What are the UK tax implications of becoming Non-UK resident?
The idea of packing it all in and emigrating to far-off lands is, for some, more than just an idea.
In fact, it is estimated that every year over 300,000 individuals leave Great Britain to start a new life overseas. Estimates suggest that up to 4.7 million British nationals now live abroad.
But what happens when it comes to paying your taxes?
What is taxable in the UK?
The good news is non-UK residents only pay tax on their UK income – they do not pay UK tax on their foreign income.
UK income may include things like:
- UK pensions
- rental income from UK properties
- savings interest from UK bank accounts
- wages or earnings from work carried out in the UK
- dividends from UK companies
The country where you live might also tax you on your UK income. However, if that country has a ‘double-taxation agreement’ with the UK, in some cases the UK must forgo its taxing rights on some types of UK income. Alternatively, and sometimes even where there is no ‘double-taxation agreement’ with the UK, the country in which you live may give you credit for the UK tax paid on your UK income (via foreign tax credit relief or unilateral tax relief). In either case, it is often possible to obtain relief from double-taxation on such income, which would otherwise suffer tax once in the UK and once in the country where you live.
As a non-UK resident, you also wouldn’t normally pay UK tax when you sell an asset either unless it is from UK property or land, or in respect of UK business assets. Temporary non-UK residents, however, should be wary that assets sold whilst living abroad (and whilst non-UK resident) may be subject to UK tax on their return to the UK.
What is not taxable in the UK?
Non-UK residents do not usually pay UK tax on:
- State Pension
- interest from UK government securities, like gilts.
What happens when you leave from or arrive into the UK?
If you are UK resident in the tax year in which you leave from or arrive into the UK, and are otherwise eligible, you may claim ‘split-year treatment’. Broadly, the effect of this treatment is to tax your income as a UK resident for the ‘UK part’ of the tax year and to tax your income as a non-UK resident for the ‘overseas part’. This means that you only pay UK tax on foreign income during the ‘UK part’ of the tax year, thereby helping to prevent double-taxation.
If you are a non-UK resident (perhaps living abroad), are employed in the UK and performing work in the UK, tax on your employment income will continue to be deducted and paid by your employer under PAYE. If you are assigned overseas by your UK employer and only undertake some work in the UK, it is possible for your employer to obtain a direction from HMRC to reduce the amount of tax collected via PAYE. You and your employer will of course need to consider the tax implications of carrying out work in the country where you live.
It’s always good to plan ahead, so it might also be a good idea to pay UK National Insurance voluntarily while you’re abroad if you’re planning to:
- come back to the UK
- claim State Pension later
Unfortunately, you cannot claim back any National Insurance you’ve already paid if you leave the UK permanently but anything you have already paid might count towards benefits in the country you’re moving to if it’s one of the countries that have a social security agreement with the UK.
Visiting the UK
Don’t worry, once you leave you can come back to the UK for a visit without becoming a resident again – depending on the particular circumstances, including the reason for your visit and how long you visit for.
If you work full-time abroad with no significant breaks, you can usually visit the UK for up to 90 days in a tax year – as long as whist you’re in the UK you work no more than 30 of these days (in which you work for more than 3 hours). A consideration now remote working is becoming easier and more acceptable around the world.
Just because you no longer live in the UK, does not necessarily mean that you are no longer required to complete a UK tax return. If you are deemed to be a non-UK resident, it may still be necessary to complete a tax return if you have UK source income even if you owe no UK tax.
The realm of non-resident taxation can be particularly complex and tricky to navigate. As is often the case, one size doesn’t fit all and everyone’s circumstances differ which is why speaking to a professional is always advisable.