We explain what to do when filing UK taxes abroad so that Brits living overseas can ensure they meet legal requirements and pay any taxes owed.
When leaving the United Kingdom to live abroad, there are a number of financial considerations to ensure you’re paying the right UK taxes. Filing UK taxes overseas doesn’t have to be hard for expats, but it does need to be done correctly. This guide will cover areas such as:
- UK tax overview
- Tax filing obligations for UK expats
- Organizing your income when leaving the UK
- Filing UK taxes abroad
- Reducing your liabilities when filing UK taxes abroad
- Paying UK taxes abroad
- Late tax returns in the UK
- Returning to the UK
- Advice on filing UK taxes abroad
- Useful resources
UK tax overview
The UK has a progressive tax system – meaning that you pay a higher rate the more you earn. This applies to all UK residents, non-residents living in the UK, and non-residents earning a UK income.
UK residents pay UK income tax on their worldwide income. However, non-residents only pay tax on income earned in the UK.
This system applies to all countries that make up the United Kingdom (England, Scotland, Wales, and Northern Ireland). It includes income taxes, property taxes capital gains taxes, inheritance taxes, and Value Added Tax (VAT).
The UK tax year starts on 6 April and finishes the following 5 April. Income tax of UK employees is normally collected through Pay As You Earn (PAYE) that is deducted before the salary is paid.
You usually have to pay tax owed on other forms of income, including self-employed income, no later than 31 January following the tax year for which it is due.
Tax filing obligations for UK expats
You will have to pay income tax in the UK if you are classed as a UK resident or if you are no longer a resident but still earn an income in the UK.
You will be considered a UK resident for tax purposes if you:
- live in the UK for at least 183 days during a tax year
- own property in the UK which you live in for 91 consecutive days, 30 of which need to be during the tax year being assessed
- have your main job in the UK and work for at least 274 days during the tax year being assessed
If you are a UK national who has moved abroad, you will be liable for income tax on earnings from:
You may also need to fill in a tax return and pay income tax if you have moved abroad in the last year and worked as self-employed in the UK or earned any untaxed income in the tax year preceding your move.
If you’re living abroad but are still a UK resident for tax purposes, you will have to file an annual tax return detailing all untaxed worldwide income. UK expats who are no longer UK residents, along with non-UK nationals earning an income in the UK, need to file an annual tax return detailing all untaxed UK income.
Those renting property in the UK can also pay tax on this income through their letting agent or tenant. This means it won’t have to be declared on the annual tax return. You can find more information here.
UK tax allowances
You can claim the following allowances to offset your UK tax bill:
- personal allowance (£12,500 for the 2020/21 tax year, rising to £12,750 for 2021/22) available to all UK and EU/EFTA citizens
- double-tax relief if any of your income is taxed twice (by the UK and also by your country of residence) as long as your country of residence has a double-taxation agreement with the UK
Organizing your income when leaving the UK
Arranging your finances when moving abroad takes planning. It’s not just about opening a bank account or transferring money to your new place of residence. You need to think carefully about managing any income streams you have and how you will be taxed on them.
Part of this will depend on what the tax system is in the country you are relocating to, and whether they have any tax agreements in place with the UK. It is a good idea to have a chat with a financial advisor or at least do some research ahead of your move.
If you are going to become a non-resident of the UK for tax purposes, you will need to make sure that you follow the regulations to secure non-resident status. You will then need to make arrangements for any UK income streams, for example, UK pensions or investment plans. Is it better for you to keep them in the UK or transfer them to your new place of residence? Can you easily do this?
Filing UK taxes abroad
If you’re liable for UK taxes as an expat, you must file an annual tax return and pay any tax owed to the UK Inland Revenue.
The annual deadline for doing this depends on whether you are a UK resident or non-resident. UK residents have until 31 January each year to file their return for the previous tax year (e.g., until 31 January 2021 to file their 2019/20 tax return) if using the online self-assessment tax return system. If filing a return by paper, the deadline falls three months earlier on 31 October (e.g., 31 October 2020 for a 2019/20 tax return).
Non-residents cannot access the online tax return system. They must file their annual return by 31 October each year if submitting by post. However, they can use the January deadline if they submit using commercial software or submit electronically through an accountant or financial professional.
To file an online tax return, set up a gateway account with HM Revenue and Customs (HMRC), apply for a Unique Taxpayer Reference (UTR) number, and activate your account using a code sent to you in the post.
This process can take a few weeks and the activation code goes to a UK address. Therefore, make sure you start the process well in advance of the deadline to avoid any fines.
Whether you are filing online or by paper copy, you must declare all untaxed income and give details of any allowances, expenses, and other deductions so that you can calculate the tax you need to pay.
Reducing your liabilities when filing UK taxes abroad
There are a number of ways that you can look to lessen your UK tax liabilities when you move abroad. Beyond maintaining a non-resident status, you can:
- Ensure that you hold any immovable assets situated in the UK, for example, property, in joint names with your spouse/partner for tax mitigation.
- Transfer movable cash assets into an offshore bank account. These are accounts that are part of UK banks but with favorable tax arrangements, ensuring that any interest earned is not subject to tax while you remain overseas.
- Consolidate your UK pension entitlements by transferring your UK occupational pension scheme or Personal Pension Plan to a Qualifying Recognized Overseas Pension Scheme.
- Look into the possibility of claiming an income tax refund on departing the UK. If you’ve been employed in the UK before leaving, you may not have received the full benefit of the personal tax allowance you’re entitled to through your salary. If this is the case, you might be able to recover some of the tax already paid through PAYE.
- Register under the Non-Resident Landlord Scheme if you are letting out property in the UK. If you are approved under this scheme, you can receive rental income without any tax deductions.
It’s a good idea to sit down and have a discussion with a financial advisor or tax expert before moving. They can advise you on how to plan your finances and meet your UK tax obligations once you relocate abroad.
Paying UK taxes abroad
The deadlines for paying any tax owed in the UK are:
- 31 January for any tax owed for the previous tax year
- 31 July for the advanced payment on your next tax bill, unless your tax bill is under £1,000 or you qualify for exemption on making the advanced payment
You can pay your UK tax in a number of different ways. These include:
- Direct Debit
- bank transfer
- debit or credit card
- through your bank
- by check through the post
- through your PAYE tax code if this is available
You should ask for confirmation that HMRC has received this payment. If you are paying online, you should receive an automatic confirmation. Bear in mind that the HMRC needs to receive check payments sent through the post by the deadline; make sure you mail them well in advance.
You can read more information on paying your UK tax bill on the HMRC website.
Late tax returns in the UK
You will be penalized if you submit your tax return or make a tax payment late in the UK. The minimum fine is £100 for each misdemeanor; if you file your return late as well as make a late payment, you’ll pay at least £200.
If either your return or payment is more than three months late, you can be fined more than this. HMRC can apply a daily interest to fines that are in excess of three months.
You can visit the HMRC website to find out more about current penalty rates.
Returning to the UK
You need to take real care if, having spent time as a non-resident, you decide to return. The UK has an evolved system of taxation, including income tax of up to 45% (46% in Scotland), a wide-ranging capital gains tax (up 28%), and inheritance tax on estates (up to 40%), as well as a not-insubstantial social security levy.
Any exposure to the UK tax system as a resident requires careful planning in advance. This is particularly the case where substantial assets and shareholdings are concerned.
You must also ensure that you disclose and document your return to the UK. Ensure that you properly plan your taxes and account for the potential in wild swings in post-Brexit currency exchange rates; this lessens your liabilities once you return to the UK. With a little forward planning, this is often possible.
If you are planning to return to the UK after a period abroad, it is a good idea to speak to a financial advisor to make sure that you fully understand the financial implications of making the move.
Advice on filing UK taxes abroad
To fully inform yourself and plan effectively, you should seek advice from a UK tax expert as well as an advisor well versed in the tax requirements of your new home country. Alternatively, you can speak to a company that advises expats on global tax affairs.