Taxes for expats arise from UK income even if you live abroad.
It is a common misconception of British expats when they first leave the UK is that they immediately become exempt from UK tax. This could not be further from the truth. The potential tax implications for UK expats can be quite far reaching and certainly not straightforward.
An individual’s liability to tax in the UK depends largely on their residence and domicile status. To ascertain which taxes for expats you are liable for when you move from the UK, particularly if you retain ties to the UK, the first question to ask is, ‘Have I become non resident for tax purposes, and if so, when?’ This is not always clear-cut but is the basis of determining your continuing liability to UK tax.
It is possible to be treated as a resident for tax purposes in more than one country based on the domestic tax laws of those countries. In such a scenario the first question is whether there is a double taxation agreement (“DTA”) in place between the UK and the other country. If so, the DTA will provide a so-called “tie-breaker” clause which will determine which of the two countries you will be considered resident in. The UK has an extensive network of DTAs with other countries which impacts heavily on the nature of taxes for expats.
Taxes for Expats: Income Tax
In summary, a UK resident is liable to UK income tax on worldwide income. By contrast, a non resident is only chargeable to UK income tax on income arising in the UK.
As a non resident person you will be chargeable to UK tax on:
- Profits of a trade or vocation carried on in the UK
- Share of profits from a UK partnership
- Profits of a UK property business if the land or property is situated in the UK
- Rental income from UK properties
- Dividends, interest and other savings income from a UK bank or other UK source
- Employment income relating to UK duties
- UK pension income
This list is not necessarily exhaustive but represents common income sources that affect taxes for expats.
As a British citizen (or citizen of another EEA country) you will be entitled to a tax-free personal allowance. As a non resident you are required to claim the allowance. A claim should be made for any year in which you have UK income on a form R43. Any income in excess of the personal allowance will be taxed at the usual rates of income tax – basic, higher and/or additional rates.
If you move to a country with which the UK has a DTA, this will set out which country has taxing rights in relation to certain types of income.
Generally UK property income will always remain taxable in the UK, as will UK state pensions. The UK has an extensive network of double taxation agreements and these can be important in reducing the risk of an individual being subject to double taxation.
Taxes for Expats: Capital Gains Tax
In general, a non resident will not be chargeable to UK capital gains tax on disposal of assets. This will apply to UK assets as well as overseas assets, except in the following scenarios:
An individual who has been non resident for less than 5 complete tax years will be assessed in the year of his return to the UK on:
- any gains which were realised during his period of absence from the UK
- on disposal of assets held at his date of departure from the UK.
This only applies to habitual UK residents i.e. those who had been resident in the UK for four or more of the seven years prior to their departure.
Disposal of UK residential property
With effect from 6 April 2015, if as a non-resident you make a disposal of UK residential property, you will have a liability to UK capital gains tax. You must notify HMRC of the sale within 30 days of the conveyance or you will be liable for a penalty. You may also have to pay any tax due within the 30 day period. There are exceptions to this, including if you already file UK tax returns. In this case you may be able to delay payment of the tax until your normal due date for payment.
The disposal must be reported on the form “Non resident: Report and pay Capital Gains Tax on UK residential property” on the HMRC website. This includes a computation of the capital gains tax liability so you may require assistance from a tax adviser/agent to prepare the return.
As there are automatic penalties and interest for late filing of the return and late payment of tax, if you require professional assistance this should be sought immediately to meet the 30 day deadline.
A non-resident individual (or trust) which trades in the UK through a branch or agency will be chargeable to UK capital gains tax on any assets used in the trade.
Telling HMRC that you are leaving the UK
A form P85 should be filed with HMRC to inform them that you are leaving the UK. However those taxpayers who file a UK self assessment tax return should instead file a UK return for the year they leave.
If you file a P85 and are due a tax refund for the year of departure then HMRC will calculate the refund and arrange for the refund to be made once the P85 has been processed.
Expat Taxes and Non Resident Landlords
If you own property in the UK which you are going to rent out whilst you are overseas, then the income received will still be taxable in the UK. There is a special tax regime, referred to as the NRL (Non Resident Landlords) Scheme.
In outline the scheme effectively passes responsibility for the collection of withholding tax on payments to non-resident landlords to either the property management company and/or the tenants of the property. The default withholding position is that 20% of gross rents are withheld and paid over to HMRC. You would then be able to claim a refund, if you are entitled to do so, when you submit a tax return.
To avoid this situation it is possible to register with HMRC as a NRL. Once your registration is approved by HMRC rents can be paid to you gross without any deduction for withholding taxes. The form to register is the form NRL 1 – “Application to receive UK rental income without deduction of UK tax – individuals” on the HMRC website.
If you are a non resident landlord you will have an obligation to complete a UK return.
In other cases if you are a non-resident with an obligation to complete a UK tax return because you have UK source income, then we would usually recommend that you seek professional advice. Form SA109 is a supplementary page to the main self-assessment tax return titled “Residence, remittance basis etc.” The correct completion of this form (and understanding of your residence position) is vital in ensuring that the SA100 self-assessment is correctly completed and the correct amount of tax paid.
Unfortunately it is not currently possible to submit this online using the free HMRC software.
Enterprise Tax Consultants can advise on taxes for expats
If you are unsure as to your tax position or obligations as a UK expat we can assist. The services we are able to offer include:
- Advice on all aspects of expat tax liability
- Advice in relation to your residence and domicile position for UK tax purposes
- Advice on how to apply any relevant UK double taxation agreements
- Advice in relation to your UK income, capital gains and inheritance tax exposure
- Advice and assistance in relation to the disposal of UK residential properties and non resident capital gains tax
- Advice in relation to tax efficient structuring of your affairs when leaving the UK and when returning to the UK
- Advice in relation to the non resident landlord scheme
Contact us for a no-obligation initial conversation with an experienced tax adviser.