Many British expats mistakenly believe that once they have left the UK to live overseas, they are no longer subject to UK tax, but the situation isn’t as clear cut or straightforward as that. An expat living abroad is still liable to pay taxes on any UK income they receive.
Any obligation to pay UK tax will be mainly decided by a person’s residence and domicile status, that is, whether they hold the status of resident and where their permanent place of dwelling is located.
The starting point for deciding whether you have an ongoing liability to pay UK taxes, especially if you maintain ties with the UK, is to decide whether you are a non resident for tax purposes, and when this happened.
For the purpose of taxation, an individual may be treated as a resident in more than one country in accordance with each country’s domestic tax laws. Where there is a double taxation agreement (DTA) between the UK and the other country, this will include a ‘tie-breaker’ clause to decide which country the individual should be treated as a resident in for tax purposes. The UK has DTAs in place with many countries throughout the world.
So which taxes for expats apply to you?
A UK resident who receives income from worldwide sources will incur a UK income tax liability. They will pay UK income tax on their worldwide earnings.
In comparison, a non UK resident will only be liable to pay UK income tax on income earned from sources in the UK, including:
- Profits from carrying out a vocation or trade in the UK
- UK partnership profits
- Income from a UK pension
- UK property business profits (where the property or land is located in the UK)
- Income from UK based employment
- UK rental property income
- Income from savings, interest or dividends from a UK bank or UK source
All UK and EEA country citizens have a tax-free personal allowance and as a non resident, you are also entitled to claim this allowance for any year where you have UK income. Use the form R43 to make your tax-free allowance claim.
Any UK income over the tax-free allowance will be taxed at the normal income tax rates, basic, higher or additional, depending on your personal circumstances.
Should you settle in a country which has a DTA with the UK, this will state which country, the UK or the country you have settled in, you should pay taxes to regarding your income. The benefit of living in a country that has a DTA with the UK is that it counters the risk of being taxed in both countries.
It is usual practice for UK property income to be taxed within the UK, as is the case with UK state pensions too.
Capital gains tax
Generally, a non resident who disposes of assets, whether UK assets or overseas assets, will not be liable to pay UK capital gains tax, unless one of the following applies.
Temporary non residence
Where the period of non residence is less than 5 full tax years, a capital gains assessment will be made when that individual returns to the UK.
This assessment will examine any gains made during the period of non residence from the disposal of assets owned when that individual first left the UK.
This assessment applies to individuals who were resident in the UK for at least four of the seven years before the period of non residence.
UK residential property
Since 6 April 2015, any non resident who disposes of UK residential property is liable to pay UK capital gains tax.
Any disposal of UK residential property by a non resident must be registered with HMRC no more than 30 days from the conveyance. Failure to do this will result in a penalty. Payment of any tax due may be required within the 30 day period, although there are exceptions to this rule, for instance, where a UK tax return is due to be filed. In this situation, it may be possible to delay payment until the usual tax payment date.
Use the ‘Non resident: Report and pay Capital Gains Tax on UK residential property’ online form to report the disposal to HMRC. Completion of this form includes the computation of capital gains tax owing so you may prefer to seek professional advice.
If you feel that you need professional advice to report the property disposal to HMRC, you should seek this straightaway to ensure that you meet the 30 day deadline and avoid any penalties or interest for late filing or late payment of tax.
Trading in the UK through a branch or agency
Where a non resident individual or trust trades in the UK through a branch or agency, UK capital gains tax will be payable on any assets involved in that trade.
How do you tell HMRC that you are moving abroad?
Generally, you should file form P85 with HMRC to tell them that you are moving abroad, but where you are required to file a UK tax return, you should submit this instead for your final year living in the UK.
Where you are due a tax refund for your final year in the UK after having filed the P85 form, HMRC will calculate what you are owed and make this payment to you after the P85 form is processed.
Taxes for Expats who are non resident landlords
During your time living overseas, should you derive income from renting out a UK property that you own, it will be necessary to pay UK tax on that income. The Non Resident Landlords Scheme (NRL) is a tax regime put in place to cover this situation.
The NRL makes the property management company used by the non resident landlord, or the tenants of the rental property, responsible for the collection of tax from rental payments to the non resident landlord. The default position is to withhold 20% of the gross rental amounts and pay this to HMRC. The non resident landlord is entitled to claim a refund when they submit their UK tax return.
Alternatively, the non resident landlord may register with HMRC as an NRL. Should the HMRC approve your registration, rental payment will be made to you gross, with no amounts withheld for tax. Use the NRL1 – ‘Application to receive UK rental income without deduction of UK tax’ – individual online form.
All non resident landlords must make a UK tax return in any tax year where they receive rental payments for their UK properties.
Where you already file a UK tax return because of other UK income and you are a non resident, it would always be recommended that you take professional advice.
Use form SA109 – ‘Residence, remittance basis etc’ to record your residence and domicile status and to make claims for non resident allowances when submitting your SA100 tax return. SA109 is a supplementary page to the general tax return form but an important element of your tax documentation as an expat.
At the current time, the SA109 can’t be completed online.
Taxes for Expats – what you need to know
The key to ensuring that as a British expat living overseas your UK tax situation is healthy and compliant, is to get clear on your personal circumstances and how UK tax law applies to that.
Ask yourself questions like:
- Exactly what UK income do you receive?
- Which form of UK tax will apply to that income?
- For tax purposes, are you treated as a resident of more than one country and is there a DTA in place?
- What allowances are you able to claim?
- Do you know the relevant forms to use?
- Have you communicated with the HMRC?
Whether you take professional advice or not, attaining clarity on your UK tax situation will avoid worries, wasted time, and unnecessary expense.