UK tax advice for expats
Background – UK tax advice for expats
There are a number of factors which will affect an individual’s exposure to UK taxes. These factors will differ and be of differing importance depending on the tax in question.
A key factor will always be an individual’s residence.
A UK resident individual will usually be subject to UK tax on his or her worldwide income and gains. Double tax treaties will generally reduce the impact of double taxation on the same income and gains.
If one becomes non-UK resident then, generally speaking, subject to some exceptions and anti-avoidance provisions, the exposure will be reduced to UK income and gains.
One does of course need to be mindful of local taxes.
Statutory Residence Test (“SRT”)
The first point of call is likely to be establishing whether you are resident in the UK or not.
Historically, and perhaps somewhat surprisingly, there was no complete statutory definition of residence for UK tax purposes. This resulted in a somewhat piecemeal approach.
However, in April 2013, the Statutory Residence Test was introduced to assist. Although it remains a complex test, it does result in a higher degree of certainty.
The tests differ depending on whether you are leaving the UK or arriving here. We can provide advice to both those leaving and those arriving in the UK.
Income tax and capital gains
Generally speaking, UK source income will always be subject to UK tax. Any non-UK income will be outside the scope of UK tax (though note the rules on temporary non-residence below)
For CGT purposes the position is better. The general rule is that even gains on UK assets are outside the scope of UK CGT. Historically, this was only subject to the temporary non-residence rule below.
However, most direct and indirect interests are now within the scope of UK CGT.
There are temporary non-residence rules that apply for both income tax and capital gains. These anti-avoidance provisions apply to income and gains generated whilst the taxpayer is in a period of non-residence but they return to the UK within 5 years of leaving.
Where the rules bite then certain (but not all) capital gains and income can become chargeable on the return.
Inheritance Tax (“IHT”)
IHT is firstly dependent on the domicile of the individual:
- UK domicile – subject to UK IHT on worldwide assets; and
- Non-UK domicile – the starting point is that they are subject to UK IHT on UK assets only*
*However, if the non-UK domiciled individual has been resident in the UK for 15/20 tax years then he or she is deemed domiciled for IHT purposes and subject to IHT on worldwide assets (in the absence of any planning).
If you require further information on UK tax advice for expats or any other tax planning advice then please get in touch
UK tax advice for expats was updated on 1 July 2019