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Assistance for Individuals

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Tax Information

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Introduction

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Your intentions, your ties with the UK and the structure of your assignment 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 being 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 about the UK Taxation

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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 or retain ties with the UK, you may 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 tax 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.  In the UK, these penalties can be up to a 100% of the outstanding tax due (up to 200% in certain circumstances).

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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Residence and Domicile

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Your Residence and domicile status in the UK determines how you will be taxed in the UK.

UK Tax 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 and your ties with the UK.

Residence

Establishing a person's residence status for UK tax purposes, is currently very uncertain and ambigious, with no guarantees.  In the past, much reliance has been placed on the number of days spent in the UK, however, this is no longer the case, with the Revenue taking other factors into account when establishing an individual's residence status.  Your ties with the UK play an important part in establishing what your tax residence will be, as well as the number of days spent in the UK.  If you are physically present in the UK during a UK tax year for 183 or more days, then you will always be regarded as resident.  You may also be resident under other tests such as the 91 day rule, a rule that trips up so many expats 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, your residence status can only be established by looking at your individual circumstances as a whole, therefore, Professional advice must be sought, as your intentions and your ties with the UK play a key role and it is not uncommon to be regarded as resident just from your intentions and UK ties, 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.

If you normally live in the UK and are moving overseas for work, then there is a Revenue concession which may allow you to break UK tax residence, providing certain conditions are satisfied.

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 often complicate the situation, and you should always seek professional advice when establishing your tax residence.  For these examples, it assumed that the individual has no ties with the UK.

Examples

Leaving the UK

1. John is leaving the UK for a 2 year secondment to Australia. He leaves on 1 September 2011, returning on 31 August 2013. During his assignment he returns to the UK for:
   
   14 days during December and January 2011/12
   
   21 days during August 2012
   
   14 days during December and January 2012/13
   
   John will be regarded as being not resident and not ordinarily resident from 2 September 2011 to 30 August 2013
   
    
2. James is assigned to Germany for 18 months and left on 1 May 2011. During his assignment he visits the UK for
   
   63 days during the 2011/12 UK tax year
   
   57 days during the 2012/13 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 may be resident in Germany as well, meaning dual residence will arise with the possibility of double taxation arising. He will remain liable to UK tax on his worldwide income while on assignment.
   
    
3. Sue has emigrated to Australia, finding work there once she arrived a few months later. 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 2011 for a 2 year assignment. During his assignment, he is absent from the UK for:
   
   8 days during the 2010/11 tax year (from the date of his arrival in the UK)
   
   58 days during the 2011/12 tax year
   
   41 days during 2012/13 tax year (up to the date of his departure from the UK)
   
   Klaus will be regarded as resident From 1 January 2011 to 31 December 2012. Had Klaus' assignment been for 18 months he would have been not resident and not ordinarily resident for 2010/11, resident but not ordinarily resident for 2011/12 and not resident and not ordinarily resident for 2012/13.
   
    
2. Maria has come to the UK for a 4 year secondment. She arrived on 1 June 2011. During her assignment she is absent from the UK for:
   
   43 days during the 2011/12 tax year (from the date of arrival)
   
   83 days during the 2012/13 tax year
   
   98 days during the 2013/14 tax year
   
   106 days during the 2014/15 tax year
   
   29 days during the 2015/16 tax year (to date of departure)
   
   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 2011 to 31 May 2015.
   
    
3. Bernard has come to the UK for a 12 month secondment starting on 1 August 2011. During his assignment he spends the following time outside of the UK:
   
   30 days during 2011/12 tax year (from date of arrival)
   
   10 days during 2012/13 tax year (to date of departure)
   
   Bernard will be resident and not ordinarily resident during the 2011/12 tax year.
   
   During 2012/13 he is not resident.

The above is the current situation regarding UK tax residence.  The UK Government have recently released proposals on introducing a statutory residence test, with the intention of this new test taking effect from 6 April 2012.  The test is split into 3 parts, Parts A, B and C.  If you satisfy one of the conditions under Part A, then you will be regarded as not resident.  If you don't satisfy any of these conditions, then you need to look at Part B.  If you satisfy one of these conditions, then you will be regarded as resident.  If you don't satisfy any conditions under Parts A or B, then you need to look at Part C.  Part C establishes your residence status based on the number of connecting factors you have with the UK, the number of days you have spent in the UK and whether you are an "arriver" or "leaver".

HM Revenue & Customs also intend to define ordinary residence, with a view to non ordinary residence only relating to foreign domiciles.

The above proposals have just finished the consultation stage, so draft legislation should be issued this Autumn, with final legislation to take effect from 6 April 2012. 

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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 - NIC) 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 adopt a domicile of choice, however, if you have a UK domicile of origin, this 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 in establishing your inheritance tax liability, which can arise not only on your death, but also on any gifts you make.

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UK Income Tax Liability

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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 many foreign nationals working in the UK are caught by this rule.)

If you are a foreign domcile who is resident in the UK or a UK domicile who is resident but not ordinarily resident in the UK, the rules on the remittance basis of taxing overseas income & gains (the latter only for non UK domiciles), needs to be considered and an assessment made as to whether it is beneficial or not to claim the remittance basis.  Very often, less UK tax arises if the remittance basis is not claimed.

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 treaties if at all possible. Very often a tax treaty can't be used, because the relevant conditions have not been met.

If the benefit 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 Revenue concession and not law, therefore, HMRC could if they so wish ignore this, however, it is intended that this split year treatment will be enacted with the above statutory residence test and so become law from 6 April 2012.

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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