gains are charged on a non-resident under section 10 of TCGA and is subject to the rules for temporary non-residents in section 10A of TCGA. The provisions of section 2 are further amended by Schedule 46 on ordinary residence.

151. Paragraph 94 amends section 3A of TCGA so that the period taken into consideration for the purpose of the amount of chargeable gains or chargeable disposals is, in the case of a split year applicable to the individual, the UK part of the year.

152. Paragraph 95 amends section 12 of TCGA so that, in the case of a split year when gains are remitted, they are treated as accruing to the individual in whichever part of the year (overseas part or UK part) in which the foreign gains are actually remitted to the UK. The provisions of section 12 are further amended by Schedule 46 on ordinary residence.

153. Paragraph 96 amends section 13 of TCGA so that, in the case of a split year for a participator in the company, the chargeable gain that accrues to the company in the overseas part of the year is not treated as accruing to the participator.

154. Paragraph 97 amends section 16 of TCGA so that, in the case of a split year for an individual, the loss accruing to the individual in the overseas part of the year is not an allowable loss under the Act.

155. Paragraph 98 amends section 16ZB of TCGA to reflect the fact that foreign chargeable gains remitted to the UK are treated under section 12 of TCGA as accruing to the individual in whichever part of the year (overseas part or UK part) the gains are remitted to the UK.

156. Paragraph 99 amends section 16ZC of TCGA so that the foreign chargeable gains in subsection (3)(a) and (b) respectively take into account that the relevant year may be a split year.

157. Paragraph 100 amends section 86 of TCGA so that, in the case of a split year for the settlor, the chargeable gains treated as accruing to the settlor are treated as accruing in the UK part of the year. The provisions of section 86 are further amended by Schedule 46 on ordinary residence.

158. Paragraph 101 amends section 87 of TCGA so that, if the year is a split year for the beneficiary, the amount on which the beneficiary is chargeable to capital gains tax under this section is the portion of the total that would have been chargeable for a full year of residence attributable on a time basis to the UK part of the year. The provisions of section 87 are further amended by Schedule 46 on ordinary residence.

Trustees of a settlement

159. Paragraph 102 amends section 69 of TCGA, which contains the residence rules of a body of trustees for capital gains tax purposes. Under the statutory residence test, an individual trustee who is resident in the UK for a year is resident for every day in that year, including those days that fall within the overseas part of a split year for that individual. The amendment provides that if the individual is a trustee of a settlement only in the overseas part of a split year then he or she is treated as not resident for that year in applying the residence rules to that settlement. This exception is overridden if the trustee is acting as such in the course of a UK business.

160. Paragraph 103 amends section 475 of ITA which contains the residence rules of a body of trustees for income tax purposes. It makes equivalent changes to those made for capital gains tax by the previous paragraph.

Definitions in enactments relating to income tax and CGT

161. Paragraph 104 amends section 288 of TCGA to insert definitions of a “split year” and “the overseas part” and “the UK part” of a split year.

162. Paragraph 105 amends Part 2 of Schedule 1 to ITEPA to insert cross-references to the ITA definitions of a “split year” and “the overseas part” and “the UK part” of a split year.

163. Paragraph 106 amends Part 2 of Schedule 4 to ITTOIA to insert cross-references to the ITA definitions of a “split year” and “the overseas part” and “the UK part” of a split year.

164. Paragraph 107 amends section 989 of ITA to insert definitions of a “split year” and “the overseas part” and “the UK part” of a split year.

165. Paragraph 108 amends Schedule 4 to ITA to insert entries relating to “split year”, “the overseas part” and “the UK part” of a split year.

Part 4.Anti-avoidance

Introduction

166. Paragraph 109 gives an overview of the content of this Part. This Part amends existing rules which apply to income and gains arising during a period of temporary non-residence and introduces new charges for certain income and gains not presently covered by such rules. In addition to the provisions amended or introduced by this Part there are two similar charges in secondary legislation (SI 2006/1958 (pension schemes, taxable property) and SI 2009/3001 (offshore funds)). Those provisions are brought into line with the rules in this Part by SI 2013/1810.

Meaning of temporarily non-resident

167. Paragraph 110 specifies that an individual is regarded as “temporarily non-resident” if he or she has sole UK residence for a residence period and, immediately following that period (referred to as period A), one or more residence periods occur for which the individual does not have sole UK residence. “Sole UK residence” is defined in paragraph 112 and “residence period” is defined in paragraph 111. In addition, in 4 or more tax years out of the 7 tax years immediately preceding the year of departure (a term defined in paragraph 114), the individual must have had either sole UK residence or the year must have been a split year that included a residence period for which the individual had sole UK residence. Finally, the temporary period of non-residence (see paragraph 113) must be 5 years or less.

168. The provisions in this Part apply if the period of temporary non-residence is 5 years or less. This is a change from the former temporary non-residence provisions which applied if there are fewer than 5 tax years (‘intervening years’) between the year of departure and the year of return.

Residence periods

169. Paragraph 111 defines a “residence period” as a tax year that is not split, or the overseas part or the UK part of a split year.

Sole UK residence

170. Paragraph 112 defines “sole UK residence” for a residence period as the individual being UK resident for an entire tax year and not Treaty non-resident, or the UK part of a split year and not Treaty non-resident in that part. “Treaty non-resident” is defined in sub-paragraph (3) of paragraph 112.

Temporary period of non-residence

171. Paragraph 113 defines “the temporary period of non-residence” as the period between the end of period A and the start of the next residence period after period A for which the individual has sole UK residence.

Year of departure

172. Paragraph 114 defines “the year of departure” as the tax year consisting of or including period A. It should be noted that this year may be earlier than the year in which the individual actually leaves the UK.

Period of return

173. Paragraph 115 defines “the period of return” as the first residence period after period A for which the individual has sole UK residence.

Consequential amendments: income tax

174. Paragraph 116 substitutes a new section 576A of ITEPA. Both the existing and new sections 576A provide that a withdrawal from a flexible drawdown pension fund under a relevant non-UK scheme during a period of temporary non-residence is to be treated as pension income when the individual returns to the UK. The new section 576A ensures the existing provision is made consistent with the other provisions in Part 4 of this Schedule.

175. Subsection (1) of new section 576A provides that the section applies to persons who are “temporarily non-resident” (as defined in paragraph 110).

176. Subsection (2) of new section 576A provides that relevant withdrawals are to be treated as pension income arising in the period of return (as defined in paragraph 115) for the purposes of section 575 of ITEPA. Section 575 provides that the amount of pension arising when a pension is paid by or on behalf of a person outside the UK to a person who is resident in the UK is taxable pension income.

177. Subsections (3) and (4) of new section 576A define a “relevant withdrawal” for the purpose of subsection (2).

178. Subsection (3)(a) of new section 576A provides that a relevant withdrawal must be paid during a period of temporary non-residence.

179. Subsection (3)(b) of new section 576A provides that a relevant withdrawal is a withdrawal that is either not chargeable to tax under Part 9 of ITEPA or, if it is so chargeable to tax, it would not be if the chargeable person made a claim under a double taxation agreement.

180. Subsection (4) of new section 576A provides that a relevant withdrawal is a withdrawal that is paid under a flexible drawdown arrangement relating to the person under a relevant non-UK scheme and would be an authorised pension or pension death benefit if the scheme paying it were a registered pension scheme. “Relevant non-UK scheme” is defined in paragraph 1 of Schedule 34 to FA 2004. The pension rules and the pension death benefit rules in relation to registered pension schemes are defined in sections 165 and 167 of FA 2004.

181. Subsection (5) of new section 576A provides that when an individual is chargeable to tax on the remittance basis for the year of return and both made a relevant withdrawal and remitted it to the UK during the period of temporary non-residence, the amount remitted is to be treated as having been remitted to the UK in the period of return.

182. Subsection (6) of new section 576A provides that the section does not apply unless the withdrawal from a flexible drawdown pension fund is referable to either the individual’s UK tax-relieved fund or their relevant transfer fund. A member’s UK tax-relieved fund is created by the accumulation of pension rights supported by UK tax relief. A member’s relevant transfer fund is created by the transfer to the relevant non-UK scheme from a registered pension scheme or from another relevant non-UK scheme.

183. Subsection (7) of new section 576A provides that no double taxation relief arrangement is to be read as preventing a charge to tax under section 575 of ITEPA from arising by virtue of section 576A.

184. Subsections (8) to (10) of new section 576A provide statutory cross-references for terms used in the section but defined in legislation elsewhere.

185. Paragraph 117 substitutes a new section 579CA of ITEPA. Both the existing and the new sections 579CA provide that a withdrawal from a flexible drawdown pension fund under a registered pension scheme during a period of temporary non-residence is to be treated as pension income when the individual returns to the UK. The new section 579CA ensures the existing provision is made consistent with the other provisions in Part 4 of this Schedule.

186. Subsection (1) of new section 579CA provides that the section applies to persons who are “temporarily non-resident” (as defined in paragraph 110).

187. Subsection (2) of new section 579CA provides that relevant withdrawals are to be treated as pension income arising in the period of return (as defined in paragraph 115) for the purposes of section 579B of ITEPA. Section 579B provides that the amount of pension accruing when a pension is paid under a registered pension scheme is taxable pension income.

188. Subsection (3)(a) of new section 579CA provides that a withdrawal is not a relevant withdrawal unless it is paid during a period of temporary non-residence (as defined in paragraph 113).

189. Subsection (3)(b) of new section 579CA provides that a withdrawal is not a relevant withdrawal unless it is either not chargeable to tax under Part 9 of ITEPA or, if it is so chargeable to tax, it would not be if the chargeable person made a claim under a double taxation agreement.

190. Subsection (4) of new section 579CA provides that a withdrawal is not a relevant withdrawal unless it is paid under a flexible drawdown arrangement relating to the person under a registered pension scheme and is an authorised pension or pension death benefit. The pension rules and the pension death benefit rules in relation to registered pension schemes are defined in sections 165 and 167 of FA 2004.

191. Subsection (5) of new section 579CA provides that no double taxation relief arrangement is to be read as preventing a charge to tax under section 579B of ITEPA from arising by virtue of section 579CA.

192. Subsections (6) and (7) of new section 579CA provide statutory cross-references for terms used in the section but defined in legislation elsewhere.

193. Paragraph 118 substitutes a new section 832A of ITTOIA which applies to individuals who are temporarily non-resident and taxed on the remittance basis. It provides that where such individuals remit relevant foreign income to the UK during the period of non-residence, they will be treated as having remitted that relevant foreign income to the UK in the period of return.

194. Subsection (4) of new section 832A provides that any apportionment which is required to determine the amount of relevant foreign income which relates to the UK part of a tax year must be done on a just and reasonable basis.

195. Subsection (5) of new section 832A provides that nothing in any double taxation arrangements is to be read as preventing relevant foreign income which is treated by this section as remitted to the UK in the period of return from being chargeable to UK tax.

196. Subsection (7) of new section 832A provides that the term “double taxation arrangements” means arrangements which have effect under section 2(1) of TIOPA.

Consequential amendments: capital gains tax

197. Paragraph 119 replaces existing section 10A of TCGA with new sections 10A and 10AA. The new section 10A replaces the concepts of intervening year, year of departure and year of return in the existing section with temporary period of non-residence (defined in paragraph 113), year of departure (defined in paragraph 114) and period of return (defined in paragraph 115).

198. The amendment to section 2 of TCGA in paragraph 93 means that gains arising in the overseas part of a split year will not be charged under that section but will instead be charged under new section 10A of TCGA if the individual meets the temporary non-resident conditions set out in this Part.

199. Subsection (1) of new section 10A restricts the scope of the section so that it only applies if an individual is temporarily non-resident (as defined in paragraph 110).

200. Subsection (2) of new section 10A provides that the individual’s gains or losses within subsection (3) are chargeable to capital gains tax as if they were chargeable gains or losses accruing to the individual in the period of return.

201. Subsections (3) to (5) of new section 10A replace the existing subsections (2), (5) and (9B) and take into account split years. The more general carve-out in subsection (5) enables the structure of the legislation to be simplified and also corrects a defect in the current legislation which prevents a charge in certain cases of treaty non-residence.

202. Subsection (6) of new section 10A provides that subsection (2) is subject to sections 10AA and 86A of TCGA.

203. Subsections (7) and (8) of new section 10A replicates the effect of the existing rules in subsection (6) that limit the losses available in accordance with section 13 of TCGA.

204. Subsection (9) of new section 10A replicates the effect of the existing subsection (9ZA).

205. Subsection (10) of new section 10A provides that the terms temporarily non-resident, temporary period of non-residence and the period of return are as defined in Part 4 of this Schedule.

206. Subsection (11) of new section 10A provides the meanings of foreign chargeable gains, remitted to the United Kingdom and year of return.

207. New section 10AA of TCGA contains provisions supplementary to new section 10A of TCGA.

208. Subsection (1) of new section 10AA replicates the effect of the existing section 10A paragraphs (3)(a), (b), (c) and (d).

209. Subsection (2) of new section 10AA defines the term “relevant disposal” for the purposes of section 10AA.

210. Subsection (3) of new section 10AA replicates the effect of subsection (4) of the existing section 10A.

211. Subsection (4) of new section 10AA replicates the effect of subsection (9C) of the existing section 10A.

212. Subsection (5) of new section 10AA replicates the effect of subsection (7) of the existing section 10A.

213. Paragraph 120 substitutes a new section 86A of TCGA to make it compatible with new section 10A of TCGA and to correct for consequential amendments that were missed in FA 2008. New section 86A ensures that gains that are taxed under section 86 of TCGA in a period of return because section 10A applies do not include gains that have already been charged to tax under section 87 of TCGA. This may happen if non-UK resident trustees make capital payments to beneficiaries that section 87A of TCGA matches to trustees’ gains that accrued in a period of temporary non-residence for the settlor.

214. Subsection (1) of new section 86A gives the conditions for the section to apply.

215. Subsection (2) of new section 86A gives the definition of “matched capital payment”.

216. Subsection (3) of new section 86A provides for the amount charged on the returning settlor under section 86 of TCGA to be reduced if new section 86A applies.

217. Subsection (4) of new section 86A sets out the amount of the reduction.

218. Subsection (5) of new section 86A sets out the amount by which the trustees’ gains available to be matched under section 87 of TCGA are reduced if those gains have been taxed under section 86 of TCGA as modified by new section 86A.

219. Subsections (6) and (7) of new section 86A also deal with the reduction of the trustees’ gains. The rules ensure that the reduction cannot take the gains below zero. It will apply if capital payments have been made to which the reduction in new section 86A does not apply because they are not charged to tax.

220. Subsection (8) of new section 86A provides various definitions.

221. Paragraph 121 amends section 96 of TCGA. The changes are consequential to the changes made to section 10A of TCGA.

222. Paragraph 122 amends section 279B of TCGA. The changes are consequential to the changes made to section 10A of TCGA.

223. Paragraph 123 amends Schedule 4C to TCGA. The changes are consequential to the changes made to section 10A of TCGA.

224. The remaining provisions in this Part insert new rules into ITEPA, ITTOIA and ITA concerning the taxation of certain income and gains arising in a temporary period of non-residence.

New special rule: lump sum payments under pension schemes etc

225. Paragraph 124 introduces paragraphs 125 to 130 which amend ITEPA in connection with lump sums paid under pension schemes that are not registered pension schemes.

226. Paragraph 125 amends ITEPA to insert a new section 394A. New section 394A applies to certain lump sums paid under employer-financed retirement benefit schemes (‘EFRBS’).

227. Subsection (1) of new section 394A provides that the section applies to individuals who are temporarily non-resident (as defined in paragraph 110).

228. Subsection (2) of new section 394A provides that the benefits described in subsection (3) are to be treated as if they were received in the period of return (as defined in paragraph 115).

229. Subsections (3)(a) to (c) of new section 394A provide that the section applies to relevant benefits provided in the form of a lump sum, when received by an individual during a temporary period of non-residence (as defined in paragraph 113).

230. Subsection (3)(d) of new section 394A provides that the section applies when the lump sum in question is not subject to tax under section 394 but would be subject to tax if the existence of double tax relief arrangements were disregarded.

231. Subsection (4) of new section 394A provides that there will be regarded as being no charge to tax for the purpose of section 394(3)(d)(i) where the person could make a claim to double taxation relief but has not yet done so.

232. Subsection (5) of new section 394A provides that subsection (2) does not affect the operation of section 394(1A).

233. Subsection (6) of new section 394A provides that no double taxation relief arrangement is to be read as preventing the value of the benefit from counting as employment income by virtue of section 394 as a result of section 394A applying.

234. Subsections (7) and (8) of new section 394A provide statutory cross-references for terms used in the section but defined in legislation elsewhere.

235. Paragraph 126 amends ITEPA to insert a new section 554Z4A. New section 554Z4A applies to certain relevant steps taken by relevant third persons providing employment income.

236. Subsection (1) of new section 554Z4A provides that the section applies to individuals who are temporarily non-resident (as defined in paragraph 110).

237. Subsection (2) of new section 554Z4A provides that the relevant steps described in subsection (3) are to be treated as if they were taken in the period of return.

238. Subsection (3)(a) to (c) of new section 554Z4A provide that the section applies to relevant steps comprising payment of a lump sum relevant benefit by a relevant third person under a relevant arrangement, when the step is taken during a temporary period of non-residence (as defined in paragraph 113). The term “relevant benefit” is defined in section 393B of ITEPA. The terms “relevant arrangement” and “relevant third person” are defined in section 554A of ITEPA.

239. Subsection (3)(d) of new section 554Z4A provides that the section applies when the step does not give rise to a charge to tax by virtue of section 554Z2 of ITEPA but such a charge would arise if the existence of double tax relief arrangements were disregarded.

240. Subsection (4) of new section 554Z4A provides that there will be regarded as being no charge to tax for the purpose of section 554Z4A(3)(d)(i) where the person could make a claim to double taxation relief but has not yet done so.

241. Subsection (5) of new section 554Z4A provides that no double taxation relief arrangement is to be read as preventing the value of the relevant step from counting as employment income by virtue of section 554Z2 of ITEPA.

242. Subsections (6) and (7) of new section 554Z4A provide statutory cross-references for terms used in the section but defined in legislation elsewhere.

243. Paragraph 127 amends ITEPA to insert a new section 554Z11A. New section 554Z11A applies to certain amounts remitted to the UK.

244. Subsection (1) of new section 554Z11A provides that the section applies to individuals who are temporarily non-resident (as defined in paragraph 110).

245. Subsection (2) of new section 554Z11A provides that the amounts described in subsection (3) are to be treated as if they were remitted to the UK in the period of return.

246. Subsections (3)(a) to (c) of new section 554Z11A provide that the section applies if all or part of a lump sum relevant benefit provided to a relevant person by a relevant third person under a relevant arrangement is remitted to the UK during a temporary period of non-residence (as defined in paragraph 113). The term “relevant benefit” is defined in section 393B of ITEPA. The terms “relevant arrangement” and “relevant third person” are defined in section 554A of ITEPA. The definition of a “relevant person” is in section 554C of ITEPA.

247. Subsection (3)(d) of new section 554Z11A provides that the section applies when the amount remitted does not give rise to a charge to tax by virtue of section 554Z9 or section 554Z10 of ITEPA but such a charge would arise if the existence of double tax relief arrangements were disregarded.

248. Subsection (4) of new section 554Z11A provides that there will be regarded as being no charge to tax for the purpose of section 554Z11A(3)(d)(i) where the person could make a claim to double taxation relief but has not yet done so.

249. Subsection (5) of new section 554Z11A provides that no double taxation relief arrangement is to be read as preventing the value of the relevant step from giving rise to tax by virtue of Chapter 2 of Part 7A of ITEPA.

250. Subsections (6) and (7) of new section 554Z11A provide statutory cross-references for terms used in the section but defined in legislation elsewhere.

251. Paragraph 128 amends section 554Z12 of ITEPA in connection with relevant steps within new sections 554Z4A and 554Z11A when the steps are taken after A has died during a period for which the relevant person was temporarily non-resident. The amendments provide that the relevant step in question is treated as taken in the relevant person’s period of return unless the relevant person’s temporary period of non-residence started before A died.

252. Paragraph 129 inserts a new section 572A into ITEPA. New section 572A applies to certain lump sums paid by UK pension schemes.

253. Subsection (1) of new section 572A provides that the section applies to individuals who are temporarily non-resident.

254. Subsection (2) of new section 572A provides that any pension within subsection (3) is to be treated as if it accrued in the period of return.

255. Subsection (3) of new section 572A prescribes the conditions that need to be satisfied in order for the section to apply. The conditions are that

• section 569 of ITEPA applies to the lump sum;

• the pension is paid in the form of a lump sum;

• the lump sum accrued during a period in which the individual was temporarily non-resident;

• the lump sum is not chargeable to tax as a United Kingdom pension under Chapter 3 of Part 9 of ITEPA but it would be so chargeable if there were no double tax arrangements under which the individual could claim an exemption from UK tax in respect of the lump sum.

256. Subsection (4) of new section 572A provides that there will be regarded as being no charge to tax for the purpose of subsection (3)(d)(i) where the person could make a claim to double taxation relief but has not yet done so.

257. Subsection (5) of new section 572A provides that no double taxation relief arrangements are to be read as preventing the pension to which the section applies from giving rise to tax in the period of return.

258. Subsections (6) and (7) of new section 572A provide statutory cross-references for terms used in the section but defined in legislation elsewhere.

259. Paragraph 130 amends section 683 of ITEPA (PAYE income) in connection with amounts that are treated as employment income or pension income for a period of return by virtue of new sections 394A, 554Z4A, 572A or 579CA of ITEPA. The amendments provide that there is no requirement to operate PAYE in respect of any employment income or pension income which is chargeable to tax by virtue of one of those sections.

New special rule: distributions to participators in close companies etc

260. Paragraph 131 introduces paragraphs 132 to 136 which amend Part 4 of ITTOIA. They provide new charges on UK and foreign dividends and other distributions received (including loans being released) during a temporary period of non-residence.

261. Paragraph 132 inserts new section 368A in Chapter 1 of Part 4 of ITTOIA. It explains that the meaning of certain terms used in the temporary non-residence provisions is given by Part 4 of this Schedule. It also contains a general rule providing that no double taxation relief arrangement is to be read as preventing a charge to income tax arising by virtue of the temporary non-residence provisions.

262. Paragraph 133 inserts new section 401C in Chapter 3 of Part 4 of ITTOIA. This provision charges relevant UK distributions that arose during a temporary period of non-residence in relation to a year for which the individual was resident, but the UK charge was limited by the terms of a double taxation treaty. If the UK distribution arose in a year for which the individual was non-resident, new section 812A applies instead (see paragraph 138).

263. Subsection (1) of new section 401C provides the conditions for the section to apply. Where there is a double taxation treaty in place between the UK and the territory in which the individual is temporarily non-resident the tax charge when the relevant distribution is made will have been eliminated or restricted to 10% or 15% of the distribution (including the one-ninth tax credit if applicable).

264. Subsections (2) to (4) of new section 401C provide that the amount of the Chapter 4 charge is added to total income in the year of return with a credit for the tax on the distribution itself so as to avoid double taxation.

265. Subsection (5) of new section 401C explains the taxation treatment if the distribution is made in the treaty non-resident part of the year of return.

266. Subsection (6) of new section 401C defines ‘relevant distribution’. The company making the distribution must be a close company and the individual must have been a material participator or an associate of a material participator in the company.

267. Subsection (7) of new section 401C provides that new section 401C does not apply to cash dividends that are paid in respect of post-departure trade profits.

268. Subsection (8) of new section 401C defines the term ‘post-departure trade profits’ for the purposes of subsection (7) as those arising to the company in an accounting period which begins after the start of the temporary period of non-residence and, where such profits arise in an accounting period straddling the start of that temporary period, so much of those profits which can be attributed, on a just and reasonable basis, to the time after the start of that temporary period.

269. Subsection (9) of new section 401C provides that the extent to which a dividend is paid in respect of post-departure trade profits should be determined on a just and reasonable basis.

270. Subsection (10) of new section 401C provides that the amount of tax to be allowed against the charge under this provision is so much as the tax paid for the year in which the distribution was made as is just and reasonable to attribute to the distribution.

271. Subsection (11) of new section 401C provides in applying section 393 (special rule for cash dividends on shares in an approved share incentive plan) a reference to a distribution being made is to a cash dividend being paid over.

272. Subsection (12) of new section 401C defines terms used in this section.

273. Paragraph 134 inserts new section 408A in Chapter 4 of Part 4 of ITTOIA (which deals with foreign dividends).

274. Subsection (1) of new section 408A provides that this section applies to an individual who is temporarily non-resident.

275. Subsection (2) of new section 408A provides that dividends are to be treated for the purpose of Chapter 4 as if the individual received or became entitled to them in the period of return.

276. Subsection (3) of new section 408A sets out the conditions that must apply for a dividend to fall within subsection (2). These conditions are that:

• the individual receives or becomes entitled to the dividend in the temporary period of non-residence by virtue of being either a material participator in the company or an associate of such a participator at a relevant time;

• the dividend is from a company which would be a close company if it were UK resident; and,

• in the absence of this section, the individual would not be liable for tax under Chapter 4 in respect of the dividend but would have been so liable if they had received or become entitled to it in the period of return.

277. Subsection (4) of new section 408A defines the terms ‘associate’, ‘participator’, ‘material participator’ and ‘relevant time’ for the purposes of subsection (3) and provides that the subsection also applies where double taxation relief is available for the tax liability in question, even if no claim for such relief is actually made.

278. Subsection (5) of new section 408A provides that, where an individual is taxed on the remittance basis for the year of return, any dividend within subsection (3) which is remitted to the UK in the temporary period of non-residence will be treated as remitted to the UK in the period of return.

279. Subsection (6) of new section 408A provides that new section 408A does not apply to dividends within subsection (3) which are paid in respect of post-departure trade profits.

280. Subsection (7) of new section 408A defines the term ‘post-departure trade profits’ for the purposes of subsection (6) as those arising to the company in an accounting period which begins after the start of the temporary period of non-residence and, where such profits arise in an accounting period straddling the start of that temporary period, so much of those profits which can be attributed, on a just and reasonable basis, to the time after the start of that temporary period.

281. Subsection (8) of new section 408A provides that the extent to which a dividend is paid in respect of post-departure trade profits should be determined on a just and reasonable basis.

282. Subsection (9) of new section 408A provides that, where section 406 or 407 of ITTOIA applies to the dividend, references in this section to a dividend being received by the individual are to a cash dividend being paid to the individual or to a dividend treated as paid to the individual

283. Subsection (10) of new section 408A defines terms used in this section.

284. Paragraph 135 inserts new section 413A in Chapter 5 of Part 4 of ITTOIA. The section applies to stock dividends from UK companies in the same way that new section 401C applies to other distributions from UK companies. Accordingly, the commentary in paragraphs 262 to 272 above applies with appropriate modifications.

285. Paragraph 136 inserts new section 420A in Chapter 6 of Part 4 of ITTOIA. This provision applies to loans released in a period of temporary non-residence.

286. Subsection (1) of new section 420A provides that this section applies where an individual is temporarily non-resident.

287. Subsection (2) of new section 420A provides that debts within subsection (3) are treated as if they had been released or written off in the period of return.

288. Subsection (3) of new section 420A provides that a debt is within this subsection if:

• the debt is all or part of a debt in respect of a loan or advance made by a company to the individual;

• the debt is released or written off in the temporary period of non-residence; and,

• in the absence of this section, the individual would not be liable for tax under Chapter 6 of Part 4 of ITTOIA in respect of the release or write-off of the debt, but would have been liable if the debt had been released or written off in the period of return.

289. Subsection (4) of new section 420A provides that subsection (3) applies where double taxation relief is available for the tax liability in question, even if no claim for such relief is actually made.

290. Paragraph 137 inserts new section 689A in Chapter 8 of Part 5 of ITTOIA 2005 dealing with distributions not charged by other provisions of ITTOIA.

291. Subsection (1) of new section 689A provides that new section 689A applies if an individual is temporarily non-resident.

292. Subsection (2) of new section 689A provides that distributions within subsection (3) are to be treated for the purpose of Chapter 8 of Part 5 of ITTOIA as if the individual received or became entitled to them in the period of return.

293. Subsection (3) of new section 689A defines the conditions in which distributions are to be treated under the rule provided by subsection (2). These conditions are that:

• the individual receives or becomes entitled to the distribution in the temporary period of non-residence by virtue of being either a material participator in the company or an associate of such a participator at a relevant time;

• the distribution is from a close company or from a company which would be a close company if it were UK resident; and

• in the absence of this section, the individual would not be liable for tax under Chapter 8 of Part 5 of ITTOIA in respect of the distribution but would have been so liable if they had received or become entitled to it in the period of return.

294. Subsection (4) of new section 689A defines the terms ‘associate’, ‘participator’, ‘material participator’ and ‘relevant time’ for the purposes of subsection (3) and provides that the subsection also applies where double taxation relief is available for the tax liability in question, even if no claim for such relief is actually made.

295. Subsection (5) of new section 689A provides that, where an individual is taxed on the remittance basis for the year of return, any distribution within subsection (3) which is relevant foreign income and is remitted to the UK in the temporary period of non-residence will be treated as remitted to the UK in the period of return.

296. Subsection (6) of new section 689A defines the term ‘remitted to the UK’ for the purposes of this section.

297. Paragraph 138 inserts new section 812A in Chapter 1 of Part 14 of ITA.

298. Subsection (1) of new section 812A provides that new section 812A applies where:

• an individual is temporarily non-resident;

• the individual’s income tax liability is limited under section 811 of ITA;

• the non-resident year falls within the temporary period of non-residence; and

• the individual’s income for that tax year includes relevant investment income.

299. Subsection (2) of new section 812A provides that the total income, as defined by Step 1 in section 23 of ITA, on which the individual is taxed for the year of return, is to be increased by an amount which is equal to the amount of the relevant investment income (“amount X”).

300. Subsection (3) of new section 812A provides that a credit is to be allowed for the notional UK tax on relevant investment income against the individual’s income tax liability for the year of return to the extent that the relevant investment income does not exceed amount X.

301. Subsection (4) of new section 812A provides that ‘relevant investment income’ is income where:

• the income is chargeable under either Chapter 3 or Chapter 5 of Part 4 of ITTOIA;

• the distributing company is a close company;

• the income either arises or is treated as arising to the individual because they were a material participator in the company or an associate of such a participator at a relevant time.

302. Subsection (5) of new section 812A provides that income within subsection (4) in the form of a cash or stock dividend is not relevant investment income to the extent that the dividend is paid, or the share capital is issued, in respect of post-departure trade profits.

303. Subsection (6) of new section 812A defines the terms ‘post-departure trade profits’ for the purposes of subsection (5) as those arising to the distributing company in an accounting period which begins after the start of the temporary period of non-residence and, where such profits arise in an accounting period straddling the start of that temporary period, so much of those profits which can be attributed, on a just and reasonable basis, to the time after the start of that temporary period.

304. Subsection (7) of new section 812A defines the term ‘notional UK tax’ on relevant investment income for the purpose of subsection (3) as the total income included within amount A in section 811 of ITA less any credit for foreign tax paid in respect of that income under Chapter 2 of Part 2 of TIOPA for the non-resident year.

305. Subsection (8) of new section 812A provides that the extent to which a dividend is paid, or share capital is issued, in respect of post-departure trade profits, and the extent to which a sum included within amount A is a sum in respect of relevant investment income should both be determined on a just and reasonable basis.

306. Subsection (9) of new section 812A provides that double taxation arrangements are not to be read as preventing the individual from being chargeable to income tax under this section.

307. Subsection (10) of new section 812A provides that the meaning of the terms ‘temporarily non-resident’, ‘the temporary period of non-residence’, ‘the year of departure’ and ‘the period of return’ is as defined in Part 4 of this Schedule.

308. Subsection (11) of new section 812A defines the terms ‘associate’, ‘participator’, ‘material participator’, ‘relevant time’ and ‘year of return’ for the purposes of this section.

New special rule: chargeable event gains

309. Paragraph 139 provides for Chapter 9 of Part 4 of ITTOIA to be amended. This provides a new charge on chargeable event gains arising in a temporary period of non-residence and makes related amendments.

310. Paragraph 140 inserts new section 465B in ITTOIA.

311. Subsection (1) of new section 465B provides that the section applies if an individual is temporarily non-resident (as defined in paragraph 110).

312. Subsection (2) of new section 465B provides a charge for the year of return following a temporary period of non-residence if the conditions in subsection (3) are met.

313. Subsection (3) and (4) of new section 465B state the conditions to be met for a gain to be charged under this section. It is necessary that the gain would have been chargeable had the individual been resident in the year in which the gain arose, and assuming that year was not a split year for that individual.

314. Subsections (5) and (6) of new section 465B provide that the amount chargeable in the year of return is the amount that would have been chargeable applying the assumptions in subsection (4).

315. Subsection (7) of new section 465B contains a rule determining the date an insurance or contract is made for the purposes of subsection (3)(b).

316. Subsection (8) of new section 465B provides that in certain circumstances a gain is not chargeable under this section.

317. Subsection (9) of new section 465B provides that nothing in any double taxation arrangements is to be read as preventing the charge under this section.

318. Subsections (10) and (11) of new section 465B provide statutory cross-references for terms used in the section but defined in legislation elsewhere.

319. Paragraph 141 inserts new subsection (7) into section 468 of ITTOIA ensuring no double charge arises under sections 465B and 468.

320. Paragraph 142 inserts new subsection (4A) into section 514 of ITTOIA and provides that the special rule in subsection (4) charging the gain for the tax year in which the insurance year ends takes precedence over the timing rule in section 465B.

321. Paragraph 143 makes a consequential amendment to section 541 of ITTOIA.

322. Paragraph 144 makes a consequential amendment to section 552 of ICTA.

Part 5.Miscellaneous

Interpretation

323. Paragraph 145 defines terms used in this Schedule.

324. Paragraph 146 specifies the interpretation of annual and parenting leave for an individual carrying on a trade, and what are “reasonable amounts” for the purposes of this Schedule.

325. Paragraph 147 provides that a reference to less than a specified number of days includes nil days.

Consequential amendments

326. Paragraph 148 amends TCGA to delete section 9, which defines residence and related expressions for the purposes of that Act, and inserts into section 288 the definition of “resident” given by this Schedule.

327. Paragraph 149 makes a minor consequential amendment to section 27 of ITEPA.

328. Paragraph 150 makes a minor consequential amendment to section 465 of ITTOIA.

329. Paragraph 151 amends section 28 of FA 2005 to incorporate the concept of a split year as defined in Part 3 of this Schedule and amends section 41 of FA 2005 to insert the definitions of “non-UK resident” and “UK resident” in accordance with the meaning arising from this Schedule. Minor amendments are also made to sections 30, 31 and 32 of that Act.

330. Paragraph 152 amends ITA to delete sections 829 to 832, which contain provisions about the meaning of residence for income tax purposes. It also makes consequential amendments to sections 809B, 809D, 809E and 810.

Commencement

331. Paragraph 153 specifies when this Schedule shall have effect. Parts 1 and 2 have effect for determining whether individuals are resident or not resident in the UK for the tax year 2013-14 or any subsequent tax year. Part 3 of the Schedule has effect in calculating an individual’s liability to income tax or capital gains tax for the tax year 2013-14 or any subsequent tax year. Part 4 of the Schedule has effect if the year of departure (as defined in paragraph 114) is the tax year 2013-14 or a subsequent tax year.

Transitional and saving provision

332. Paragraph 154 provides that where for the purposes of this Schedule it is necessary to determine for the tax year 2013-14, 2014-15, 2015-16, 2016-17 or 2017-18 whether an individual was UK resident or non-UK resident for a tax year before 2013–14, this will be determined in accordance with the rules then in force unless the individual elects for the determination to be made in accordance with this Schedule. Such an election must be made by notice in writing to HMRC no later than the first anniversary of the tax year to which it applies. This paragraph also modifies the application of the fourth automatic UK test, the fifth automatic overseas test (which apply if P dies in year X) and the Case 6 split year rule in paragraph 49 in cases where no such election has been made. These modifications cater for an earlier year referred to in each provision being a year for which the third automatic overseas test did not exist.

333. Paragraph 155 provides that where for the purposes of this Schedule it is necessary to determine for the tax year 2013-14 or any subsequent year whether a tax year before 2013–14 was a split year with respect to the individual, this will be determined in accordance with the relevant Extra Statutory Concession in place for that pre-commencement year. Those concessions are ESC A11, ESC A78 and ESC D2.

334. Paragraph 156 provides a transitional rule for Case 7 (see paragraph 50). It caters for the earlier year referred to in paragraph 50(3) being the year 2012-13 for which Case 6 split year treatment did not exist.

335. Sub-paragraph (1) of paragraph 156 provides that the year in question under paragraph 50(3) must be 2013-14.

336. Sub-paragraph (2) of paragraph 156 explains how the reference in paragraph 50(3) to Case 6 is to be applied where the partner’s position for 2012-13 is being considered.

337. Sub-paragraph (3) of paragraph 156 explains how the reference in paragraph 50(7)(b) to the UK part of the relevant year is to be applied where the partner’s position for 2012-13 is being considered. The year is split into a UK part and an overseas part following the treatment given under the relevant extra-statutory concession (ESC).

338. Sub-paragraph (4) of paragraph 156 explains what is meant by ‘the relevant ESC’. For income tax purposes it would have been ESC A11. For capital gains tax purposes it would have been ESC D2.

339. Paragraph 157 sets out how the temporary non-residence rules in paragraph 110(1)(c) are to work in relation to pre-commencement years for which the concept of ‘sole UK residence’ does not apply. The rule instead uses the concepts of residence and treaty non-residence with residence being determined by the pre-commencement rules and not in accordance with the statutory residence test.

340. Paragraph 158 provides that the temporary non-resident provisions listed in sub-paragraph (3) will continue to have effect where the year of departure (as defined in paragraph 114) is a tax year before 2013-14, and that an individual’s residence for the year 2013-14 and after will be determined in accordance with this Schedule with the effect of split-years being disregarded.

341. Paragraph 159 provides that section 13 of FA 2012, which is a tax exemption in relation to the May 2013 Champions League final at Wembley, is applied using the concept of residence without regard to this Schedule.

Background

342. At Budget 2011, the Government announced that it would introduce a statutory definition of tax residence for individuals. Following extensive consultation, rules have been formulated which are contained within Parts 1 and 2 of the Schedule. The test makes an individual resident or not resident in the UK for a whole tax year. It applies for 2013-14 and following years.

343. Under a number of extra-statutory concessions, an individual could be taxed as if resident and non-resident for parts of the same tax year provided certain conditions were met. Part 3 of the Schedule replaces those concessions by giving statutory effect to ‘split year’ treatment and the concessions will be withdrawn with effect from 6 April 2013.

344. There are already several provisions (including two in secondary legislation) which charge certain income and gains when an individual resumes UK residence after a temporary period of non-residence. Those rules in primary legislation are aligned and updated by Part 4 of the Schedule which also extends the scope of the temporary non-resident rules to certain other income and gains. The two provisions in secondary legislation are brought into line by SI 2013/1810.

345. HMRC has published a guidance note RDR3 about how this legislation will be applied.