Is your career going to take you overseas? Are you moving, or planning to move, to or from the UK for work? Or are you delayed somewhere because of the pandemic? Here’s a quick guide to your tax position.
How you are taxed in the UK depends on two factors: tax residency and domicile.
What does tax residency mean?
Your tax residency is determined by the Statutory Residence Test (SRT) on a year by year basis. The UK tax year runs from 6 April to the following 5 April.
You are treated as UK tax resident if you are present in the UK for 183 days or more in the tax year. If you spend less than 183 days in the UK, it does not mean you are automatically non-resident. There are various other criteria to be fulfilled.
If you enter the UK to live here or leave to live elsewhere during a tax year, a ‘split year’ treatment might apply. If you meet the conditions, you’ll be treated as UK tax resident for part of the tax year and non-resident for the rest of the tax year.
What does domicile mean?
Every individual has just one domicile. The UK definition of domicile comes from general law and is unique in its interpretation.
You are normally domiciled in the country where you have your permanent or natural home – or where you have a “settled intention to permanently reside”. It’s usually your country of birth and comes from your father’s domicile.
If you spend a long time in the UK (i.e. you have been resident here for 15 out of the 20 preceding tax years), you are deemed to be UK domiciled for income and capital gains tax purposes.
How does UK residency and domicile affect my tax?
| UK domiciled | Non-UK domiciled | |
| Tax resident | Taxed on worldwide income in the UK (the arising basis) | Option to elect to be taxed on the ‘remittance basis’ or the ‘arising basis’. A UK tax return must be completed, and a charge paid in certain circumstances. |
| Non-tax resident | Only taxed on UK-sourced income, including that paid after you have left the UK, that relates to the UK period. Taxed on capital gains on disposal of UK properties only at any time or only in respect of the tax year when you became non-resident. | |
Q&As
Q: I am living and working in the UK, but not originally from the UK. Is my foreign income taxable in the UK?
A: If you were born and raised outside the UK, you are probably non-domiciled and eligible for the ‘remittance basis’. You will need to complete a UK tax return to claim the remittance basis and it is important to keep foreign income in a foreign bank account and NOT to remit the money to the UK. It is worth setting up different bank accounts for income from separate sources.
Q: I’m planning on working abroad. Do I need to pay UK tax?
A: It depends. Usually you will remain UK tax resident unless you leave the UK for a full tax year.
If you do break UK tax residence, only UK sourced income will be taxable in the UK. That might be UK bank interest, dividends from UK listed companies and UK rental income. However, if you sell a UK property, you will pay UK tax regardless of your residency position.
If you rent out your UK property after leaving the UK, you will need to inform HMRC and complete a tax return to report the rental income.
Q: I am leaving the UK and will become non-resident. What should I consider?
A: There are many things to consider from a tax perspective! Here are some important points:
- The ISA allowance is only available to UK tax residents. When you leave the UK, you can keep existing ISA accounts open but cannot contribute new funds to them or open a new ISA.
- Pension contributions – if you contribute to a private pension scheme, you will only receive tax relief on contributions up to £3,600 gross (£2,800 net) per tax year unless you have UK relevant income that is taxable.
- If you make regular Gift Aid donations, make sure you pay enough UK tax. Otherwise you’ll have to make up for the tax relief the charity is receiving. Your donations must be less than four times what you paid in tax. If in doubt, make a regular donation and don’t tick the ‘Gift Aid’ box.
- Student loans. It’s a legal requirement to tell the Student Loans Company when you leave the UK. They may ask you to set up a payment plan to pay your student loan directly to them when you work abroad.
- Voluntary national insurance contributions. Unless you keep paying national insurance after leaving the UK, there will be gaps in your national insurance record which may affect your eligibility for claiming a UK state pension in the future. Consider making a voluntary contribution to fill in the gaps. It’s as low as £3.05 per week.
Q: Because of COVID, I’m stuck in the UK/overseas. What are the tax implications?
A:
- Working overseas for a UK company. Unless you leave the UK for a complete tax year, you’ll usually remain UK tax resident and taxable in the UK on your employment income. However, beware you may also have to pay income tax in the foreign country, even if your stay is short. It is important to check the local and international tax rules. If you are subject to tax in more than one country on the same income you will need to complete a UK tax return to claim the foreign tax paid (as a foreign tax credit) reducing your UK tax liability.
Make sure you tell your employer about the situation. The company may need to add you to a local payroll and there is a danger you may create a corporate tax presence for the company in the foreign country, especially if you work at management level. - Working in the UK for an overseas company. If you are stuck in the UK because of Covid, HMRC will ignore up to 40 days in a tax year under the ‘exceptional circumstances’ rule when assessing UK tax residency.
HMRC will assess your working pattern on a case by case basis, and only exempt your employment income if:
- is taxed in your home country, and
- you are genuinely prevented from leaving the UK as a result of Covid measures (for example, if flights are cancelled or the NHS app asks you to self-isolate)
Again, it is vital to tell your employer about your extended stay so they can seek professional advice.
