Some of the most confusing and complex areas for any UK expat to decipher are their tax obligations, in both their new home country, and their country of origin. Should you be paying tax on foreign income? Is there any kind of foreign residence tax exemption? How can I get a residence tax definition? It’s a labyrinthine subject, and one that merits the help of a financial professional, but it’s good to be forearmed with a basic grasp of the subject before you do so. If you are liable to pay UK tax you will be expected to file a tax return, failure to do so or not doing so in good time, can result in penalties and even interest payments on monies owed.
Am I a UK Tax Resident?
The easiest way to decide if you are tax resident is to calculate how many days you spend in the UK during the tax year (6 April to 5 April the following year).
You will be automatically tax resident if either:
- You have spent 183 days or more in the UK during the tax year.
- Your only home was in the UK – meaning the only place you owned, rented or lived in for at least 91 days in total, in which you must have spent at least 30 days during the tax year.
You will be automatically non-resident if either:
- You have spent less than 16 days in the UK (or 46 days if you have not been classed as UK resident for the 3 previous tax years).
- You worked abroad full-time (averaging at least 35 hours a week) and spent fewer than 91 days in the UK, of which no more than 30 were spent working.
If your situation is more complicated than the above examples you will need to take professional advice to confirm your status.
Tax on foreign income UK
Residence status is the key factor on deciding whether or not you need to pay tax in the UK whilst living abroad. If you are not tax resident in the UK, you will not be liable to pay UK tax on foreign income. However, income earned from UK sources is liable for UK tax.
- Private pensions
- Rental income
- Interest on savings and investments
- UK business interests, such as owning a UK registered company
If you are considered UK tax resident even whilst living abroad, you will be liable for UK income tax on foreign income alongside tax paid on UK income.
Foreign income tax rules
The prospect of paying UK tax along with foreign income tax rates pretty low on the list of reasons expats choose to make a new life abroad. Fortunately, there exist certain rules which prevent our being taxed twice on the same income in different countries, known as double taxation treaties (DTTs). There are more than 3,000 double taxation treaties world-wide and the UK has the largest network of treaties, covering around 120 countries, so the chances are you will be covered by one of these. It’s worth noting that if the rate of income tax in the UK differs from country of residence, you will pay the higher rate. Another caveat to bear in mind is that double taxation agreements do not apply to tax levied on gains made from selling UK residential property.
With so many variables at play in deciding where your tax liabilities lie, it can be difficult to know which course of action is the best for your particular set of circumstances. It may well be that your interests are best served by remaining tax resident in your country of origin whilst spending a good part of the year in your second home but not so long that you become tax resident. As ever, taking professional, financial advice from a regulated professional should be part of any approach to your issues around tax residency.
The above information was correct at the time of preparation and does not constitute investment advice. You should seek advice from a professional adviser before embarking on any financial planning activity.
Contains public sector information licensed under the Open Government Licence v3.0.