18 January 2024
In July 2023, Jordan Henderson controversially left English football behind to pursue an opportunity with Saudi Pro League club Al-Ettifaq FC. The former Liverpool captain may well have been lured by the prospect of joining a rapidly growing league, now boasting household names such as Cristiano Ronaldo and Neymar.
However, recent news reports have suggested Henderson has been offering his services to various English football clubs in recent weeks. But a January transfer back to English football may not be quite so simple – at least from a UK tax perspective.
The UK tax year runs from 6 April to the following 5 April and the starting point is that an individual is either UK tax resident or not UK tax resident for the whole of any given tax year. If Henderson was UK tax resident for the 6 April 2023 – 5 April 2024 tax year, he would normally have been chargeable to UK income tax on his worldwide income (including his Saudi salary), despite his time in Saudi Arabia.
As a concession to this rather rigid rule, individuals coming to, or leaving the UK who meet certain criteria may potentially access 'split-year' treatment, which means the tax year in which they arrive in or leave from the UK is split into a UK part and an overseas part. Henderson signed with Al-Ettifaq on 27 July 2023 and may have opted to access 'split-year' treatment, ceasing his UK tax residence mid-year with effect from (or around) the date of that transfer.
Where 'split-year' treatment applies, employment earnings which are attributable to the overseas part of the tax year and are not in respect of duties performed in the UK (such as Henderson's Saudi earnings) are not chargeable to UK income tax.
The key phrase here is "where 'split-year' treatment applies".
The availability of 'split-year' treatment is determined by whether an individual fits within one of various 'classes' – and eligibility for these classes is not categorically determined at the time of moving. Henderson, if he did access 'split-year' treatment, would likely have fallen within Class 1 – a person who leaves the UK and works 'sufficient hours overseas' (broadly meaning working full-time overseas) and remains non-UK tax resident in the next tax year.
If Henderson were to return to play for another Premier League club, he would likely either:
not remain non-UK resident in the next tax year, i.e. from 6 April 2024 (this could be the case either following a January transfer of a summer transfer).
Either way, 'split-year' treatment would no longer apply, with the likely effect that he would revert to being UK tax resident for the 6 April 2023 – 5 April 2024 tax year – and his Saudi earnings being subject to UK income tax (at marginal rates up to 45%).
As well as income, tax residence is also the key factor in determining an individual's liability to capital gains tax (CGT) – and UK individuals moving abroad often also see it as an opportunity to realise gains whilst outside the scope of UK CGT.
CGT is charged on the gain in value of an asset which (with exceptions) will generally amount to the sale proceeds, minus the acquisition cost of the asset. Individuals may look to dispose of an asset whilst abroad in a jurisdiction that does not charge CGT (or does at a lower rate) to avoid a potentially costly charge to CGT on the sale. Alternatively, if the individual were able to dispose of the assets and then re-acquire them shortly after (possibly with the assistance of a related party), they could effectively 'rebase' the acquisition cost of the asset for CGT purposes with the effect that the potentially chargeable gain is 'washed away'. This could be valuable if the individual were to ever sell the asset subsequently in a jurisdiction that does charge meaningful CGT (such as the UK).
However, anti-avoidance rules known as the 'temporary non-residence rules' may prevent UK individuals from taking advantage of more beneficial CGT regimes overseas. A person who is treated as temporarily non-resident is subject to tax, on their return to the UK, on certain income and gains accruing, arising or remitted during their period of non-residence, or which would have been attributed to them if they had been resident during that period. These temporary non-residence rules apply where the period for which the taxpayer does not have sole UK residence is “five years or less” – with the effect that an individual will need to be non-UK resident for six complete tax years (if split year treatment is not available) to guarantee that the 'temporary non-residence rules' will not apply. A return to the UK so soon after leaving may result in an unwelcome tax bill on return.
The UK tax residence rules make the distinction between UK and non-UK – rather than between UK and a specific other country. A move to another country therefore ought to not impact his UK tax position. In the case of Henderson, the option of moving elsewhere to Europe could then appear to be more attractive due to the potentially prohibitive cost to returning to the UK.
In summary, a move abroad may well appeal, whether you are a central midfielder or an office administrator. But for those hoping to take advantage of more advantageous tax regimes overseas, it is worth bearing in mind that the UK taxman may be accompanying you on your travels.
If you have questions or concerns related to tax residence or international mobility, please do not hesitate to get in touch with a member of our Private Client team.
by multiple authors
by multiple authors