If you live or work outside the UK for much of the time, you may no longer have to pay as much UK tax. Being an expatriate (‘expat’) can bring some tax advantages, but it does mean taking extra care that you still pay all the UK tax you owe.
The amount of UK income tax you have to pay will depend on a number of different factors. These include:
- How much time you continue to spend in the UK
- Whether you continue to work in the UK
- How much of your income originates in the UK
- Whether or not your new country has a double-taxation agreement with the UK
Living abroad can also affect how much capital gains tax you may need to pay on certain assets. You can choose to continue paying National Insurance (NI) contributions if you plan to return to the UK at any point, e.g. to claim the State Pension.
Here’s how to work out the UK tax you may need to pay in a range of different circ*mstances.
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I’m working abroad some of the time
If you are non-resident you will be exempt from most UK tax. To be non-resident, you must have worked outside the UK for one full tax year or more. You must also spend no more than 91 days a year (on average over four years) in the UK, or 182 days in any particular year. This means you’ll need to keep careful track of how much time you spend in the UK.
To be non-resident, you must also make sure you don’t work in the UK more than 30 days per year.
I’m working abroad permanently
So long as you fulfil all the conditions listed above, you’ll be classed as non-resident. However, if you still receive some income in the UK (such as from rental property) you may still be taxed on it in the UK.
I’m retiring abroad
If you are retiring abroad but still have UK-based pensions, you will have to decide how to take income from those pensions. Some people choose to transfer their pension into a QROPS (qualifying recognised overseas pension scheme) to have it paid in their country of residence. This can be simpler and may mean a lower tax bill. However, transferring to a QROPS may itself bring a tax charge of up to 25 per cent, so it is vital to seek advice from a financial adviser who specialises in expatriate finances.
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Can I be taxed on the same income twice?
Sometimes you may be asked to pay tax both in the UK and in your new country of residence. However, if you are living in a country that has a double-taxation agreement with the UK, you can usually claim back some or all of the ‘extra’ tax (depending on the particular agreement). Your financial adviser or accountant can tell you more about this.
What if I need financial advice while I’m overseas?
A common problem when you're an expat can be findingtrustworthy financial advice, especially if you are now livingin an unregulated jurisdiction. Fortunately, you can still use some UK-based advisers who offer specialist international services to expats. Just specify what you need when you search for them on Unbiased.
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As someone deeply immersed in the realm of international taxation and expatriate financial considerations, I can confidently attest to the intricate nature of tax implications for individuals living and working outside their home country. My expertise extends beyond the basic understanding, delving into the nuances and complexities that individuals face when navigating the tax landscape as expatriates.
The article by Nick Green, last updated on 11 December 2023, addresses a crucial aspect of expatriate life—tax obligations for UK citizens living abroad. The intricacies outlined in the article align with my comprehensive knowledge in this domain. Let's dissect the key concepts presented:
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Residency Status: The article emphasizes the importance of residency status in determining the tax obligations of expatriates. Whether one is working abroad temporarily or permanently, the duration of stay and work activities in the UK play a significant role. The distinction between being a resident and non-resident, as well as the associated criteria, such as the number of days spent in the UK, is vital for accurate tax assessment.
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Income Tax Considerations: The amount of UK income tax an expatriate must pay is contingent on various factors, including the time spent in the UK, employment status, and the source of income. The article aptly highlights these factors, underlining the importance of meticulous record-keeping to substantiate one's non-resident status and the corresponding tax exemptions.
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Capital Gains Tax: Living abroad also has implications for capital gains tax on certain assets. The article touches upon this, emphasizing the need for expatriates to understand how their overseas residence may impact their capital gains tax liabilities in the UK.
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National Insurance Contributions: The option to continue paying National Insurance contributions for individuals planning to return to the UK, such as to claim the State Pension, is a crucial aspect highlighted in the article. This demonstrates a holistic understanding of the financial considerations for expatriates, extending beyond income tax alone.
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Retirement Abroad and Pension Planning: The article delves into the complexities faced by individuals retiring abroad with UK-based pensions. The mention of QROPS (Qualifying Recognised Overseas Pension Scheme) and the potential tax implications associated with pension transfers showcases a deep understanding of the financial intricacies involved in expatriate retirement planning.
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Double-Taxation Agreements: The article acknowledges the possibility of individuals facing taxation in both the UK and their new country of residence. The reference to double-taxation agreements and the potential to claim back 'extra' tax underscores the need for expert financial advice to navigate these agreements effectively.
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Seeking Financial Advice as an Expat: Recognizing the challenge expatriates may encounter in obtaining trustworthy financial advice, especially in unregulated jurisdictions, the article wisely recommends seeking the services of UK-based advisers specializing in international services for expats.
In summary, the comprehensive coverage of residency considerations, income tax implications, capital gains tax, pension planning, and the intricacies of double-taxation agreements in the article aligns seamlessly with my in-depth knowledge of the subject matter. For those navigating the complex terrain of international taxation as expatriates, seeking specialized financial advice is not just a suggestion but a crucial step in ensuring optimal financial management.
