WILL YOU HAVE TO PAY UK TAX?
That depends on your UK residence status. If you’re a non-resident, you’ll pay tax on money you earn in the UK, but not on your foreign income. If you’re a UK resident, you’ll usually pay tax on all your income and gains, whether it’s from the UK or abroad; but the rules are different if your permanent home is abroad. So, will you be a UK resident for tax purposes?
If you (or you and your family) are relocating to the UK, the deciding factor in your UK tax status is the HMRC Statutory Residence Test (SRT). You will be automatically seen as a UK tax resident if you’ve spent at least 183 days here during the UK tax year (which runs from 6 April to the following 5 April).
However, this is just one of the tests and it’s important to note that depending on other factors, you could be seen as tax resident for spending less than 183 days in the UK. The tax year can be split into a UK and overseas part if conditions are met and so determining the exact point you become tax resident in the UK should also be considered well ahead of any planned move to the UK.
EXCEPTIONS TO THE RULE: THE DOMICILE QUESTION
Where you are domiciled will affect what UK tax you pay. The definition of domicile is complex and widely drawn, but in tax terms domicile means the country you’d describe as your permanent home, even if you don’t currently live there. Domicile is mostly determined by your family background, although the definition is complex.
Here’s what UK tax you’ll pay according to your domicile status:
UK resident and domiciled
If you’re resident and domiciled in the UK, you’ll pay UK tax on all your income, wherever you earn it, and on your gains. However, different tax rules will apply to your UK income and foreign income and gains. UK Inheritance tax will be due on all your worldwide estate.
Non-UK domicile but resident in the UK
The default position is the same as a UK domiciled individual, in that you’ll be taxed on your UK income and gains, and on foreign income and gains when they actually arise, even if not paid, or remitted to the UK. But you can instead choose to be taxed on the ‘remittance basis’, which means you’ll avoid paying UK tax on foreign income and gains if they’re not remitted to the UK. After seven years of residence, you must pay an annual charge to continue to claim this basis of assessment. Inheritance tax will only be due on your UK estate.
Before you relocate here, we’ll confirm your status for UK tax purposes, your sources of income and assets from outside the UK and advise if you could benefit from using the remittance basis. If you can, we’ll start helping you plan to mitigate your UK tax exposure.
A point to note is that if you are non-domicile in the UK, you’ll be ‘deemed domicile’ here if you’ve been resident in the UK for at least 15 of the 20 tax years immediately preceding the relevant tax year. In that case you won’t be able to use the remittance basis of taxation. However, there are exceptions to this rule too, including if you spend a number of tax years outside the UK. Again, we can advise you on this.
RETURNING TO THE UK AFTER LIVING ABROAD
If you’re a UK resident who was aboard for less than a full tax year, you’ll usually pay UK tax on your foreign income for all the time you were away. If you’re going to work abroad for at least one full tax year, you’ll need to inform HMRC.
If you’re abroad but return to the UK within five years, the ‘temporary non-residence’ rules apply. This means you may have to pay tax on some income or gains made while you were non-resident, but not on your wages or other employment income.
Once you come back to the UK after living abroad, you’ll usually be classed a UK resident again. So, you’ll pay UK tax on your UK income and gains and any foreign income and gains (although you may not have to if you are still domiciled outside the UK).
As you can see, these rules are also complex. We’ll explain how they affect you and the best routes to minimise your tax whilst staying compliant with UK rules.