UK: Related Information
This page was last updated on 27 January 2021.
Generally speaking an individual is assessed to income tax in the United Kingdom if he is deemed to be UK resident for fiscal purposes. Unlike in other countries including the USA, citizenship is not a basis for levying income tax. Generally speaking a person is deemed UK resident for fiscal purposes:
- in any tax year in which he lives in the UK for more than 182 days or
- if his visits to the UK exceed 91 days per tax year for 4 consecutive tax years in which case he is tax resident in the 5th year or alternatively from the commencement of the tax year in which he first stated his intention to make such visits to the UK
- if he makes regular visits which are substantial, habitual and obligatory: Such visits may indicate residence provided they exclude an element of chance and occasion and provided they follow an almost mechanical regularity.
An existing UK resident can become non-resident for tax purposes by being out of the country for at least one period of 365 days, during which he did not spend more than 91 days in the country, with days of arrival and departure not being counted.
Non-residents (as opposed to domiciled non-residents, who are now subject to slightly different rules) are generally speaking only liable to UK income tax on income derived from:
- Property situated in the UK
- Any trade or profession carried on through a branch or agency in the UK
- Any employment the duties of which are performed in the UK
This rule has led to many UK nationals seeking to become non-resident by moving abroad. In the United States, by contrast, the mere fact of citizenship means that a US national living in a foreign country is still liable to pay income tax in America on his worldwide earnings with a credit being given for any taxes already paid or due in a foreign country.
UK non-residents do not pay tax on:
- Interest from certain UK Government securities
- Interest from UK-situate bank and building society deposits
However, it is no longer possible to avoid capital gains tax by arranging for a gain to crystallise during a short period of overseas absence: five years' of non-residence is required before a gain on an asset acquired during residence is exempt from UK capital gains tax. Updated rules for taper relief have made this provision almost irrelevant, in fact.
With HM Revenue and Customs (HMRC) using an ever-broadening test to establish whether someone is resident in the UK for tax purposes, British-born expats are having to go to greater lengths to sever their ties with the land of their birth.
Besides income tax, there are a number of other tax traps that could ensnare the unwary expat, even if they have been abroad for some considerable time. These include National Insurance contributions, which can continue for a year after leaving the UK; capital gains, which can be captured upon a temporary resident’s return to the UK if they have been out of the country for less than five years; and inheritance tax, for which an emigre remains liable for three complete calendar years after they have left the country.
PKF recommends that expats take the following measures to ensure that they truly sever their ties with Blighty as far as the Revenue is concerned.
- Sell your UK property or let it out for at least 12 months.
- Do not leave your property empty.
- Ensure your property is not available for your use when you visit the UK.
- If you are letting the property, ask a UK agent to deal with the property on your behalf.
- Pay all property bills before you depart from the UK.
- Notify your house insurers.
- Notify your mortgage lender as appropriate.
- Notify your local council that you have left the property.
- Consider resigning from any UK company directorships or company secretarial positions.
- Consider disposing of your UK business interests altogether.
- Ensure that official paperwork such as Companies House filings are completed.
Other UK connections
- Notify your UK doctor and dentist that you have left the UK.
- Cancel your UK sporting and social club memberships.
- Consider appointing an attorney in the UK who is empowered to deal with your UK affairs.
- Send form P85 to HMRC, declaring that you have become non-resident.
- Ideally, do not return to the UK for an entire tax year to emphasise the break in residence.
- Do not return to the UK for more than 90 days a year in subsequent tax years.
- Cancel your UK credit cards and reduce the balances in your UK bank accounts.
- Ensure any outstanding bills are paid in the UK.
- Consider transferring pension arrangements overseas.
- Sell your car and cancel your car insurance and subscriptions to motoring organisations.
Your new country of residence
- Establish employment or business links in the new country.
- Obtain a residence permit, where necessary.
- Contact the local tax authorities to inform them that you have become resident.
- Purchase or rent on a long lease a property in your new jurisdiction and buy a car there.
- Register with a doctor and dentist in your new jurisdiction and open a local bank account.
- Move with your family to the new country.
- Establish social and cultural connections in your new homeland.
- Have a will drawn up dealing with your property in the new country.
The EU Savings Tax Directive
If you are an individual (natural person) who is resident in an EU member state, and earn bank interest or other savings income on deposits or investments held in your own name in another EU member state, third country or territory covered by the Directive, then it is likely that you have been affected by the STD.
The Directive does not apply to persons (including EU Nationals) who are resident outside the Member States of the EU or the Crown Dependencies of the UK (Jersey, Guernsey and the Isle of Man). Any new countries joining the EU will be obliged to accept the information-sharing variant of the Directive, and their residents will be caught by the STD as and when those countries accede to the EU. The Directive came into operation on 1st July, 2005.
There are four main categories of savings income under the scheme:
- Interest paid out on debt-claims or credited to accounts;
- Interest rolled-up and paid out when a debt-claim is repaid or sold;
- Distributions made by certain unit trusts and other collective investment funds which have invested more than 15% of their investments in debt-claims;
- Accumulated income paid out when units in certain collective investment funds that have invested more than 40% of their investments in debt-claims are redeemed or sold.
In simpler language, savings income is therefore essentially interest earned on bank deposits, interest from, and proceeds on the sale or redemption of, certain bonds and income from certain types of investment funds (principally open-ended money market retail funds).
Most other types of income (for example, dividends on ordinary or preference shares of companies, salary and pension payments) fall outside the definition and are therefore outside the scope of the STD.
You will be paid the interest on your savings gross, i.e. without deduction of tax, but the bank or other financial institution which you patronise (known as a 'paying agent') will be required to provide details of your tax residence.
You may be asked for your tax identification number (TIN). This is your tax registration number in your country of residence. The STD requires banks and other paying agents to obtain customers' TINs where possible. Whatever information the banks have, they will pass on to the tax authorities in your country of residence, along with information about the income you have received (as defined above).
Double Tax Treaties
In December 2011, the United Kingdom had 119 tax treaties in place.
The UK’s double taxation convention priorities are reviewed by the government each year to ensure that the treaty network continues to meet the needs of the businesses and individuals receiving income from abroad.
In November 2011, the European Commission (EC) announced that it planned to challenge the tax deals struck by Switzerland with the UK and a similar deal struck with Germany. The EC asserts that the treaties are not compatible in their current form with European law. The Commission argues that the tax deals undermine the objective of the Savings Tax Directive, a mechanism which allows member states to tax certain investments held by residents in other member states and certain third countries, including Switzerland. Opposed to the anonymity provision, the Commission is continuing to strive for an automatic exchange of tax information.
Offshore Disclosure Programmes
HMRC has employed various means to winkle out what it takes to be a mass of undisclosed offshore accounts. In the latest attempt, Dave Hartnett, the head of the UK's HM Revenue and Customs (HMRC), revealed in August 2009 that further country-specific disclosure facilities would be negotiated in 2010 and later years.
PKF Accountants and business advisors warned however that such jurisdictional agreements blur the issues facing individuals with undisclosed offshore accounts.