Expat tax affairs can be complicated. We’ve created this comprehensive guide to help you understand your tax requirements as a British expat.
A common mistake of British expats when they first consider moving abroad is that when they move they are instantly exempt from UK tax.
This couldn’t be further from the truth. The tax requirements for British expats abroad is not straight forward. This guide details some of the aspects you need to consider when it comes to UK tax.
Residence and domicile
An individual’s liability to personal taxation in the UK depends largely on that person’s tax residence and domicile status, and on other factors such as the situs of assets (the place where they are located for tax purposes) and the source of income and capital gains.
Why is my residence status important for UK tax purposes?
A UK resident is potentially liable to UK Income Tax and Capital Gains Tax on worldwide income/gains.
However, if you are not UK resident special rules apply.
The basic tax rule is that non-residents are only chargeable to tax on income arising from a source in the UK.
Therefore, as a non-resident person, you are chargeable on the profits of a trade (or profession or vocation) if it is carried on in the UK, the profits of a UK property business if the land or property generating these profits is situated in the UK, employment income relating to UK duties, UK partnership income and UK pension income.
Dividend income, interest, and other savings income is taxable if the source of that income is in the UK, although please see below regarding disregarded income.
This income is chargeable in the UK at both basic and higher rate tax unless there are specific relieving provisions.
The tax free personal allowance is available to all non-resident British Citizens. It should be noted that the availability of a tax free personal allowance for non-residents is currently under review.
Should a non-resident reside in a country with which the UK has concluded a double tax treaty, the treaty normally restricts the UK’s taxing rights to certain income i.e. income from property will always remains taxable in the UK and government pensions remain taxable here.
The UK does have an extensive network of double taxation agreements and providing they are considered carefully they should reduce the risk of a taxpayer being doubly taxed.
Read our guide to double tax treaties to learn more
Where the UK does not have a treaty with another country, “unilateral relief” typically applies to grant a credit in the UK for foreign taxes paid. This is of course of little benefit if you are resident in a country with a low tax rate!
Read our article about the differences between domicile and residence for more in depth understanding.
As already outlined, the basic rule is that non-residents are fully liable to UK tax in respect of their UK income. However, this is displaced in the case of what is called ‘disregarded income’.
Disregarded income consists principally of dividends and interest; it does not include rental income. The significance of disregarded income is that a non-resident’s tax liability cannot exceed the combined sum of the withheld tax on disregarded income together with what the non-resident’s liability to tax would have been if disregarded income and certain reliefs and allowances were ignored.
Capital Gains Tax for Expats
In general non-residents are not subject to UK tax in respect of capital gains realised on the disposal of UK assets. There are, however, three exceptions to this general rule.
- A non-resident individual or trust trading in the UK through a branch or agency is chargeable in respect of UK assets used or held in or for the purposes of the trade or the branch or agency. The same applies to companies trading in the UK through a permanent establishment.
- Certain anti-avoidance legislation deems capital gains to be income and, as such, taxable even if accruing to a non-resident..
- An individual who is non-resident for less than five complete tax years is assessed in the year of his return on gains realised during his absence on assets he held on the date of departure.
This does not apply to those individuals who were resident in the UK in less than four of the seven tax years preceding the year of departure.
Gains realised on assets acquired during the absence are not caught, and the charge is subject to any applicable Treaty.
Capital Gains Tax Rules from April 6th 2015
From April 6th 2015 expats and non-residents who are selling a UK property will owe capital gains tax on any gains made.
More information about Capital Gains Tax as an expat, including an overview of the new rules.
When do I become a UK tax resident?
The UK apply a Statutory Residence Test (“SRT”) to determine whether an individual is resident in the UK or not.
For the purposes of the test, a distinction is to be made between three classes of taxpayer: “arrivers”, “leavers” and those working full-time outside the UK.
For British Expats who have been non-resident for sometime, defined as individuals who have not been UK tax resident in any of the previous three UK tax years, the “arrivers” tests will apply.
The rules for “leavers” will also be relevant for expatriates seeking to break UK tax residence of course.
Some safe-harbour rule applies to those “arrivers” with limited presence in the UK, and you will be treated as not resident in the UK if:
- you were not resident in all of the previous three UK tax years and present in the UK for fewer than 46 days in the current tax year; or
- you were resident in one or more of the previous three tax years and present in the UK for fewer than 16 days in the current tax year; or
- you work overseas full time and:
- work in the UK for no more than 30 days (a work day in this context being any day where an individual does more than three hours of work); and
- you spend no more than 90 days in the UK.
Outside of the safe-harbour provisions, a sliding scale of time spent in the UK applies to establish when individuals will be treated as resident. For “arrivers” this depends on how many of 4 factors are relevant to them:
- Whether your family is UK resident: This broadly refers to your spouse/civil partner and minor children, with certain specific exclusions (for example, spouses/civil partners who are separated)
- Whether you have ‘substantial’ employment in the UK: This is a different test to the full time work abroad, and means working in the UK for more than 40 days in a tax year (again, a day is three hours work).
- Whether you have ‘accessible’ accommodation in the UK: The test is one of accessibility rather than ownership, which then covers situations where accommodation can be available to an individual, even if it is owned (and occupied) by someone else. The accommodation must, however, be used as a residence.
- Your presence in the UK in the previous two tax years: This factor is satisfied if an individual has been in the UK for 90 days or more in either of the two previous tax years.
An “Arrivers” resident status is then dictated by the number of days on which they were physically present in the UK on midnight, and the number of factors that they meet in a given tax year.
|Fewer than 46 days||Always non-resident|
|46-90 days||Resident if individual has 4 factors (otherwise not resident)|
|91-120 days||Resident if individual has 3 factors or more (otherwise not resident)|
|121 – 182 days||Resident if individual has 2 factors or more (otherwise not resident)|
|183 days or more||Always resident|
A “Leavers” resident status is then dictated by the number of days on which they were physically present in the UK on midnight, and the number of factors that they meet in a given tax year.
|Fewer than 16 days||Always non-resident|
|16-45 days||Resident if individual has 4 factors (otherwise not resident)|
|46-90 days||Resident if individual has 3 factors or more (otherwise not resident)|
|121 – 182 days||Resident if individual has 2 factors or more (otherwise not resident)|
|183 days or more||Always resident|
It is no longer as straight forward as ensuring you spend less than 90 days in the UK in order to avoid being UK tax resident.
If your position is unclear you should seek specialist advice in order to obtain a formal opinion and related advice.
Split year treatment
Under the Statutory Residence Test, you are either UK resident or non-UK resident for a full tax year and at all times for that tax year.
However, if during a year you either leave the UK to live or work abroad you may be eligible for the tax year to be split into two parts:
- A UK part in which you are charged to UK tax as a UK resident; and
- An overseas part in which, for most purposes, you are charged to UK tax as a non-UK resident.
The rules for ensuring split year treatment will apply are complicated and you should seek specialist advice in this area. However, if you would like more detailed information, please read our guide to Split Year Treatment which has an overview of the scenarios when it applies and the potential benefits. Read Split Year Treatment article >
What if I am resident in more than one country?
It is possible to be resident in the UK and another country at the same time, which amounts to “dual residence”.
In many cases there will be a double tax treaty between the two countries of residence which should ensure that you generally don’t pay full tax twice on the same income or capital gains.
If you are dual resident it is important that you seek specialist advice in order to ensure you are not taxed unfavorably.
Where the UK does not have a treaty with another country, “unilateral relief” typically applies to grant a credit in the UK for foreign taxes paid.
Do I need to tell HMRC when I Leave the UK?
A form P85 should be filed to inform HMRC that you are leaving the UK.
However it should not be completed by taxpayers who file a UK Tax Return. You will need to file a UK tax return for the year of departure.
It is worth noting that your liability to UK tax does not necessarily cease on your day of departure or indeed your obligation to continue filing a Tax Return.
Income arising in the UK continues to be taxable even if you become a non-resident. For this reason it is worthwhile obtaining advice on how to rearrange your personal assets to ensure the most beneficial tax treatment.
I have left the UK, but still own a property there. Is the income taxable?
Yes, the UK has a special tax regime for “Non-Resident Landlords” and this is maintained by HMRC by passing responsibility for the collection of withholding tax over to property management companies and your tenants.
The default withholding tax position for an individual is 20% of your gross rental income, this is then paid over to HMRC by your lettings agent and you can claim relief for the tax withheld when you submit a tax return.
It is possible to register as a non-resident landlord with HMRC. Once approved HMRC will notify your letting agent to release rents to you without any withholding tax. You will be registered to file a tax return and obliged to report your rental income and expenses on an annual basis.
The form to register as a non-resident landlord and ensure you received rents gross is form NRL1 ‘Application to receive UK rental income without deduction of UK tax – individuals’.
A similar regime applies for non-resident corporate landlords.
Incorrectly managing tax residence status is one of the most common tax mistakes made by British expats.
What are my UK tax return filing requirements?
HMRC do not require the vast majority of people living in the United Kingdom to complete a UK tax return each year, but rather their income tax is simply paid and adjusted through the individual’s PAYE (Pay as You Earn) tax coding.
The general rule is that should HMRC send you a tax return (Form SA100) you are obliged to complete and return this to them. Failing to do so promptly may result in late filing penalties.
However, individuals with more complicated affairs; those with income not taxed at source e.g. savings, investments and property, those individuals earning approximately £100,000.00 or more, as well as those who are new to the UK, are likely to have to complete a UK tax return.
Specifically, it should be noted that if you are a non-resident landlord you are obliged to file a UK tax return.
HMRC’s software is unable to cope with completing the supplementary form SA109 ‘Residence, remittance basis, etc’ arguably the most important tax return page for a British Expat!
If you are a non-resident taxpayer and have an obligation to file a UK tax return it is recommended that you use a specialist firm to assist you.
Personal tax allowance for expats
If you are either classed as a tax resident in the UK or receive an income in the UK (for example from renting out a property), you will normally receive a personal tax allowance on your UK income of £12,500 for the tax year 2019/20 (increased from £11,850 for the tax year 2018/19 and from £11,500 in 2017/18). This means that, under normal circumstances, you will have to earn £12,500 in the UK before you are subject to UK income tax.
If you earn over £100,000 in the UK, your personal allowance will be reduced by £1 for every £2 earned over £100,000. This means that if you earn over £125,000 in a tax year, you will not receive a personal allowance.
Stamp Duty Land Tax
Even if you are a UK non-resident, if you are planning to buy a house in the UK you will be subject to Stamp Duty Land Tax (SDLT). In April 2016, Stamp Duty rates increased for people buying a UK property who already own property in the UK or elsewhere which means that if you own a property and purchase additional properties, each new purchase will normally attract a minimum of 3% Stamp Duty – and an additional 3% on the standard Stamp Duty rates.