If you think working out your income or business tax is hard enough, it becomes even more difficult when you move abroad. Because contrary to popular belief, British expats are not exempt from UK tax automatically. No, you’re not. And yes, we’re not kidding.
The reality is tax requirements for British expats are complicated. There are plenty of aspects you must consider, especially with regard to your rental property income.
In a nutshell, you are liable to capital gains tax on worldwide income/gains and UK income tax if you are a UK resident. If your resident status has changed, special rules apply.
Table of Contents
Non-resident for UK Tax Purposes
The Basics
- You are only charged on income arising from a property/source in the UK.
- You are charged on profits generated from properties situated in the UK.
- You are charged on interests, dividend income and other savings that will arise from a source in the UK. The exception is when an income is considered disregarded income.
- Rental income is excluded from disregarded income.
The Not-So Basic
- Unless specific relieving positions are imposed, UK income is chargeable in both basic and higher rate tax.
- All non-resident British citizens are eligible for a tax-free personal allowance, although its availability is currently under review.
- British expats living in a country that has a double tax treaty with the UK will be protected against double taxation, but income from property and government pensions remain taxable in the UK.
- British expats living in the country without a double tax treaty with the UK is afforded unilateral relief. That is, they are granted credit in the UK for foreign taxes paid. This will turn out to be no relief at all if the country you reside in has a lower tax rate than the UK.
Dual Residency for Tax Purposes
If you happen to be a resident in the UK and in another country, tax treatment will depend on whether or not the other country has a double taxation treaty with the UK.
All the rules outlined above will apply accordingly.
Non-Resident Landlord Scheme (NRLS)
This refers to a system of deducting basic rate tax from your UK rental income before it is passed on to you. In most cases, your letting agents will operate your NRLS. In the event that you don’t have one, and your rent is more than £100 a week, your tenant will be the one to deduct tax. Whatever deduction is made, you can set off against your own tax bill at the end of the year.
There are instances when you are exempt from NRLS, provided that you seek approval from HMRC to receive rental income in full or gross. Approval will be granted if you meet the following criteria:
- You promise to comply with your UK tax obligations.
- Your UK tax affairs are up to date, with no pending obligations whatsoever.
- You are not liable to UK income tax in the year that you apply for an approval.
Because of the complexity of your tax obligation as an overseas landlord, it is best to seek specialist advice in this area.
Think you may be due a tax refund? Apply here to get your tax back.
Photo by Andrei Ianovskii on Unsplash