If you are living in one country and have income arising in another country, your liability to income tax will depend on the country where you are resident, the nature of the income and the provisions of any double tax treaty between the source country and your country of residence.
Understand Your Income Tax Liability
Understanding where your income tax liabilities arise is a vital part of any income tax planning. Mistakes can be costly and could even result in you paying more income tax than necessary.
Our Tax advisers can help you to understand where your liabilities will arise, the benefits of double tax treaties (where relevant) and ensure that you are claiming all reliefs, deductions and tax credits to which you are entitled.
If you live abroad but still have income emanating from the UK, it is possible that you will have to pay UK Income Tax even if you are not a UK resident. Income includes items such as pension income, rental income, interest on savings and investments, and wages.
If you are eligible for a Personal Allowance you will pay Income Tax on your income above that amount. Otherwise, you will pay income tax on all of your income.
The country where you now live may tax you on your UK income. If it has a double-taxation agreement with the UK you can claim tax relief in the UK to avoid being taxed twice.
You don’t normally pay income tax when you sell an asset, apart from on UK residential property.
Who Doesn’t Pay Income Tax?
Non-residents do not usually pay UK income tax on income from the State Pension or from interest on UK government securities. If you live abroad and you are employed in the UK, your tax is calculated automatically based on the days that you work in the UK. Tax on your savings interest is normally deducted by your bank.
You usually have to send a Self Assessment tax return if you rent out property in the UK, or if you work for yourself in the UK. If you have a pension outside the UK and you were UK resident in one of the 5 previous tax years then you will also have to do this.
It will also be a requirement if you have other untaxed income
You do not need to report your income to HMRC if you have already claimed tax relief under a double-taxation agreement.
If you are non-resident though, you cannot use HMRC’s online services to tell them about your income. The process is far more complex and so we would encourage you to reach out to our international tax advice team in the first instance. We can then establish the requirements and aid you through the process.
Have You Overpaid?
You can apply for a refund if you think you’ve paid too much tax. This might happen if tax is deducted automatically but your total UK income is below your Personal Allowance. Again we can help you on this.
You need to pay tax on your rental income if you rent out a property in the UK. You may also need to pay tax if you make a gain when you sell residential property in the UK.
If you live abroad for 6 months or more per year, you’re classed as a non-resident landlord by HMRC – even if you are a UK resident for tax purposes.
How you pay income tax on rental income
You can get your rent either in full and pay tax through Self Assessment – if HMRC allows you to do this – or with tax already deducted by your letting agent or tenant.
If you want to pay tax on your rental income through Self Assessment, you can apply to do this. If your application is approved, HMRC will tell your letting agent or tenant not to deduct tax from your rent and you’ll need to declare your income in your Self Assessment tax return. HMRC will not approve your application if your taxes aren’t up to date.
If you want to get your rent with tax already deducted, your letting agent or tenant will deduct basic rate tax from your rent (after allowing for any expenses they have paid) and give you a certificate at the end of the tax year saying how much tax they’ve deducted. If you don’t have a letting agent and your tenant pays you more than £100 a week in rent, they will deduct the tax from their rent payments to you.
Submitting your Income Tax return
You need to declare your rental income in a Self Assessment tax return unless HMRC tells you not to. If you are non-resident though, you cannot use HMRC’s online services to tell them about your income. The process is far more complex and so we would encourage you to reach out to our international tax advice team in the first instance. We can then establish the requirements and aid you through the process.
If you’ve paid too much tax
You can ask for a refund if both your rental income is lower than your Personal Allowance and your letting agent (or tenant) already deducted basic rate tax on it. Again we can help you on this.
Companies and trusts
A company is a non-resident landlord if it receives income from renting UK property and either its main office or business premises is outside the UK, or it is incorporated outside the UK. Your company will get its rent in full if it’s resident in the UK for tax purposes – this includes UK branches of companies based abroad if they’re registered for Corporation Tax. A trust is a non-resident landlord if it receives income from renting UK property and all trustees usually live outside the UK.
Inheriting Assets or Selling/Disposing of Assets
If you are not a UK resident, you do not usually pay Capital Gains Tax if you sell most assets in the UK. You also do not normally pay Inheritance Tax if you inherit assets located in the UK.
You’ll only have to pay Capital Gains Tax if you make a gain when you sell residential property in the UK, if the assets you sold were used in a UK branch of a foreign business, or if you used to be a UK resident and you return to the UK within 5 years of leaving.
You will only have to pay Inheritance Tax if you inherited property, money or shares in the UK and the deceased’s estate doesn’t have the money to pay the Inheritance Tax. The normal rules for paying Income Tax apply if you get income from something that you have inherited.
If you are a non-resident and you inherit a UK residential property then you will have to pay tax on any gains you make when you sell it. You don’t pay tax if you inherit and sell other assets.
You will get a Personal Allowance of tax-free UK income each year if you are a citizen of a EEA country. You will also get this if you have worked for the UK government at any time during that tax year. You might also get it if it’s included in the double-taxation agreement between the UK and the country you live in.
If you are not a UK resident, you have to claim the Personal Allowance at the end of each tax year in which you have UK income. We would encourage you to reach out to our international tax advice team in the first instance. We can then establish the requirements and aid you through the process.
Have You Been Double-Taxed?
You may be taxed on your UK income by the country where you’re resident and by the UK. You may not have to pay twice if the country you’re resident in has a double-taxation agreement with the UK – we can advise you on this. Depending on the agreement, you can then apply for either partial or full relief before you’ve been taxed or a refund after you’ve been taxed.
Each double-taxation agreement sets out the country you pay tax in, the country you apply for relief in and how much tax relief you get. If the tax rates in the 2 countries are different then you will pay the higher rate of tax. The tax year may start on different days in different countries. Double taxation agreements don’t apply to tax on gains from selling UK residential property.
You can claim for income from most pensions, you wages and pay from self-employment, bank interest and dividends.
HMRC has a Double-taxation digest for countries that have an agreement with the UK, and how income like pensions and interest is taxed. This is an extremely complex area however and so we would encourage you to reach out to our international tax advice team in the first instance. We can then establish the requirements and aid you through the process.
HMRC themselves recommend taking independent tax advice.
Capital Gains Tax
You will only pay Capital Gains Tax if you make a gain on UK residential property. You do not pay it on other UK assets. You will not usually need to make a claim for assets you do not pay tax on – but you should check the relevant double taxation agreement. If you return to the UK after being non-resident, you may have to pay tax on any assets you owned before you left the UK – even if you have paid tax on any gains in the country you moved to. You can usually claim double-taxation relief.
It is possible to be resident in both the UK and another country. You will need to check the other country’s residence rules and when the tax year starts and ends. We cam give guidance on this.
Living Abroad but still UK resident?
You can live abroad and still be a UK resident for tax. An example ould be if you visit the UK for more than 90 days in a tax year. In this case you will pay tax on your income and profits from selling assets in the normal way.
What happens next?
Click here or on the green speech bubble icon to the right of the screen and fill in the online form. A member of our team will then contact you to discuss your situation.