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Your intentions and the structure of your assignment (if an expat) or move, can have a huge impact on how you will be taxed in the UK, therefore, it is vital any tax planning takes place before you arrive in or leave the UK, when your move is being planned and structured.
So many people leave this until after they have left or arrived in the UK, thereby missing out on generous tax savings, or worse finding themselves in a double tax situation.
On this website you will find various notes on the UK tax situation surrounding individuals both to and from the UK.
It is impossible to highlight all the possible circumstances you may come across, therefore these notes are intended to be a brief guide to highlight the issues you should consider and are not definitive.
The way you will be taxed in the UK very much depends on your own individual circumstances, therefore, it is important that you seek professional advice as soon as you know you are moving overseas or coming to the UK.
Remember, fees for good quality professional advice may initially appear high, but compared to the tax savings that may arise (see examples) and the peace of mind you achieve from tax compliant, they are well worth the expense. Don't be tempted to go for the cheapest fee possible. often you will lose out in the end with you not getting the level of service you deserve and with corners being cut, leaving you potentially exposed if the Revenue were to enquire into your affairs.
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Myths abound about UK taxation of expatriates such as:
"I've been in the UK for less than 183 days therefore I won't be taxed in the UK".
True, there are instances when you may not be taxed in the UK if you are here for less than 183 days, but certain conditions need to be satisfied and often these are not met. In a lot of cases, the individual is taxable in the UK even though they are in the UK for less than 183 days and may not be tax resident.
"I'm paid in my home country, therefore, I won't be taxable in the UK".
Where you are paid does not generally determine what is taxable in the UK (Only in certain situations will this be important). The UK taxes on a source basis, therefore, if you are carrying out work in the UK, this is taxable in the UK no matter where you are paid from or by whom.
"I'm not working in the UK, therefore I'm not taxable in the UK".
If you normally live in the UK and are not out of the UK for a certain amount of time, you will remain taxable in the UK on your worldwide income, possibly being in a double tax situation where you are taxed twice on the same income.
"My secondment is only a few months, therefore, will be very simple and won't cause any tax issues".
Short assignments (anything less than 24 months) often cause the most problems, with double tax issues arising because say UK residence hasn't been broken, but the individual has become resident and/or taxable in the country they are visiting.
"I'm leaving the UK and therefore, won't need to pay UK tax."
A common misconception with Brits leaving the UK. Depending on your circumstances, you could well remain taxable in the UK even if you are not a UK tax resident.
Such myths can cause the unwary to get into trouble with the tax authorities and can incur large tax bills, which include penalties surcharges and interest.
Beware of friends who try to advise you on your tax situation, as so often what is suitable advice for one person is not suitable for another.
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Your Residence and domicile status in the UK can determine how you will be taxed in the UK.
Residence
There are 2 types of residence status in the UK for tax purposes. Establishing your tax residence in the UK is a complex affair and very much depends on your own particular intentions and circumstances.
Residence
Generally, residence in the UK is established if you are physically present in the UK during a UK tax year for 183 or more days, although you may still be resident under other tests such as the 91 day rule, a rule that trips up so many expats and migrants or the mobile workers rule.
Ordinary Residence
Ordinary residence has more permanence than residence alone. If you are in the UK year after year, you are regarded as being ordinarily resident. Several factors are taken into account, when establishing if you are ordinarily resident, such as ownership or availability of UK property.
It is possible for you to be just one of the above.
There are 3 common combinations:
Resident and ordinarily resident
Resident and not ordinarily resident
Not resident
Please note, that due to the nature of establishing residence status, residence can only really be established by looking at your individual circumstances, therefore, Professional advice must be sought, as your intentions play a key role and it is not uncommon to be regarded as resident just from your intentions, even though your visits to the UK do not exceed the above limits.
In addition, as mentioned above, your intentions are very important when establishing your residence status, therefore, if these change during your time in or away from the UK your residence status may also change.
The following examples show how the timing and length of your time in/from the UK can have a dramatic impact on your UK tax residence and ultimately how you are taxed in the UK
Please note the following examples are for illustration only. Other factors very often complicate the situation, and you should always seek professional advice when establishing your tax residence.
Examples
Leaving the UK
1. John is leaving the UK for a 2 year secondment to Australia. He leaves on 1 September 2003, returning on 31 August 2005. During his assignment he returns to the UK for:
14 days during December and January 2003/04
21 days during August 2004
14 days during December and January2004/05
John will be regarded as being not resident and not ordinarily resident from 2 September 2003 to 30 August 2005
2. James is assigned to Germany for 18 months and left on 1 May 2003. During his assignment he visits the UK for
63 days during the 2003/04 UK tax year
57 days during 2004/05 tax year
In this situation James has got his timings badly wrong. He will remain resident and ordinarily resident in the UK throughout his assignment. He is likely to be resident in Germany as well meaning dual residence will arise with the possibility of double taxation arising.
3. Sue has emigrated to Australia. After 2½ years she had to return to live in the UK. During this period she only spent two 3 week holidays in the UK.
Sue will remain resident and ordinary resident in the UK throughout the whole of her time in Australia and will remain subject to UK tax on her worldwide income.
4. Peter is emigrating to New Zealand. He has assets in the UK which are subject to capital gains tax. He sells the assets when he leaves the UK.
Unfortunately Peter's timing in selling the assets results in the assets being subject to UK capital gains tax. By changing the time Peter sell's the assets and making sure he doesn't return to the UK for a certain period of time, UK capital gains tax can be eliminated.
5. George is working in the Netherlands. His home and family remains in the UK and he commutes between the UK and the Netherlands on a weekly basis. His visits back to the UK are such that he is not in the UK for more than 90 days on average per year or 183 days per tax year..
Even though George has satisfied the absence tests, the Revenue will still regard him as resident and ordinary resident in the UK under the mobile workers rule.
Coming to the UK
1. Klaus arrived in the UK on 1 January 2003 for a 2 year assignment. During his assignment, he is absent from the UK for:
8 days during the 2002/03 tax year
58 days during the 2003/04 tax year
41 days during 2004/05 tax year
Klaus will be regarded as resident From 1 January 2003 to 31 December 2004. Had Klaus' assignment been for 18 months he would have been not resident and not ordinarily resident for 2002/03, resident but not ordinarily resident for 2003/04 and not resident and not ordinarily resident for 2004/05.
2. Maria has come to the UK for a 4 year secondment. She arrived on 1 June 2000. During her assignment she is absent from the UK for:
43 days during the 2000/01 tax year
83 days during the 2001/02 tax year
98 days during the 2002/03 tax year
106 days during the 2003/04 tax year
29 days during the 2004/05 tax year
Maria will be resident and ordinarily resident from the day she arrived in the UK to the day she leaves i.e. from 1 June 2000 to 31 May 2004.
3. Bernard has come to the UK for a 12 month secondment starting on 1 August 2002. During his assignment he spends the following time outside of the UK:
30 days during 2002/03 tax year
10 days during 2003/04 tax year
Bernard will be resident and not ordinarily resident during the 2002/03 tax year.
During 2003/04 he is not resident.
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Dual residence
It is possible that you may be resident in not only the UK but also another country, for example the country you have just left or going to, leading to the possibility of tax being paid in both the UK and this other country i.e. double taxation arises. In this situation, relief may be available under a double tax treaty that may exist. It is important to realise that certain conditions need to be met, and often these conditions are not met, resulting in no relief being immediately available. In this situation, tax relief is available for either the foreign or UK tax, but this is normally only received when the relevant tax returns have been filed resulting in a long delay in the repayment of tax. This could result in real cash flow issues for yourself (or your employer if you are tax equalised).
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Residence for Other Purposes
The above relates to residence for UK income tax purposes. The definition of residence for UK social security contributions (national insurance contributions) and benefits, and double tax treaties is different.
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Domicile
Your domicile status can also have an effect on how you are taxed in the UK. Domicile is not your nationality or citizenship. It is a complex area and there are many factors which are taken into account when considering you domicile status and, as with residence, your domicile status depends on your circumstances. Generally, your domicile is where your permanent home is; it is where you ultimately intend to end up. You can only have one domicile at any one time.
There 3 types of domicile:
Domicile of origin
Domicile of dependency
Domicile of choice
1. Domicile of origin
When you are born you take on your father's domicile, so if say you are an Australian born in Australia, but your father has a UK domicile (because say he emigrated to Australia from the UK), then your domicile of origin will be UK and not Australian.
2. Domicile of dependency
Until the age of 16, your domicile will follow the domicile of your father or the person who has legal responsibility for you.
3. Domicile of choice
Once you are over 16 you can change your domicile, however, if you have a UK domicile of origin changing it is extremely difficult to do. You must reside in a country and intend to stay there permanently. Providing evidence of this intention can prove to be extremely difficult and professional advice should be sought sooner rather than later if you are moving permanently away from the UK.
A UK domicile will have important consequences for UK inheritance tax, where tax residence is not important establishing your inheritance tax liability which can arise not only on your death, but also on any gifts you make
The Future
The above is based on current practices. This is an area which is currently under review by the UK Government and, therefore, the rules and practices surrounding the establishment of UK residence and domicile may change in the near future. Further updates will be posted to this site, therefore, add www.ukexpat.net to your favourites.
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Taxation of Earnings in the UK
How your earnings are taxed in the UK will depend on your residence and domicile status.
Any earnings arising in the UK will be taxed in the UK regardless of whether you are resident or not, unless the work you have done in the UK can be argued to be incidental to your overseas work.
If you are resident in the UK, you will be taxed in the UK on all your worldwide earnings.
In certain circumstances you may be able to get relief on overseas workdays. There are a number of important conditions which need to be met with this, one important one being that you must not remit these earnings to the UK otherwise they will become taxable. (Remittance for tax purposes is complex and includes many forms and not just the simple transfer of funds. For instance, the Revenue regard the use of overseas Credit cards to be a remittance. So manyforeign nationals working in the UK are caught by this rule.)
Tax planning is available to take advantage of this point, so contact UK Expat to discuss further.
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Other UK Income
If you have any source of UK income, this will remain taxable in the UK, regardless of whether you are tax resident or not in the UK. Certain types of income will automatically have tax deducted at source, meaning that in certain situations you may be due a tax repayment, however, you need to claim this. It is not automatically repaid.
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Double Taxation
It is possible to be taxable in both the UK and another country on the same income. This may occur if you are carrying out work say in the UK and having not broken residence in your home country remain taxable in that country. The UK has an extensive system of Double Taxation Treaties with numerous countries around the world. The aim of these treaties is to alleviate double taxation arising. However, there are conditions which need to be met in order to take advantage of a particular treaty, therefore, tax planning before the start of your move is crucial in order to take advantage of these conditions if at all possible. Very often a tax treaty can't be used, because the relevant conditions have not been met.
If advantage of a double tax treaty cannot be taken, tax relief is usually available for any double tax paid, however, you need to claim this and there can be a significant time lag between paying the additional tax and obtaining the tax relief. This can cause a real cash flow issue for you.
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Timing of Taxation
Generally, if you are resident in the UK you will be resident for the whole UK tax year.
There is a concession, however, which allows you to be taxed from the day you arrive in the UK to the day you leave if you are seconded to the UK and from the day after you leave the UK to the day before you return if you are on assignment from the UK or emigrating.
Again, certain conditions apply, before this concession applies and in certain situations it may not be desirable for the concession to be applicable. This is a concession and not law, therefore, the Revenue could if they so wish ignore this.
Contact UK Expat for further details. If you wish to discuss how we can help you with your UK tax, please contact us.
Click on the links to the left and right to understand how UK Expat can help you
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