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Tax FAQ

Do I have to submit a UK tax return?

Not all expats are required to submit a UK Self Assessment tax return, however HMRC will not necessarily send you a letter even if you are required to. If you are required to submit a tax return and you fail to do so, you will be charged a penalty and potentially interest on any unpaid tax.

While submitting a tax return does not necessarily mean that you owe tax in the UK, it is important that a return is filed if you are obliged to complete one to avoid any late filing penalties and fines.

Submitting a tax return will ensure you claim any appropriate reliefs you are entitled to i.e. tax treaty relief if there is a double tax agreement in place, which will help you avoid double taxation.

Six key criteria that will help you determine whether you need to submit a tax return

  • Are you considered a tax resident of the UK?

  • Do/did you receive any untaxed income from sources in the UK (eg. rental income from a UK property)?

  • Do you have income from abroad that you need to pay tax on?

  • Are you a director of a UK registered company?

  • Was your UK taxable income over £100,000?

  • Have you sold a UK property, shares or something else that you need to pay capital gains tax on?

If you answered yes to any of the above criteria, you will probably have to submit a tax return in the UK regardless of whether you are British or a foreign national.

If you are unsure about the answer to any of the above questions, it is possible that you will be required to submit a tax return and you should seek guidance on whether you need to submit a tax return.

How long do you have to stay out of the UK to avoid paying tax?

The amount of tax you are required to pay in the UK will depend on your UK tax residence status, as, in general, non-residents of the UK are generally only taxed on UK source income. 

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Your UK tax residence status is established through the Statutory Residence Test which incorporates a number of tests and factors when establishing whether you are a UK tax resident or not.

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The Statutory Residence Test sets out a series of rules which determine if you are automatically non-resident or automatically resident.

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For example, if you spend 183 or more days in the UK in any given tax year you will automatically be considered as a UK tax resident.

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However, it is not conversely true that if you spend fewer than 183 days in the UK, you will automatically be classed as a UK non-resident.

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If you are neither automatically resident or non-resident, other factors, classed as “ties” will also need to be taken into consideration.

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A combination of your ties and the time you spend in the UK will ultimately determine your UK tax residence status.

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However, this should not be used in isolation to help you determine your tax residence status and UK tax exposure, you should always seek qualified advice to ensure you know your tax requirements.

What is domicile?

When you are born, your domicile is automatically assigned as the same domicile as your parents, which then becomes your domicile of origin.

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If your parents were unmarried when you were born, your domicile of origin will normally be the same as your mother, although it may be different based on your individual circumstances.

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You keep your domicile of origin throughout your life, irrespective of any country you subsequently move to and live in and will normally only change if you make a significant effort to change your domicile.

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Your domicile is primary used in the UK to determine whether you are required to pay inheritance tax to the HMRC when you die.

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Many people and organisations incorrectly ask for your domicile when they actually mean your country of residence. Your country of residence will change when you spend a significant period of time in that country, while your domicile is highly unlikely to change.

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In the UK you also may be deemed domicile when you die if you either transferred your domicile away from the UK within three the previous three years of your death or if you were considered a tax resident in the UK for 17 of the previous 20 tax years.

Do expats pay UK tax?

If someone moves to the UK and becomes a tax resident, in virtually all cases, they are required to pay tax on their worldwide income as well as income and capital gains generated from offshore or other countries (eg. holiday lets, international investments).

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If a British person decides to move abroad and ultimately becomes a non-resident for tax purposes, while they will not be subject to UK tax on their worldwide income, they will still be liable to declare and pay UK tax on any income or capital gains that arise from the UK.

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For expats, this will normally be in the guise of income from work, rental income from UK properties, pension income or income from other investments.

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Expats are, however, still able to use their personal allowance even when they leave the UK which means that while they will be required to submit a Self-Assessment Tax Return, they will only be required to pay tax on UK income earned over £11,850 (as per the tax year 2018/19) and £12,500 (from 2019/20).

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Other UK taxes that British expats and non-UK residents have to pay include:

  • Capital gains tax generated from the sale of UK properties (other than your primary residence) and other UK investments;

  • UK stamp duty if you buy a property in the UK;

  • Inheritance tax, even if you die abroad.
     

This article has been created as a simple answer to the question “do expats pay UK tax?”.

 

For a more detailed explanation of what UK taxes expats have to pay, please get professional advice.

Do I have to pay stamp duty?

As with most tax questions, it will depend on your circumstances as to whether you are required to pay stamp duty when buying a house in the UK.

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Unlike with other taxes, your tax residence status in the UK makes little to no difference whether you will have to pay stamp duty or not.

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The conditions around how much stamp duty you will be required to pay depend on whether you own one or more properties in the UK or anywhere in the world.

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For example, if you live abroad but don't own a UK property and currently rent, you will not be liable to pay the higher rate of stamp duty when buying a property.

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However, if you own a property anywhere in the world, whether you live in it or not, and want to buy another UK property, you will be required top pay the higher rate of stamp duty.

Do I have to pay inheritance tax?

Under UK rules, inheritance tax depends on the domicile of the deceased.

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Your domicile is often the country of your birth, but is defined as your permanent home.

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If you were born in the UK and then move abroad, while you may change your tax residence status to non-resident, you will not have changed your domicile which means that your estate will still be subject to inheritance tax rules in the UK.

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In the likely event that you are still UK domiciled, inheritance tax will be owed on an estate which is valued at more than the inheritance tax threshold of £325,000 (£650,000 if your spouse's/civil partner's allowance is unused).

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It's worth considering that each country will also have different rules surrounding succession planning, so you should always seek advice about inheritance tax and estate planning - especially when living abroad.

What is a non-dom?

A non-dom is someone who lives in a country but does not have the same domicile as that country.

When you are born, you automatically become domicile in a particular country.

 

Often this will be based on the country you were born in, but it is possible to inherit your domicile from your parents meaning you can be born in the UK, and still be a UK non-dom.

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When evaluating your domicile, the government will consider a number of key factors including your permanent country of residence, your future intentions and even where you intend to be buried.

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Changing your country of residence will not, on its own, be enough to change your domicile.

Non-dom status is important for many people as it would enable them to receive favourable tax treatment in their country of residence.

 

At the moment, in the UK it is possible to pay money to maintain your non-dom status, which means you can avoid being treated as a tax resident, even if you meet the criteria under the Statutory Residence Test.

 

This would mean that you do not have to pay tax on your worldwide earnings in the UK, only tax on your earnings in the UK.

Do you have to pay tax if you work abroad?

Typically, yes, you will be subject to tax rules in at least one country, depending on where you live and where you're from, you may also be subject to taxes in your home country as well.

Exactly what tax is required to be paid and to whom will depend on your tax residence status in your home country, country of residence as well as the tax rules in each country.

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For British citizens, if you are considered a non-resident of the UK, while you won’t have to pay tax on your income arising from your work abroad, you are likely to have to pay tax on your income in your country of residence.

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For citizens of other nationalities, the tax rules will be different. For example, if you are an American citizen living abroad, you are still required to follow US tax rules and may be required to pay tax in the US as well as be subject to tax rules in your country of residence.

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For people who are classed as a tax resident of the UK, in most cases, tax will be due on income arising from work outside of the UK.

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Your UK tax residence status is established with the Statutory Residence Test.

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For non-British expats, you may also be required to pay tax on your income, irrespective of where it is earned.

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Finally, it is important to investigate whether there is a tax treaty between your country of residence and your country of domicile which could provide you with tax relief if tax is due in both countries.

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Typical complications and planning opportunities which arise and require specialist advice are often where:

  1. you are dual resident in the UK and another country, as you need to establish which country has the taxing right over the employment income and make tax treaty relief claims (if a treaty exists) via your tax return;

  2. you are an expat that has a UK employer but spend some of your time working overseas;

  3. you are resident in a country which does not have a tax treaty with the UK and spend some workdays in the UK;

  4. you have a UK employer and are on a UK contract, but spend all of your time working overseas;

  5. you left the UK to work overseas but have returned to the UK too soon to have become non-resident.

What are the new capital gains tax (CGT) rules from April 2020?

Any sale of UK property, by a non-UK resident or otherwise, that has not always been their main residence, and which is completed either on or after April 6th, 2020, will be subject to the new Capital Gains Tax (CGT) rules.

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Firstly, they will be obliged to declare the transaction to HMRC within 30 days of the sale taking place and to pay the full amount of Capital Gains Tax owed. Previously this could be reported via the self-assessment tax return process once the tax year in which the sale occurred was complete.

Secondly, where principle private residence relief can be applied, HMRC will now only allow the final 9 months of ownership to be included too in any PPR relief calculations whereas previously they allowed 18 months.

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Thirdly, where PPR relief is allowed, lettings relief was previously allowed also which could further offset any chargeable gain on the property to be assessed for CGT. However, lettings relief is now being abolished for property owners who do not reside in the property while it is being partly rented.

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These changes create additional pressing obligations for people that are selling and completing properties from the start of the 2020/21 tax year, with penalties and late payment interest applied on any late filing and delayed payments.

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If the speed of a current sale on your planned property disposal has been affected by the outbreak of Covid-19, there is nothing currently stated by HMRC that suggests that this is a circumstance that can be addressed or excused, despite it being out of your control.

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Clarification of the main changes to the Capital Gains Tax rules from April 2020

  • A reduction in the final period of exemption, from 18 months to 9 months.

  • Legal requirement to pay full amounts of CGT owed, within a 30-day period, rather than payment via self-assessment tax return of the relevant tax year once completed.

  • Lettings relief of up to £40,000 per owner will only apply if the letting of the property was carried out whilst ‘co-living in the property during the rental period.
     

If you are unsure of how the changes will directly affect you, it is advisable that you speak to one of our tax advisers.

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