Residence and domicile
Your UK tax liability is ultimately dependent on your residence and domicile status. Both of these are complex terms with their own rules, so it’s usually helpful to contact a specialist for advice.
Working out whether you are a UK resident for tax purposes depends on several factors, such as your working pattern, location of your ‘home’, how much time you have spent in the UK during any given tax year and how many ‘ties’ you have to the UK. The Statutory Residence Test provides the legationary framework for how residence is determined.
Becoming non-UK resident for tax purpose potentially provides significant benefits; non-UK residents are only subject to UK taxes on UK sourced income or gains from the sale of UK residential property, hence why it is of vital importance professional advice is sought; for individuals becoming accidentally UK resident, the consequences can be costly.
Domicile generally relates to the country where you have a permanent home. You are automatically assigned a domicile at birth, usually based on the domicile of your father. It’s certainly possible to change your domicile status, but it can be a very complex process needing you to sever significant ties with your ‘home’ country. Domicile is so important because if you are UK domiciled then your worldwide assets will attract UK Inheritance Tax (regardless of your UK residency status). However, if you are not UK domiciled, only your UK assets are liable to Inheritance Tax (IHT).
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Our expat tax services
Our team of tax planning specialists can help you understand which UK taxes you may still face and where you can reduce or even eliminate your UK tax exposure.
01
Personal allowance
An individual who is non-UK resident you will still have access to the tax-free personal allowance if any of the following applies:
This may help you reduce tax on any income arising in the UK, as may a review of the Double Taxation Agreement in your country of residence.
02
Disregarded income
As a non-UK tax resident, you can elect to be taxed on what is known as a “disregarded income” basis. By claiming this basis, you forfeit your right to a personal allowance and in return, your UK Income Tax liability on the sources of income listed below is then limited to any tax deducted at source (which is usually nil). Specialist advice should be sought to understand whether electing for the disregarded income basis of taxation should be claimed.
03
Capital Gains Tax for non UK residents
Capital Gains Tax (the tax on the profit you make when you sell something that has increased in value) can also apply to non-UK -residents.
As a non-UK resident you will not be subject to UK Capital Gains tax, unless you are disposing of UK land and property and assets used in a UK trade. Such sales must be reported within 60 days to HMRC, with the associated tax liability settled.
When disposing of UK property as a non-UK resident, three possibly basis of calculation are available to you, often meaning that you will pay less tax as a non-UK resident.
Care however should be taken to ensure that when returning to the UK after a period of non-UK residence, you are not caught by ‘temporary non-resident’ legislation. This legislation will look to bring back into charge, in your year of arrival, certain disposals of assets and receipts of income, in a non-resident period when that period was less than 5 years.
04
Residence in another country
Prior to the introduction of the Statutory Residence Test in 2013, an individual’s residence was based on HMRC guidance. Such guidance embedded a concept of ‘breaking’ residence with the UK and gave an impression that once an individual had left the UK, any requirement to report to the UK or consideration of residence in a future year was unnecessary.
However, and strictly, the Statutory Residence Test should be reviewed each year and within the framework factors as such where an individual intended to be resident or their residence in another country, bear no relation to the outcome of the test. In fact, it is possible for an individual to be resident in two countries at the same time, a concept called ‘dual residence’. Dual residence will occur when an individual is resident in each country under their respective residence rules i.e. their domestic law position’.
Whilst respective Double Taxation Agreements will look to eradicate double taxation, individuals finding themselves dual resident will be subject to a complex and possibly subjective tie breaker tests to determine where an individual is ‘treaty resident’ for the purposes of determining where income and gains will be taxed.
Please note
Following the 2024 Spring Budget and the support given by the successive Labour Government, the expectation is that the legal term ‘domicile’ will cease to be relevant for UK tax purposes from 6 April 2025. The information included within this page is true at the time of publication. In addition to changes to the abolition of the remittance basis it is anticipated that a reform to IHT will not consider the scope of an individuals liability to IHT on domicile, but on their residence position in the previous 10 years.
All you need to know about expat tax
Your residence status is important because it affects how much Income Tax and Capital Gains Tax you pay in the UK. If you are a resident in the UK, you may even have to pay tax on your worldwide income.
However, if you are a UK non-resident you will generally only have to pay tax on any income that you earn in the UK (perhaps from renting your UK home).
Although a fairly uncommon situation, if you hold dual residency things may be even more complicated. It’s possible that the UK will hold a double tax treaty with your other country of residence which will reduce the likelihood of you having to pay tax in the UK and your overseas home country. Expert advice is essential here.
Even if you are not UK resident you can still be liable to pay UK tax. You must also be mindful of any taxes due where you are living overseas.
If you are non-UK resident it is not possible to submit online using HM Revenue systems, instead you must use one of the following options:
Complete a Self-Assessment Tax Return and a SA109 form (the residence pages for your Tax Return) to send by post.
Submit using commercial self-assessment software which supports SA109 reporting.
Hire a tax professional to report your UK income for you.
The UK are one of the countries which can tax their citizens living abroad if they are still classified as a resident. If you’re not a UK resident, you will not have to pay UK tax on your foreign income but your UK income generally remains taxable. If you sell any land and property in the UK that will remain taxable too.
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