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Overview of Tax Issues for Expats in the United Kingdom

Submitted: April 2014

For tax purposes, the territory of the United Kingdom (UK) extends over England, Wales, Scotland and Northern Ireland. This does not include offshore islands of Jersey, Guernsey and the smaller Channel Islands and the Isle of Man. Tax is administered by Her Majesty’s Revenue and Customs (HMRC).

The UK has an eccentric tax year which runs from the 6 April to the 5 April of the following year (for reasons see UK Trivia below).

Tax Residence

When coming from abroad to the UK for employment it is important to understand the difference between being resident and domiciled. The definitions are as follows:

Resident: Any person physically present in the UK for more than 183 days in any tax year is considered a UK resident for the whole of that tax year. A day is generally measured by whether you were in the country at midnight.

Domicile:Domicile is generally decided by the birthplace of your father. You can also change domicile by moving and settling another country. It is also possible to have more than one domicile. If you do not intend to stay permanently in the UK, simply retaining your domicile outside the UK will simplify matters.

As a resident you will have to pay UK tax on any income and gains which arise in the UK and abroad for the whole of the relevant tax year, irrespective of the date of arrival.

If you can demonstrate that you are resident but not domiciled in the UK. You will still have to pay UK tax on your UK earnings, but you will be able to transfer money earned or gained overseas to the UK using the remittance method of taxation. Remittance is a complex subject, for more information on see: Taxation - Investment Taxation for Expats in the United Kingdom and here.

Whatever your residence status, it is important to be aware if a tax treaty exists between your country of origin, or another country that is a source of overseas income, as these may effect the tax you pay on any money you receive from abroad. For more details see: Taxation - Tax Treaty Considerations for Expats in the United Kingdom.

Immigrants are considered to be resident from the actual date of arrival, and not from the beginning of the relevant tax year.

Taxes

The main taxes on individuals in the UK are employment taxes in the form of income tax and national insurance contributions (NICs), capital gains tax and investment tax.

Employment tax

Before you can register for tax you must obtain a National Insurance Number (NINO). This can be done by phoning HMRC on: 0300 200 3502.

If you are working in the UK for a UK resident employer, they will then deduct income tax and NICs directly from your gross income via the Pay As You Earn (PAYE) system. You may still be required to fill in a tax return at the end of the year.

If you come to the UK to set up a self-employed business (also known as a sole trader) you should register as self-employed with the HMRC. You will need to keep your own accounts and will have to fill in a tax return during the following tax year. You may be required to provide two returns a year.

Whether employed or self-employed your overall tax rate depends on how much you earn. For more details see: Employment Taxation for Expats in the United Kingdom.

Capital gains tax

Capital gains tax for residents is charged on gains (profits) following the disposal (usually a sale) of certain assets above a certain exemption amount. Non-domiciled residents can choose to be taxed only on gains made on UK assets, but if you transfer money into the UK from an overseas gain you will be taxed on the proceeds on the remittance basis. For more details see: Investment Taxation for Expats in the United Kingdom.

Business tax

If you plan to start a business in the UK but not be self-employed, you must register a limited company with the UK Registrar of Companies. You must also register with HMRC within three months of starting activity. The company will be liable for corporation tax on its UK and worldwide income and gains. The UK tax year for companies runs from 1 April to 31 March. The company’s own accounting year can use different dates, but this may cause additional work. Income and capital gains are calculated differently but taxed at the same rate. For more details see: Business Taxation for Expats in the United Kingdom.

Investment tax

Investment tax mainly applies mainly to interest on savings, bonds and dividends. Interest from UK banks and building societies is generally paid after the deduction of tax at the basic rate of 20%. However if your overall income is low, some or all of this tax may be repaid. Interest on UK stocks and bonds is generally paid without deduction of tax and must be accounted for on your tax return. Dividends from UK companies are paid without deduction of tax but there is a tax credit available which can be used against for final tax liability for the year. In addition the tax rates for dividends different from other forms of income. For more details see: Taxation - Investment Taxation for Expats in the United Kingdom. The tax treatment of investment income from a country outside the UK can depend on whether there is a tax treaty between the two countries. For more details see: Tax Treaty Considerations for Expats in the United Kingdom.

UK Trivia - Historically New Year (and the new tax year) used to be on 25 March, Lady Day which marks the Annunciation and also the beginning of the agricultural rent year. On 4 September 1752 the UK changed to the Gregorian calendar from the Julian calendar which by then was 10 days out, so the following day was declared to be 14 September. This caused public riots. The Treasury of the time did not wish to lose out on 10 days income for that year, so they moved the new tax year to the 5 April and a skipped Leap Day in 1800 pushed it forward to the current 6 April.

 

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