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UK Taxation for Foreign Residents

Alas, there is no getting around doing your taxes. From HMRC over NI to PAYE, you will learn a whole new vocabulary along the way. As an expat moving to the UK, you also have to deal with such concepts as residence and domicile. Our introduction to taxation in the UK offers a succinct overview.
It is always a good idea to consult with a tax advisor in case you have any doubts.

If you move to the UK from abroad, tax issues may become rather complicated. Theoretically, all UK residents have to pay taxes on all their income worldwide. However, this rule of thumb has many exceptions.

First, you should make an inventory of your sources of income and where they are located — inside the UK or overseas — and in which country specifically. Then, it’s important to figure out whether you count as a UK resident for tax purposes.

Are You a Resident for Tax Purposes?

If you are physically present in the UK for 183 days or more within a tax year (i.e. between 6 April and 5 April of the following calendar year), you will automatically become a “tax resident” of the UK. However, you can also be counted as a resident if you visit the UK more or less regularly, due to important ties. These ties can include family bonds, property ownership or a holiday home, business ownership, or other work-related duties.

“Regular visits” means that you have temporary stays of an average 91 days or more within three tax years in a row. For instance, if you spend four months every year on two eight-week business trips in the UK and use the opportunity to visit your grandma in Scotland while you’re there, you are a UK resident for the purposes of taxation.

Residence vs. Ordinary Residence

In addition to residence, British law defines the concepts of “ordinary residence” and “domicile”. Ordinary residence means that you are in the UK voluntarily (this includes foreign assignees), that you have a settled purpose there (like a family or a job) and that staying in the UK is your “habitual mode of life”. Again, what these definitions mean in practice will vary from case to case, according to your personal circumstances.

For example, you can actually be “resident” in the UK, but not “ordinarily resident”, as far as tax law is concerned. An expat who is sent on a 10-month business assignment to work in the UK’s petroleum industry, for instance, definitely meets the requirement for being more than half a year present in the UK. Hence, he is a resident for tax purposes.

However, if he lives in serviced apartments provided by the company and spends a fair share of his time off with his family back home, he is not actually “settled” in the UK and will not be regarded as an ordinary resident under UK tax law.

Domicile vs. Residence

The definition of “domicile” is even more entangled. Very simply speaking, your domicile is where your permanent home is. It is often influenced by your physical residence and your nationality, but it’s not necessarily identical with these. For some expats living in the UK, “domicile” will be fairly straightforward, though.

If you sign a three-year contract with an ad agency in the UK, for example, you are therefore resident and ordinarily resident in your host town. However, if you keep visiting your family at home a few times a year, it is safe to say that your domicile is still in your home country. Your domicile would probably change if you got married, saved for buying a house in the UK, and settled down permanently.

Remittance Basis and Arising Basis in a Nutshell

Why are those concepts so important? In brief, if you are not ordinarily resident and/or not domiciled in the UK, you can claim the “remittance basis” for taxing your foreign income and even your capital gains. They are then only subject to UK taxes once the money is “remitted” (transferred) to the UK. Otherwise, you can let your overseas income accrue, and it will only be taxed there.

But if you do not claim the remittance basis, your income worldwide is subject to UK taxation as it arises. That’s why this definition from tax law is called the “arising basis”. At first glance, the arising basis seems to put you at a disadvantage. However, this is not necessarily the case. While you may have to pay taxes on income and capital gains from abroad, you can keep other benefits.

If you claim the remittance basis, you may have to give up most sorts of tax relief in the UK, like the Personal Allowance. And if you are not domiciled in the UK, but have been a tax resident for seven out of the previous nine years, you might be required to pay the Remittance Base Charge. This amounts to a whopping 30,000 GBP — or even more if you have been a tax resident for twelve or more years.

Don’t Pay Twice: Double Taxation Avoidance Agreements

If your country has a double taxation avoidance agreement (DTA) with the UK, you will probably be spared those UK taxes on most of your foreign income anyway. Royalties, dividends, and interest paid abroad are always protected from double taxation, as long as there is a DTA.

At the moment, the UK has DTAs with the following states:

  • Australia, Argentina, Bangladesh, Bolivia
  • Canada, Chile, China, all EU/EEA member states
  • Ghana, India, Indonesia, Israel, Jamaica, Japan, South Korea
  • Malaysia, Mauritius, Mexico, Nigeria, New Zealand
  • Oman, Pakistan, the Philippines, Russia
  • Saudi Arabia, Singapore, South Africa, Sri Lanka
  • Taiwan, Thailand, Turkey, Ukraine, Vietnam, the US

The list above is not complete, though. Remember to check with your local tax office if there is a DTA with the UK.

Better yet, consult a tax advisor who is familiar with international taxation and taxes paid by foreign residents in the UK. They will be able to help you with plenty of nuances we could not even mention, let alone explain, here — e.g. the “split-year treatment” for long-term expats relocating to or departing from the UK.

The HMRC also has helplines for non-UK residents and non-UK expatriate employees

 

We do our best to keep this article up to date. However, we cannot guarantee that the information provided is always current or complete. 

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