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An overview of the UK tax system for people moving to the UK

If you are planning to move to the UK, it's vital you understand your UK tax obligations before you move. This article provides a useful introduction to the UK tax system.

Written on 6 March 2023

When moving to the UK from overseas, having a basic understanding of the UK tax system and how it may differ from your home country is essential. The following article explores what you can expect with regards to your tax obligations in the UK.

The information below is intended to provide general information and does not take in to account the needs or financial situation you are in as an individual, and expert advice to guide and assist you with your UK tax obligations is always advised.

Establishing your UK tax residence status & Income Tax basics

Firstly, you need to establish your domicile, which is likely to be your place or birth (or your father's place of birth). Your domicile is not necessarily based on the length of time in a country, but your intentions to stay permanently - and be able to provide evidence as to your intentions.

Then you need to understand your tax residence status. In the UK, the Statutory Residence Test was introduced in April 2013 which uses a number of criteria and tests to establish whether you are a tax resident in the UK or not.

Once your tax residence status is understood, you can begin to understand your UK tax requirements as an expat living in the UK.

The general rule is that you will be classed as a UK resident if you are physically present in the UK for 183 days or more within that tax year.

If you are classed as a tax resident in the UK, whether you are domiciled or not, you will receive a tax allowance on your UK income of £12,570 for the tax year 2022/23. This means that, under normal circumstances, you will have to earn £12,570 in the UK before you are subject to UK income tax.

If you earn over £100,000, your personal allowance will be reduced by £1 for every £2 earned over £100,000. This means that if you earn £125,000 plus, in a tax year, you will not benefit from the annual tax-free allowance.

Self-Assessment and completing a tax return

Self-Assessment usually only applies to the self-employed, as income tax is commonly deducted automatically via the employer before the employee receives their salary wage.

This tax return will enable HMRC to calculate how much tax you owe in the UK, or any rebates which are owed to you, from income you received during the tax year under review.

As a UK resident, even if you are not self-employed, you may still need to file a self-assessment if you meet any of the following criteria:

  • If you are receiving income from abroad
  • If you are registered as a company director
  • If you are earning £100,000 a year (or more)
  • If you are the highest earning family member (over £50,000) in a family actively claiming child benefit
  • If you are someone that has earned £2,500 or more in untaxed income (e.g., property renting)
  • If you are someone that has either savings or investments of higher than £10,000 before tax

The documentation required for a self-assessment can include and is not limited to:

  • Documents detailing any self-employment income (receipts, bank statements etc)
  • Documents detailing all savings and investments demonstrating how much interest earned and all other dividends earnings via statements
  • Summary of all expenses and rental incomes
  • A P11D or P9D (showing any benefits and expenses)
  • A P45 (applicable if you have left a job within the current tax year)
  • A P60 from any current employer showing all income and tax paid for that year
  • A Unique Tax Reference number (UTR) (issued to you upon registering for self-assessment)
  • Details of any gifts or donations made to charity

Remittance basis

If you are a UK resident but non-UK domiciled taxpayer, you may elect to be taxed on the Remittance Basis.

If so, you would be taxed only on your income and capital gains sourced in the UK (for example, income received from working in the UK, or from the sale of a UK based asset) and only on those foreign income and gains remitted to the UK.

This is known as the Remittance Basis of Taxation and is available to non-UK domiciled taxpayers for the first 7 years of residence in the UK at the loss only of the annual tax-free allowance.

After the first 7 years of residence, if you wish to continue to use the remittance basis you would be subject to a charge of £30,000 annually, increasing to £60,000 after 12 years.

However, if you were to elect to use the remittance basis you would lose your entitlement to your personal allowances, as indicated above. This means that in order to benefit from the remittance basis, the tax on your foreign income would need to be greater than the loss of your personal allowance to make this a viable option.

The key advantage of the remittance basis is that any foreign income or gains arising in a year in which you are a UK resident will only be subject to UK tax if you brought it back to the UK. This means that any foreign investment income or capital gains will not be taxable in the UK, provided they are kept outside the UK.

It is also important to note that even though you will not be taxed in the UK under this scheme, you will still be taxed according to the local tax laws where the income was earned.

Capital Gains Tax & Inheritance Tax

Becoming UK resident will mean you become liable to pay Capital Gains Tax on your assets located both within the UK, as well as everywhere else in the world. Before becoming a UK resident, every effort should be taken to review your financial assets and investments to ensure they are structured to mean maximum tax efficiency before your arrival.

Planning ahead regarding your property and assets is essential when you are planning to become UK resident. Land or properties that are sold before you make your move to the UK can mean significant tax savings.

Your tax obligations regarding UK Inheritance Tax are ultimately determined by your domicile status as opposed to your residency status. If you are deemed UK domiciled, you will be liable to pay Inheritance Tax on your worldwide assets. Inheritance Tax has a current threshold of £325,000 with a tax rate of 40%.

There are certain assets that can be excluded from your UK Inheritance Tax liabilities which include:

  • Pensions you receive overseas
  • Foreign currency accounts that you hold with the Post Office or a bank
  • Holdings you have in any authorised unit trusts/ open-ended investment companies

Request an introduction to a trusted UK Tax specialist

For individuals moving to the UK, or non-UK domiciled individuals already living in the UK, there are tax planning strategies which can significantly reduce their liability to UK tax.

You should always seek advice from a tax adviser if you live in the UK but are not of UK domicile to ensure your financial affairs are structured to minimise your UK tax liability.

To request assistance, simply enter your details via the form and we will arrange for a tax adviser to contact you directly. They will then conduct an initial consultation for free to understand more about your situation and offer some initial advice. They will then explain the options available to you in full and how they can help you. You will not be under any obligation to proceed with their advice at any stage.

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