UK TAX LIVING ABROAD: As a rule, tax is liable on income realised in the United Kingdom even for non-UK residents.
Typical sources of such income would include:
- A personal or workplace pension.
- Money gained from rental (e.g. property).
- Savings interest.
- Wages, salary, and bonuses.
Those who qualify for a Personal Allowance pay Income Tax on income above the current amount. If not, they would pay tax on total income.
You may also get taxed on your United Kingdom income by the country where you live. But, some countries have a double-taxation agreement with the UK. Thus, you may avoid getting taxed twice by claiming tax relief in the United Kingdom.
Note: As a rule, there is no tax liability if you sell an asset. An exception would be on United Kingdom residential property.
No Tax Due or Deducted Already
In most cases, non-residents do not need to pay UK tax on things like:
- The United Kingdom State Pension.
- Interest from UK government securities (often called ‘gilts’).
What if you live abroad but employed in the UK? In this case tax gets calculated ‘automatically’ on the specific days that you work in the UK. But, tax on dividends and tax on savings interest is not an automatic process.
Reporting Income to HM Revenue and Customs
Like many UK residents, you will need to submit a Self Assessment tax return if you:
- Rent out property in the United Kingdom.
- Get a pension outside of the UK and you were UK resident in one of the five (5) previous tax years.
- Work for yourself in the United Kingdom.
- Have other sources of untaxed income.
Note: If you already claimed tax relief under a ‘double-taxation agreement’ you do not need to report your income to HMRC.
Submitting a Self Assessment Tax Return
A non-resident cannot use the online service to inform HMRC about income sources. That means you must either:
- Use specialist Software for Self Assessment tax returns.
- Send in your tax return for Self Assessment by post.
- Get help with tax from a professional (e.g. an accountant or a tax adviser).
Fill in the ‘residence’ section of the tax return (form SA109 if you mail by post). Failing to meet Self Assessment tax return deadline can result in a penalty. The deadline is earlier for returns sent by post (i.e. 31st of October).
If You Paid Too Much Tax
If you think you overpaid you can apply for a tax refund. It can happen when tax gets deducted ‘automatically’ (e.g. by a bank). The bank may not know that your total UK income is under your Personal Allowance threshold.
Use form R43 and send it to HM Revenue and Customs. You can also claim the tax refund in a Self Assessment tax return if you already submit one.
Tax on UK Rental Income for Non Resident
HM Revenue and Customs will class you as a ‘non-resident landlord’ if you live abroad for 6 months (or more) per year. This applies even if you have UK resident status for tax purposes.
Paying the Taxes
The way you get your rent determines how you will pay tax. Thus, you can either:
- Get the rent in full and pay tax through Self Assessment (if HMRC permit this).
- Get the rent with tax already deducted by a letting agent or a tenant.
Getting Rental Payments in Full
You will need to use form NRL1i to pay tax on rental income via Self Assessment. Fill in the form and then send it back to HM Revenue and Customs.
HMRC will need to approve the application. After approval, they will inform the letting agent (or tenant) not to deduct tax from the rent payments. Thus, you will then need to declare the income in a Self Assessment tax return.
Note: Your taxes and returns must be up to date with no late payments for HMRC to approve the application.
Getting Rental Payments with Tax Deducted
If you get the rental income through a property letting agent or your tenant, they will:
- Deduct the basic rate of tax from the rent (after allowing for rental expenses they paid for).
- Provide you with a certificate at the end of the tax year informing you of how much tax they deducted.
Note: What if you do not use a letting agent? If the tenant pays more than £100 a week in rent, they should deduct the tax from their rent payments made to you.
Companies and Trusts
A company can get classed as a ‘non-resident landlord’. This would be the case if it receives income from renting UK property and either:
- The location of its main office or business premises is outside of the United Kingdom.
- It is incorporated outside of the United Kingdom.
Your company would get rent in full if it is resident in the UK for tax purposes. This includes UK branches of companies based abroad and registered for Corporation Tax.
A trust can also get classed as a ‘non-resident landlord’. It would apply if it gets income from renting UK property and all trustees usually live overseas.
Application to get Rent in Full
Tax on UK Income from Selling or Inheriting Assets
As a rule, people who are not a United Kingdom resident do not pay:
- Capital Gains Tax after selling most assets inside the United Kingdom.
- Inheritance Tax rates after inheriting assets located inside the United Kingdom.
But, there are some situations where you might get taxed. For example, Capital Gains Tax is liable if:
- You make a gain after selling UK property while living abroad.
- The assets you sold got used in a UK branch of a foreign business.
- You were once a UK resident and then return to the UK within five (5) years of leaving.
Inheritance Tax would only be liable if both of these apply:
- You inherit money, property, or shares inside the United Kingdom.
- The estate of a deceased person is unable to cover the cost of the Inheritance Tax.
But, the standard rules of paying Income Tax apply if you get income from something you inherited. An example would be the rental income you receive from a UK property.
Note: A non-resident who inherits a UK residential property must pay tax on gains made from selling it. But, no tax is due if you inherit and sell other assets (e.g. UK shares).
You will get the current tax free Personal Allowance on United Kingdom income each year if either of these apply:
- You are a citizen of a European Economic Area (EEA) country. This includes British passport-holders.
- You worked for the UK government at any time during that particular tax year.
It might also apply if it gets included in the double-taxation agreement between the country you live in and the United Kingdom.
Claiming the Personal Allowance
Non-UK residents will need to claim the Personal Allowance at the end of each tax year that you have UK income. Use form R43 and send it to HM Revenue and Customs (HMRC).
Taxed Twice on UK Income while Living Abroad
The term ‘double taxation’ refers to a situation where you may get taxed twice. It relates to UK income getting taxed in the country where you live and by the United Kingdom.
But, there are ways to avoid paying tax twice. You need to check if the country you live in has a ‘double-taxation agreement’ with the United Kingdom. There are different terms of the agreement, but you can usually apply for either:
- Partial or full tax relief before you get taxed.
- A tax refund after you get taxed.
Each particular double-taxation agreement sets out certain required information such as:
- The country that you would pay tax in.
- The country that you would apply for relief in.
- The amount of tax relief you would get.
The higher rate of tax applies if the rates differ in the two countries. You should also note that the tax year may begin and end on different days in other countries.
Note: The rules of double taxation do not apply to tax on gains made by selling UK residential property.
The different types of income you can claim for include:
- The majority of pensions: Most UK government pensions get taxed only in the UK (e.g. civil service).
- Wages and other sources of remuneration (including self-employment).
- Bank interest.
- Dividends: HMRC explains the special rules in section 10 of ‘Residence, Domicile and the Remittance Basis’.
Claiming the Tax Relief
Read the HMRC ‘Double-taxation digest’ for countries with an agreement with the UK. It explains how income, such as pensions and interest, gets taxed. Research the relevant tax treaty for rules on other types of income (e.g. rent and wages).
Filling in a Claim Form
A standard claim form applies to many countries. But, the correct form to use will depend on whether you are resident in:
- New Zealand
- South Africa
- United States of America
Send the filled in form to the tax authority in the country where you are resident. They will confirm your eligibility. They may send it to HMRC or return the form to you to send on (use the address written on the form).
Note: Forms differ for companies and individuals claiming a refund on dividends paid by UK Real Estate Investment Trusts.
Paying Capital Gains Tax
Capital Gains Tax gets paid on gains made on UK residential property. It would not be liable on other UK assets (e.g. UK shares). As a rule, you need to make a claim for assets that you do not pay tax on. But, always check the most relevant double taxation agreement.
What if you return to the UK after being non-resident? In this case, tax may be due on any assets you owned before leaving the UK. This may apply even if you paid tax on any gains in the country you moved to. In most cases, you can claim for double-taxation relief.
Dual Resident Rules
Being ‘dual resident’ can apply to both the UK and another country. It will mean checking the residence rules of the other country and when their tax year starts and ends. Contact HMRC for further guidance.
Tax on UK Income for UK Resident Living Abroad
It is possible to live abroad and be a UK resident for tax purposes. As a rule, you would need to visit the United Kingdom for more than 183 days in a tax year. In this case, you would pay tax on income and profits made from selling assets (including shares).
Note: As a rule, you will need to pay tax on income gained outside of the United Kingdom too.