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Yet careful planning will ensure you are paying the right UK taxes, and maximising the financial opportunities available to you as an expatriate. There are a number of key factors to bear in mind if you are a British expat in need of tax advice.
Residence and domicile
Your UK tax bill 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 including 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 a framework for how residence is determined for British expats.
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).
Why is my residence status important?
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.
Personal Allowance
Expats who are UK non-resident do still have access to the tax-free personal allowance if any of the following applies:
- You hold a British passport
- You are a permanent citizen of an EEA (European Economic Area) country
- You have worked for the British government at any time during the last tax year
This may help you reduce tax on any income arising in the UK.
Disregarded income
As a non-UK tax resident you can choose to be taxed on what is known as a “disregarded income” basis. By claiming this basis you forfeit your right to a tax free 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 or not electing for the disregarded income basis of taxation should be claimed.
- National Savings and Investments
- Profits from public revenue dividends
- Interest from banks and building societies
- Dividends from UK companies
- Unit trusts
- Profits from transactions in deposits
- Some social security benefits, such as State or widows pensions
- Taxable income from life annuities, with the exception of annuities under personal pension schemes
Capital gains tax for expats
Capital Gains Tax (the tax on the profit you make when you sell something that has increased in value) can also apply to UK non-residents.
Generally, you will need to be UK non-resident for more than five years to escape UK Capital Gains Tax (CGT) on the disposal of most assets. However, it is worth noting that the disposal of UK land and property and assets used in a UK trade will always be chargeable to UK CGT no matter how long you have been UK non-resident.
Leaving the UK
You must tell HMRC that you are leaving the UK. It’s important to remember that your obligation to pay UK tax doesn’t end just because you have left the country. Even if you become a UK non-resident, any of your UK income arising after you have become UK non-resident, will still generally be taxed as normal by the HMRC. For example, if you own a UK home but live abroad, you will still need to pay tax on any income your property receives, such as rent.
If you do let out a UK property while you are overseas, it is worth signing up to the Non-Resident Landlord Scheme. The scheme does not make your property income free of tax, but it does allow your rental income to be paid to you without having tax deducted at source.
Stamp duty land tax
If you are an expatriate and UK non-resident, and you are looking to buy a house in the UK, you will be liable for Stamp Duty Land Tax. Once again, this process can be complex, so it is always best to speak to a professional for guidance.
Please contact your nearest office to discuss your own circumstances in more detail.
