HMRC and Expats

What is HMRC?

Her Majesty’s Revenue and Customs (HMRC) is the non-ministerial department of the UK Government that is responsible for the collection of taxes.  It is also responsible for the payment of some forms of state support and the administration of other regulatory regimes including the national minimum wage.

HMRC was formed when the Inland Revenue and Her Majesty’s Customs and Excise merged.  This took effect on 18 April 2005.

What is HMRC Responsible for?

HMRC is responsible for the administration and collection of direct taxes.  This includes income tax, corporation tax, capital gains tax, inheritance tax, VAT and all duty taxes. HMRC is also responsible for National Insurance contributions, the distribution of UK state benefits, enforcement of the national minimum wage.

HMRC has two overarching Public Service Agreement targets.  Firstly, it has to improve the extent to which individuals and businesses pay the tax due and receive the credits and payments to which they are entitled.  Secondly, it must improve customers’ experiences of HMRC and improve the UK business environment.

HMRC & British Expats

The tax affairs and tax requirements of a British Expat become much more complicated.  A common mistake of British expats when they first consider moving abroad is that when they move they are instantly exempt from UK tax.  This couldn’t be further from the truth.

Domicile & Residence

A British Expat’s liability to UK Tax will depend largely on their tax residence and domicile status, and on other factors such as asset jurisdiction and the source of income or gains.

A UK resident is liable to UK Income Tax and Capital Gains Tax on worldwide earnings. If you are not UK resident special rules apply.

HMRC’s basic tax rule is that non-residents are only chargeable to tax on income arising from a UK income source.

If you are a non-resident, you are chargeable on the profits of employment or work carried out within the UK, and on any profits emanating from a UK property (such as rental income).  UK pension income is also chargeable, as is dividend income, interest, and income from other savings.

Personal Allowance

The tax free personal allowance applies for all non-resident British Citizens.

If you are either classed as a tax resident in the UK or receive an income in the UK (for example from renting out a property), you will normally receive a tax allowance on your UK income of 11,000 GBP for the tax year 2016/17. This means that, under normal circumstances, you will have to earn 11,000 GBP in the UK before you are subject to UK income tax. This was increased from 10,600 GBP in 2015/16.

If you earn over 100,000 GBP in the UK, your personal allowance will be reduced by 1 GBP for every 2 GBP earned over 100,000 GBP. This means that if you earn over 122,000 GBP in a tax year, you will not receive a personal allowance.

If a non-resident lives in a country that the UK has a double taxation agreement with then this will often restrict the UK’s rights to taxation on certain types of income.  The UK has a large number of these double taxation agreements in effect and many common expat locations are among them.

Where the UK does not have a DTA in place, unilateral relief will typically apply to grant a credit in the UK for any foreign taxes paid.

Disregarded Income

Disregarded income mainly refers to dividends and interest.  It does not include rental income on property.  The significance of disregarded income is that a non-resident’s tax liability cannot exceed the combined sum of the withheld tax on disregarded income together with what the non-resident’s liability to tax would have been if disregarded income and certain reliefs and allowances were ignored.

Capital Gains Tax

Since a rule change on April 6th 2015 expats and non-residents who are selling a UK property now owe capital gains tax on any gains made as a result.  Previously this did not apply for non-residents.

Residence

HMRC will apply a Statutory Residence Test (SRT) to determine whether or not an individual is tax resident in the UK.

There is a myriad of potential factors that make up the content of this residence test and if you are unclear about your own position then you should seek specialist tax advice on this.

It is possible to be resident in the UK and another country at the same time, this is known as dual residence.  In many cases there will be a double taxation treaty between the two countries of residence which should ensure that you generally don’t pay full tax twice on the same income or capital gains.

If you are dual resident it is important that you seek specialist advice in order to ensure you are not taxed unfavorably.

HMRC Requirement When You Leave

A form P85 should be filed to inform HMRC that you are leaving the UK.  However, it should not be completed by taxpayers who file a UK Tax Return.  You will need to file a UK tax return for the year of departure. Please note that your liability to UK tax does not necessarily cease on your day of departure or indeed your obligation to continue filing a Tax Return.

Income arising in the UK continues to be taxable even if you become a non-resident.  For this reason, it is worthwhile obtaining advice on how to rearrange your personal assets to ensure the most beneficial tax treatment.

HMRC do not require the vast majority of people living in the United Kingdom to complete a UK tax return each year, their income tax is simply paid and adjusted through the individual’s PAYE (Pay as You Earn) tax coding.

The general rule is that should HMRC send you a tax return (Form SA100) you are obliged to complete and return this to them. Failing to do so promptly may result in late filing penalties.

However, individuals with more complicated affairs; those with income not taxed at source e.g. savings, investments and property, those individuals earning approximately £100,000.00 or more, as well as those who are new to the UK, are likely to have to complete a UK tax return.

Specifically, it should be noted that if you are a non-resident landlord you are obliged to file a UK tax return.

If you are a non-resident taxpayer and have an obligation to file a UK tax return, then you should again take specialist advice in this regard.

Stamp Duty Land Tax

Even if you are a UK non-resident, if you are planning to buy a house in the UK you will be subject to Stamp Duty Land Tax (SDLT). In April 2016, Stamp Duty rates increased for people buying a UK property who already own property in the UK or elsewhere.

Come to Us for Advice

If you are living abroad, considering moving abroad, or considering returning to the UK, contact us today for specialist advice on UK tax.  Request free tax advice.

Out tax team can offer you a detailed tax planning report which will ultimately provide you with recommendations on how you could reduce your UK tax liabilities.

Our tax advisers are all qualified Chartered Tax Advisers and members of the Chartered Institute of Taxation.

Click here or on the green icon to the right of the screen and fill in the online form, a member of our team will then contact you as soon as we can.