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 circumstances.
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.
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 finding trustworthy financial advice, especially if you are now living in 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.