When an expat leaves Britain to live overseas, the door doesn’t shut on their UK tax obligations. This guide looks at the basics of filing UK tax returns from overseas and the deadlines expats must follow.
Expats do not become instantly non-resident when they leave the country and must still file tax returns from overseas if they generate any income in the UK.
Keeping track of your tax responsibilities from abroad is not always easy. Life gets in the way, and the added problem of communicating across different time zones can complicate things.
Table of contents
Confirming where you are tax resident
The key that unlocks tax for expats is residence. Residence determines where you pay your taxes, and in turn, that decides how much you pay.
If you are on an international assignment but intend to return home within a year or two, there’s a good chance you remain a UK resident for tax and nothing changes because you are living abroad.
You continue to pay UK income and capital gains taxes while benefitting from tax breaks, like relief on pension contributions.
If you become a non-resident, the rules change. You pay income and other taxes according to the rules you live by, and you lose any UK tax breaks.
In most countries, the residence is time-related, which generally means you must spend more than 180 days living in a country as your main home to switch tax residence.
The first step in checking if you should pay tax in the UK is to take the Statutory Residence Test (SRT). The test walks expats through their residence status and indicates if they are the UK or foreign tax residents.
Alongside proving UK tax residence, expats should also talk to an immigration professional in their new home country to determine if they have become tax residents elsewhere.
Double taxation agreements
Double taxation agreements (DTAs) sound complex but are just a set of rules between countries that determine who has the first call on your cash.
Double taxation is a good thing – it helps expats pay tax twice on the same income or gains.
The system is simple.
Country one demands an expat pays tax on income earned there and issues a certificate to confirm the tax is paid.
Country two wants income tax on the same earnings as country one, but the expat shows his certificate to the taxman in country two and the debt is wiped out.
Of course, double taxation is a little more complicated, but the example gives a gist of how DTAs work.
Click here for a list of tax agreements between the UK and other countries
Tax filing in the UK as an expat
If you are classed as a UK resident after taking the Statutory Residence Test, you must pay tax in the UK on your worldwide earnings and gains.
Expats pay UK tax on earnings from:
- Private UK pensions but not QROPS
- Rental profits
- Savings interest
- Any other UK earnings
The tax year is pegged between April 6 one year and April 5 the following year. Therefore, a self-assessment tax return should be filed and any tax due paid by midnight on January 31 following the end of the tax year.
For example, you leave the UK in September 2021. You should file self-assessment returns for the tax year ending April 5, 2021, and April 5, 2022. The 2021 return is due by midnight on January 31, 2022, and the 2022 return is due on January 31, 2023.
If you have left the UK but need to claim tax relief or a refund, file a Form P85.
Non-residents are locked out of the HM Revenue & Customs (HMRC) online portal.
Instead, they can use either file by post or through an agent.
Postal deadlines are pushed forward to October 31 – so tax filing for the tax year ending April 5, 2021, is set for October 31, 2021.
The deadline for expats using an agent or commercial software for tax filing is January 31.
To file online, expats need a Government Gateway account and a Unique Tax Reference (UTR). Applying for both can take a few weeks, so send off the applications well before the filing date.
You can print a paper return from the HMRC website.
Organising your money as an expat
Some expat destinations have a reputation for political and economic instability, so it may be a good idea to insulate your finances from risk.
Typically, expats keep a UK bank account if they can, but this is becoming harder as banks and building societies demand customers have a UK address.
Many trusted UK banks have offshore branches offering current and savings accounts in Sterling and foreign currencies. Most of these offshore branches are in the Isle of Man or the Channel Islands.
These act as a staging post and a hedge against insecurity. The bulk of the cash is kept offshore while regular; smaller amounts are transferred to pay day-to-day bills in local currency.
Saving and investing for expats
Tax residence plays a huge part in how expats save and invest their money.
If you are a UK tax resident, then the normal UK products and tax reliefs are available, such as tax relief on pension contributions.
If not, expats have the option of saving and investing in the country where they live.
Non-UK residents also have an offshore option of tax-effective investments like the Qualifying Recognised Overseas Pension Scheme (QROPS) or bonds.
Non-Resident Landlord Scheme (NRLS)
If you rent out a home, second home, or holiday cottage in the UK from overseas, you must sign up for the Non-Resident Landlord Scheme (NRLS).
The NRLS allows landlords to continue to collect their rents without tax deducted by a tenant or letting agent.
Non-residence has a different definition from the Statutory Residence Test under the NRLS.
Under the NRLS, someone is non-resident if they live outside the UK for six months. This could capture Brits with a second home abroad who move to another country for a few months and let out their UK home for a short time.
It’s also a point for long-term expats to bear in mind. If they spend six months or more away from the UK but intend to return to Britain at some point, they may be UK non-resident for tax but fall under the NRLS as a landlord.
UK Tax For British Expats FAQ
Take the Statutory Residence Test as an indication and then discuss your finances with a tax professional who can interpret the decision. You must also follow similar steps in the country where you now live.
HMRC knows you have left the UK when you file your Form P85 to claim tax relief or a refund. The form includes your date of departure.
Various websites have directories listing offshore banks and building societies. You can also check your bank’s website for a link.
If HMRC issues a notice to file a self-assessment return, you must file a return even if you have no tax to pay.
However, HMRC can only do this if they know where to send the letter or email. So again, this information is included on your P85.
If they sell an asset in the UK, expats and other non-residents pay CGT. However, the filing deadlines are different from income tax, so make sure you know the dates as missing them can result in a hefty fine.
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Questions or Comments?
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My accountant is saying I need to pay a lot of tax from my rental property in the UK even though I have been non resident for 15 years. Please advise if this is correct.