The UK is home to many large communities of expatriates. Many of the migrants living in the UK are qualified professionals. One of the annual rituals they undergo is planning taxes. Many turn to professional advice. However, taxation remains a significant financial consideration. Every taxpayer must have at least a basic understanding of their tax liability. Here is a brief outline of the taxation landscape for expats in the UK.
In the UK expats’ tax liability depends on their residency status. The UK government differentiates residents from nonresidents using the Statutory Residence Test. This test evaluates one’s residency status according to a mix of factors such as location of family, ownership of property in the UK, nature of work in the UK (full time or otherwise), and other considerations.
Expats that are classified as UK residents pay income tax and capital gains tax on income earned in the UK and abroad. A resident expatriate whose permanent home (domicile) is abroad may be exempted from tax on foreign income. Nonresidents are generally liable to pay tax only on income earned in the UK. In addition expats can get exemptions on certain taxes. This requires some documentation effort on part of the taxpayers.
The remittance basis
‘The remittance basis’ is a provision that allows exemption from taxes that arise from offshore income and gains. Under this treatment expats are to be taxed only when they remit their foreign income and gains to the UK, rather than when they arise. The caveat is that an expat must give up their entitlement to the tax-free personal allowance, which is the amount of income that is legally not taxed. Importantly, the remittance basis applies automatically without the loss of the tax-free personal allowance under certain conditions. This happens when the taxpayer earns less than GBP 2,000 from offshore income and gains.
Temporary workplace relief (TWR)
A tax relief is available for expats who are assigned by employers to work in the UK for a period of up to 24 months. The exemption applies to utility and subsistence costs, as well as housing expenses in the UK. The cost of accommodation in some parts of the UK – including London and South East England – is so high that TWR can really benefit many expats.
The cost of travel when arriving in the UK can be claimed as tax-free. If the expat has not been to the UK for 2 tax years, an employer can reimburse the cost of travel to the UK and the return trips home tax-free for up to five years. The provision is applicable even when the trips are not for business purposes, such as to visit friends and family.
The cost of moving to the UK, paid by an expat and reimbursed by an employer, may qualify for a tax exemption of up to GBP 8,000. Some of the relocation costs that qualify include removal charges and temporary storage costs. Any expenses that are related to the disposal of the expat’s residence as a result of taking up the UK assignment are also tax-free.
Sometimes an expat’s foreign income may be liable for taxation in both the UK and the country where the income was earned. In such cases the individual can apply for a tax relief to get some or all of this tax back. This is applicable if the UK has a double taxation treaty with the country in question. The expat should obtain the relevant form from the foreign tax authority. The form must be sent to Her Majesty’s Revenue and Customs (HMRC). The HMRC sends back the form with confirmation of the expat’s eligibility for tax relief. This can then be sent to the foreign tax authority for tax reimbursement.
Tax relief for pension contributions
Many expats living in the UK invest toward their retirement in their home countries via international money transfers. One can get UK tax relief on money contributed to a registered UK pension plan or a recognized overseas pension plan while working in the UK. There remains some grey area in this provision, as it is subject to multiple conditions and limits. Broadly speaking, if the home country pension scheme provides only death or retirement benefits, the employer contributions to the plan are not taxable for the expat living in the UK.
About the author:
Hemant G is a contributing writer at Sparkwebs LLC, a Digital and Content Marketing Agency. When he’s not writing, he loves to travel, scuba dive, and watch documentaries.