Whether you are already an expat or you are in the process of planning for a new life overseas, tackling issues related to expat taxes can feel complex and daunting. Unfortunately, there is no simple answer — your tax liabilities and responsibilities depend on a number of factors including your country of residence, the assets you own, the income you receive and where your income is sourced.
At ExpatRoute, we have expertise that spans a huge range of issues related to expat taxes. We hope our expat tax advice is all you need to gain a better understanding of your personal finances and make the most of your life overseas.
Find out your residential status
One factor that has a large impact on your tax status is your residential status in the UK. For example, if you are considered to be a UK resident who is working abroad, it may be that you are liable to pay tax on your income, regardless of its source country. However, if you are a non-resident, it is likely that you will be subject to different tax rules that will be dictated, at least in part, by your new country of residence.
How do I know my residential status?
The UK assesses residential status using the Statutory Resident Test, which will place you in one of three categories: arrivers, leavers and expats working overseas full-time. To discover which status applies to you, you’re required to complete a series of tests that are designed to shed some light on how you are viewed by tax authorities in the UK. These three tests include:
- Automatic residence test — you are considered a British resident if you meet the following conditions:
- You have spent more than 183 days in the UK during the current tax year
- Your main home is located in Britain
- You have worked full-time in the UK for 365 days without a break
- Automatic overseas test — you are considered a non-resident if you meet the following conditions:
- You have not been a UK resident in the previous three tax years
- You have spent fewer than 46 days in the UK within the current year
- You were resident during one or more years of the previous three, and you have been present for fewer than 16 days in the current year
- You work overseas on a full-time basis, and spend fewer than 30 days working in the UK each year
- Sufficient ties test — your ties to the country can also be considered when determining your tax status. Factors considered by the test include:
- Family ties in the UK
- Access to accommodation in Britain for more than 91 days each year
- More than 40 days spent working in Britain each year
- More than 90 days spent in the UK across the previous two tax years
- More days spent in the UK each year than in any other country.
Although you are likely to establish your status using the tests above, it isn’t always such an easy process. If you are still unsure of what your status may be, we recommend seeking an independent advisor to find out where your residence lies and to get personalised expat tax advice based on your status.
Consider double tax treaties
If you have a source of income or hold assets across more than one country then you could have to pay tax in more than one location. Countries that have worldwide taxation rules often consider non-residents to be liable for tax in both their home country and the country where the money is earned, which can be very costly if it results in income being taxed more than once.
Thankfully, many governments have recognised that this arrangement is both financially unsustainable for the individual and unlikely to encourage international trade, so have put in place double tax treaties (otherwise known as double taxation agreements) to prevent income being taxed on more than one occasion.
What are double tax treaties?
Double tax treaties are agreements made between two countries that define the tax rules for anyone who earns an income in both countries. While each tax treaty is unique to the countries that create it, they are all designed with the same goal in mind: to prevent residents and expats from paying tax on the same income in two different tax jurisdictions.
Tax treaties are complex deals that are carefully crafted to allow tax authorities to override domestic tax law across both countries for individuals who qualify for the relief. As a result, they are applied slightly differently to each person based on their individual circumstances. For example, if you are considered a dual resident (resident in two countries simultaneously), you may only be required to pay tax on your income or gains on a single occasion. However, if the countries have different tax rates you could be required to pay a small amount in each country. In such cases, you may be taxed at a lower rate in one country, while the second country will charge you tax at a higher rate, minus the sum paid to the first jurisdiction. As a result, you will only pay a sum equal to the higher tax rate.
No matter how a double tax treaty is applied, it can have a significant impact on your income. As such, if you feel it is relevant to you then it is important to ensure you are receiving the relief you are entitled to. To apply, contact the foreign tax authority in each country that applies and request an application form. You can also contact them directly by letter with proof of your assets and income. If you are unsure about whether double taxation rules apply to you, seek independent expat tax advice to ensure you are not missing out on crucial tax relief.
Don’t forget Capital Gains Tax
As a British expat, it is unlikely that you are subject to capital gains tax. However, there are some exceptions to this rule, so it is important to check your personal status.
The three main exceptions include:
Assets used by non-residents trading in the UK via an agency
Capital gains considered income by anti-avoidance legislation, regardless of residential status
Non-residents who have lived outside the UK for less than five full tax years (an assessment may apply upon return).
Once you are considered to be a resident in another country, you will become liable to be assessed for capital gains tax based on their regulations. This may mean paying capital gains tax, but in countries such as New Zealand and Singapore (which do not impose capital gains tax) it will result in complete removal of all capital gains responsibilities, so your individual circumstances will dictate how much you are liable to pay.
Need to know more?
We hope our guide has provided some handy tips to consider when assessing your tax liability as an expat. However, we understand that all expats have individual circumstances that will affect their status. If you need to know more about your personal tax status and responsibilities, please seek expat tax advice from an independent advisor.