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Where Taxpayers and Advisers Meet

Split year and capital gain tax

Posts: 2
Joined: Sat Mar 23, 2019 11:52 am

Split year and capital gain tax

Postby Mais78 » Sat Mar 23, 2019 12:23 pm

Hello, after the summer I will move to Italy to start a new full time job. I will not be tax resident in Italy in 2019 as I will have spent less than 183 days there. This means Italy will tax only the income from my new job generated locally, so my new salary there. At the same time, using the split year, I will not be resident in the UK from the moment i start my new job.
This means that in the last part of 2019 I will not have a tax residence in any of the two countries.

Question: at the end of the year i am due to receive a carried interest payment (paid by a US entity) from the private equity fund I work for, where will it be taxed? In theory neither in the UK nor in Italy. Is there any rule that says that if i don't take tax residence in another country straight after ceasing to be a UK tax resident then i have to continue paying taxes on capital gains in the UK?
Not sure whether i have to pay taxes on the carry and where.

Thanks in advance for any clarification!

Posts: 341
Joined: Wed Aug 02, 2017 9:09 pm

Re: Split year and capital gain tax

Postby darthblingbling » Sun Mar 24, 2019 2:56 pm

No UK tax should arise on non UK sourced income if you are non resident, this includes the non resident part of a split year.

However, this will not stop it from being taxable in the US if it is US sourced income. I'm not a US tax expert so cannot comment on their domestic rules, however I can confirm that if you are not tax resident elsewhere then you be offered no protection from a double tax treaty in the event this is taxable in the US.

Are you absolutely sure that Italy has no concept of part year residency? Quick glance at their rules and residency is not simply just determined by the 183 day rule.

Posts: 2
Joined: Sat Mar 23, 2019 11:52 am

Re: Split year and capital gain tax

Postby Mais78 » Sun Mar 24, 2019 4:34 pm

Thanks you, this is helpful! BTW are you a tax adviser?
I guess the only think to keep in mind is that if I become UK tax resident again in the following 5 years i will have to pay taxes on the carried interest to HMRC anyway, unless you can argue that the carry was worth nothing when I left?

Regarding your question, as far as I know there is no concept of part year residency in Italy with the exception of a DTA with Switzerland and Germany (but not UK) where split year is possible, but would work the other way (eg you spend in Italy more than 183 days and then you move to Germany, in that case you are not taxed in Italy for the full year as it is normally the case, but only for the part spent in Italy).

There is another scenario that could also happen to me: non UK resident at all in 2019/20, which would not make me tax resident in the UK not even for part of the year.
Let me explain: I am a partner of a UK LLP and travel extensively. If between 6 April and the day I move to Italy to work full time I work less than 40 days in the UK and spend less than 90 days in the UK overall, as far as I know, based on my ties (2 - 90 days and accommodation ties) I will not be taxed resident at all in the UK, not even for part of the year.
Question: what happens to my partner distributions? They will be taxed in the UK pro-rata for the days I spent working in the UK or not taxed at all?

Many thanks!

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