Taxes for expats: Navigating your UK tax status

Navigating taxes as a British expat can be a daunting process, particularly if you are new to the processes. Unfortunately, it’s not as simple as just swapping from one country to the next; for some expats the process can be complicated, particularly if you’re working across multiple countries, or have assets and/or income sourced from a country that you no longer legally reside in.

We’ve taken a more in-depth look at some of the rules and regulations that surround UK tax status for expats, unpicking some of the more complicated hurdles that are faced by British expats so you can better understand the tax rules that apply to your personal circumstances.

Residential status

Unfortunately, the tax requirements for British expats are not straightforward. One factor that can have a significant influence on your tax status is your residential status. If you are a UK resident working abroad, you could be liable to UK Income Tax and Capital Gains Tax on any income you receive around the world. However, for those who are no longer officially UK residents, there are different rules surrounding tax status.

Your residential status will be assessed using the Statutory Residence Test, which distinguishes between three types of taxpayer, including “arrivers”, “leavers” and expats who work outside of the UK on a full-time basis. There are three tests used to establish this status, including:

  1. Automatic overseas test: You are considered a non-resident in the UK if you meet the following conditions:
  • You were not a UK resident for the previous three tax years, and are in the country for fewer than 46 days in the current year
  • You were resident in one or more of the previous three years, and present for fewer than 16 days in the current year
  • You work overseas full time, with fewer than 30 days spent working in the UK.
  1. Automatic residence test: You are considered a British resident if you meet the following conditions:
  • You spent more than 183 days in the UK in the current tax year
  • Your main home is in Britain
  • You work full time in the UK for at least 365 days without a break
  1. Sufficient ties test: If the previous tests don’t determine your residential status, your ties to the country can be used as an indicator. This test considers:
  • Family ties in the UK
  • Accommodation accessible for at least 91 days
  • More than 40 days spent working in the UK
  • 90 days or more spent in the UK across the previous two tax years
  • More days spent in the UK than in any other country

Overseas residents

In general, British expats who are residents overseas are only charged tax in the UK for any income that is sourced in the UK. This includes business income, as well as any income gained via other UK-based investments such as property. Unless stated otherwise, these taxes are charged at the same rate as taxes for UK-based citizens.

Double tax treaties

If you have moved to a country where the UK has a double tax treaty in place, you will benefit from restricted UK taxes. British expats in countries including Australia, Canada, Germany and Poland will benefit from a significantly reduced chance of paying more tax than is necessary, which is particularly beneficial if you’ve moved to a country with higher tax rates.

UK tax allowances

Depending on your circumstances, you may be entitled to claim allowances to offset your tax bill. These include a personal allowance (currently set at £12,500 per year), which is available to all UK citizens living abroad, as well as double-tax relief, which is available to those who have erroneously paid tax to two separate countries.

Working abroad on a temporary basis

If you’re planning to work abroad on a temporary basis, you need to consider how it will affect your tax position. Your tax status will be based on your residence status, determined by the tests above. However, you can prepare in advance if you already know whether you are likely to break UK tax residence.

For example, you can register for Self Assessment, which will allow you to easily continue paying taxes in the UK for as long as you remain a UK resident. Self Assessment filing can be completed online via HMRC, so it can be completed from anywhere in the world. However, if you are no longer considered a resident, you will have to submit this information via a paper form.

If you think you will break UK residence, you could consider filing a P85 and you may even be entitled to a tax refund. As with permanent UK residents, British expats are liable to pay penalties for late tax payments, so it’s important to identify your tax obligations quickly and pay off the final sum before you are subject to a late fee.

Capital Gains Tax

British expats are not generally subject to Capital Gains Tax, but there are some exceptions to this rule. The three main exceptions include:

  • Non-residents trading in Britain via an agency can be charged Capital Gains Tax for any assets that are used for the purposes of trading via that agency.
  • Capital gains that are deemed income by anti-avoidance legislation will be taxable, even in the case of non-residents.
  • If you are a non-resident for less than five full tax years, you will also face assessment when you return. This assessment will consider any gains made on assets that were held when you first left the UK.

Once you are considered to be a resident of another country, you will be subject to the Capital Gains Tax regulations that are in place in that particular country. However, there are a number of countries that do not impose Capital Gains Tax, including Barbados, New Zealand and Singapore. Once you are considered an exclusive resident of such countries, you will no longer be required to pay taxes on your capital gains.

Residing in more than one country

If you are considered a resident in more than one country, or “dual residence”, the double tax treaty should ensure you are not liable to pay full tax on the same income or capital gains more than once. However, if you are considered a dual resident you should seek advice to ensure your taxes are balanced accurately and appropriately between your two countries of residence.

ExpatRoute provides information and guidance to many different types of British expat on UK tax status to help demystify a seemingly complicated process. However, if you would like to find out more about your personal tax status, please contact an independent advisor.

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