Moving to the UK: Expat tax issues
An UK tax expert gives international UK residents a guide on tax issues to consider when living in the United Kingdom.
If you've just moved to the United Kingdom, there are certain UK tax issues that expats need to consider.
Employment and tax residence in the UK
For most people, coming to the UK will mean that they are taking up an employment. For tax purposes this is a good thing, not least because your UK tax affairs should be relatively simple – but also because your UK employer will take responsibility for paying most of your UK taxes.
The UK has a system of self assessment for taxes, similar to the USA and Australia. Under this system, anyone falling within the UK tax net can be required to file an annual tax return to disclose taxable income and capital gains. Happily, this requirement does not usually extend to most employees as their taxes are already taken care of through payroll tax deductions, known as PAYE (Pay As You Earn).
If you are paying tax through PAYE on your employment income you might still need to file a self assessment tax return if you have other income sources. PAYE relate mainly to payments you receive through your employer, so it only collects tax on employment earnings – it cannot take into account other income or gains that you might have (especially if they are outside the UK) such as rent, bank interest or share dividends. If you do have income like this you may need to file a tax return.
If you come to the UK for employment you will probably become a UK tax resident from the day that you arrive. The UK tax year runs from April 6 to April 5 (for historical reasons) and if you are in the UK for 183 days in a single tax year you will be a UK tax resident for that year.
The whole tax resident / non-resident issue is quite complicated and the latest booklet from HM Revenue & Customs is worth a read. You can download a pdf from their website.
When you become a UK tax resident, you are taxable in the UK on your worldwide income, not just income arising in the UK. For nationals of some countries (the USA is a classic example) you may remain a tax resident in your home country so that your UK earnings are taxable both in the UK and in your home country.
In a case like this, the UK has an extensive network of double taxation agreements – over 100 at the last count – which will ensure that your income is not taxed twice. If you think you need to claim treaty relief in the UK you will certainly need to file a self-assessment tax return and professional advice on this point will most likely be needed.
If you are working in the UK for only a short period, then you may not become tax resident during your stay. In this case, your income arising outside the UK will not become taxable here. However, your employment earnings in the UK will always be taxable here, regardless of your personal tax residence status.
Editor's note: The specifics of UK tax treaties with other nations can be found on the HM Revenue & Customs website. To read about double taxation in simple language, visit Wikipedia here.
Self-employment in the UK
If you come to the UK for an extended stay as part of your own business activity then you should take professional advice, as part or all of your business profits could be taxable in the UK, depending on your tax residence status.
As with employments, the double taxation treaty with your home country should avoid double taxation. If you trade in the UK through a foreign limited company, the company could become taxable in the UK if your activities constitute a UK branch – a 'permanent establishment' in the tax jargon.
Students in the UK
If you have come to the UK to study for an extended period, you are unlikely to have tax issues as your income will probably be small. For tax purposes, scholarships or bursaries from overseas can usually be disregarded, as can family gifts and personal savings accumulated before arrival in the UK.
As with anyone else, you become taxable on worldwide earnings when you are a UK tax resident, so if you have overseas income sources these might be taxable.
If you are Googling around for tax help, you may come across the term 'domicile'. Domicile is different to tax residence – you can be a UK tax resident but domiciled elsewhere. In short, your domicile is your 'true home'.
If you are domiciled outside the UK then it may be possible to exclude foreign earnings and gains from UK income tax (even if you are a UK tax resident) as long as the income is not brought to the UK. This is known as being taxed on the 'remittance basis' and is only available to persons who are domiciled outside the UK.
It is not always advantageous to claim the remittance basis for foreign income and gains, so specialist advice should be sought if you think this applies to you.
UK capital gains tax
A final word – capital gains tax (CGT). Not all countries have the concept of capital gains, so this is often overlooked by those coming to the UK.
If, for example, you have an asset – say Apple Inc. stock – that you acquired at USD 4,000 and you sell it for USD 7,500, then the profit of USD 3,500 is a capital gain. CGT applies to most assets although there are exemptions for cars, your home and a few other specific assets.
CGT applies if you are a UK tax resident and may extend to assets outside the UK depending on your domicile status. CGT can be avoided by careful planning but there are elephant traps for the unwary, so take professional advice.
Cambridge Tax Practice / LB / Expatica
Kieran O'Connor is a director of a small tax consultancy and created a blog to share insight into UK tax law and practice. By cutting out the jargon, he aims to give his readers a better understanding of what is happening in tax administration in the UK, and sometimes other countries too. You can find tax information especially for expats on the Expat FAQs page of the Cambridge Tax Practice website.
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