If you are living in one country and have income arising in another country, your liability to income tax will depend on the country where you are resident, the nature of the income and the provisions of any double tax treaty between the source country and your country of residence.
Your Income Tax Liability
Understanding where your income tax liabilities arise is a vital part of any income tax planning. Mistakes can be costly and could even result in you paying more income tax than necessary. Your tax liabilities will change depending on your country of residence, making it important to speak to tax advisers with specialist expertise and local experience.
Our tax advisers can help you understand where your liabilities will arise, the benefits of double tax treaties (where relevant) and ensure that you are claiming all reliefs, deductions and tax credits to which you are entitled.
If you live abroad but still have income emanating from the UK, it is possible that you will have to pay UK income tax even if you are not a UK resident. Income includes items such as pension income, rental income, interest on savings and investments, and wages.
We can help you determine if you are eligible for a personal allowance, how much it will be and the amount of income tax you will pay as a result. Without understanding all the relevant taxation laws, you may find that you are paying income tax on all of your income.
Who Doesn’t Pay Income Tax?
Non-residents do not usually pay UK income tax on income from the state pension or from interest on UK government securities. If you live abroad and you are employed in the UK, your tax is calculated automatically based on the days that you work in the UK. Tax on your savings interest is normally deducted by your bank.
You usually have to send a self-assessment tax return if you rent out property in the UK, or if you work for yourself in the UK. If you have a pension outside the UK and you were UK resident in one of the five previous tax years, then you will also have to do this. It will also be a requirement if you have other untaxed income.
If you are non-resident, you cannot use HMRC’s online services to tell them about your income. The process is far more complex and so we would encourage you to reach out to our international tax advice team in the first instance; we can then establish the requirements and help you through the process.
Have You Overpaid?
You can apply for a refund if you think you’ve paid too much tax. This might happen if tax is deducted automatically but your total UK income is below your personal allowance. Forth Capital can help you to establish what you are owed and help you in reclaiming this.
You need to pay tax on your rental income if you rent out a property in the UK. If you live abroad for six months or more per year, you’re classed as a non-resident landlord by HMRC – even if you are a UK resident for tax purposes.
How You Pay Income Tax on Rental Income
You can receive your rent either in full and pay tax through self-assessment – if HMRC allows you to do this – or with tax already deducted by your letting agent or tenant.
If you want to pay tax on your rental income through self-assessment, you must apply to do this. If your application is then approved, HMRC will tell your letting agent or tenant not to deduct tax from your rent and you’ll need to declare your income in your self-assessment tax return. HMRC will not approve your application if your taxes aren’t up to date.
If you want to get your rent with tax already deducted, your letting agent or tenant will deduct basic rate tax from your rent (after allowing for any expenses they have paid) and give you a certificate at the end of the tax year stating how much tax they’ve deducted.
Submitting Your Income Tax Return
Expats need to declare rental income in a self-assessment tax return unless HMRC states otherwise. If you are non-resident though, you cannot use HMRC’s online services to tell them about your income. The process is far more complex and so we would encourage you to reach out to our international tax advice team in the first instance; we can then establish the requirements and help you through the process.
Companies and Trusts
A company is a non-resident landlord if it receives income from renting UK property and either its main office or business premises is outside the UK, or it is incorporated outside the UK. Your company will get its rent in full if it’s resident in the UK for tax purposes – this includes UK branches of companies based abroad if they’re registered for corporation tax. A trust is a non-resident landlord if it receives income from renting UK property and all trustees usually live outside the UK.
You will get a personal allowance of tax-free UK income each year if you are a citizen of a European Economic Area (EEA) country. You will also get this if you have worked for the UK government at any time during that tax year. You might also get it if it’s included in the double-taxation agreement between the UK and the country in which you live.
If you are not a UK resident, you have to claim the personal allowance at the end of each tax year in which you have UK income. We would encourage you to reach out to our international tax advice team in the first instance; we can then establish the requirements and help you through the process.
Have You Been Double-Taxed?
You may be taxed on your UK income by the country where you’re resident and by the UK. You may not have to pay twice if the country in which you’re resident has a double-taxation agreement with the UK. We can advise on the countries this applies to and whether or not it will impact your investment decisions. Depending on the agreement, you can then apply for either partial or full relief before you’ve been taxed, or a refund after you’ve been taxed.
Each double-taxation agreement sets out the country in which you pay tax, the country in which you apply for relief and how much tax relief you get. If the tax rates in the two countries are different then you will pay the higher rate of tax.
Claiming Income Tax Relief
You can claim relief on income from most pensions, your wages and pay from self-employment, bank interest and dividends.
HMRC has a double-taxation digest for countries that have an agreement with the UK, and how income like pensions and interest is taxed. This is an extremely complex area however, so we would encourage you to reach out to our international tax advice team in the first instance; we can then establish the requirements and help you through the process.
HMRC also recommends taking independent tax advice.
It is possible to be resident in both the UK and another country. You will need to check the other country’s residence rules and when the tax year starts and ends. We can give guidance on this.
Living Abroad but Still UK Resident?
You can live abroad and still be a UK resident for tax. An example could be if you visit the UK for more than 90 days in a tax year. In this case, you will pay tax on your income and profits from selling assets in the normal way.