If you are UK resident and UK domicile, you pay UK tax on your worldwide income on arising basis.
If you are not UK resident there will be no tax to pay on your foreign income and gains. Only income and gains on properties earned in the UK.
If you are UK resident but not UK domicile, you may be liable to UK tax on your foreign income and gains based on either the arising basis or remittance basis.
Foreign income such as
- Dividends and saving interest
- Rental income
- Pensions held overseas.
The arising basis you will not loss any of the personal income allowance and capital gains exempt allowance.
The remittance basis you will only pay UK tax if you bring the money into the UK, but you will loss your personal allowance and the annual exempt capital gains allowance, and you will have to pay annual charge if you have been in the UK for certain time e.g.
- £30,000 if you have been in the UK for 7 years of the previous 9 years.
- £60,000 if you have been in the UK for 12 years of the previous 14 years
As from the 6th April 2017 if certain condition is meet, you will be deemed domiciled and you can not use the remittance basis any more. 15 years out of 20 years.
You will need to report your foreign income on your self-assessments, any tax paid aboard can be set off against your UK tax, if you have not paid tax overseas, you may need to apply for certificate of residence to prove you are eligible for relief
How to determine if you are UK or not UK Residence:
The statutory residence tests (SRT) are three which it will determine your status. These are
- The automatic residence tests
- The automatic overseas tests
- The sufficient ties test
Please note if an individual meets any of the overseas test he/she will not be UK residence even if he/she meets one of the UK residence tests. The overseas test takes priority.
UK consist of England, Scotland, Wales, and North of Ireland, the following are not part of the UK The Isle of man, Republic of Ireland, Channel of Ireland, and Jersey and etc.
The automatic residence tests:
you will be UK Residence if you meet any of the following conditions
- >183 days, you are present in the UK for more than 183 days in the tax year
- You have a home in the UK
- You work full time in the UK
The automatic overseas tests:
you will not be UK Residence if you meet any of the following conditions
- > 16 days, they were UK residence in one or more of the previous three tax years and spend less than 16 days in the UK
- > 46 days, they were not previously UK residence in all the previous three tax years and spend less than 46 days in the UK
- > 91 days, where you work aboard for at least 35 hours per week and you spend less than 91 days in the UK of which you worked fewer or less than 31 day’s in the UK.
THE SUFFICIENT TIES TESTS:
UK DAYS Pre-Resident – 1-3 yrs (Leavers) NOT Pre Resident 3YRS (Arrivers)
Less than 16 not residence not residence
Between 16-45 yes if 4 ties not residence
Between 46-90 yes if 3 ties yes if 4 ties
Between 91-120 yes if 2 ties yes if 3 ties
Between 121-182 yes if 1 tie yes if 2 ties
183 or more yes yes
Leavers is where the individual was in the UK in any of the previous 3 years if not resident in any of the previous three years is known as Arrivers.
Ties are there are five
- Family tie
When wife, civil partner, is UK resident (not separated)
Or has a minor child < 18 years old and is UK resident and see this child for 61 days in the tax year, if less than 61 days this will not be a tie
If the child is residence due to full time education, he will not be regarded as residence if he is in the UK fewer than 21 days in the UK outside term time, and this will not count as a tie.
- Accommodation It will count as a tie
if the individual has a home in the UK or there is somewhere to live in the UK and is available for continues period of least 91 days or more and you spend at least one night there. You don’t have to own the home it could be holiday home, just any place held for you. If there is a gap of fewer than 16 days between periods for the same place, then this place will be regarded as if was available for continuous period of at least 91 days.
Or 16 nights when the accommodation belong to a close relative i.e., partners, grands, or child, brother and sister, and spend 16 nights there, and it is available for them for a continues period of at least 91 days. E.g., Adam can always stay with his brother whenever he is in the UK.
Short stay in a hotel or guesthouse will not be a tie unless it was booked for at least 91 days continuously, and subject to the 16 days rules
- Work tie:
Where an individual works 3 hours a day up to 40 days in the UK for the tax year, this will count as a tie. However, there are special rules for those who works in airlines or ships.
- 90 Days Tie (UK Presence)
someone who spend more than 90 days in the UK in either of the previous two tax years.
- Country Tie
where someone spend more days in the UK than any where else in the world. Only if resident in one or more in the previous three years.
Split tax year treatments
if during the tax year, you move out of the UK, here the tax year will be split between two parts, where certain days will be under the UK tax i.e., residency and other days outside the UK, non-UK residence. However, if you leave the UK and return within the same tax year then there will be no split. UK tax is only due on the period that you were in the UK.
Tax for non-UK resident and non-UK Domicile becoming Deemed UK Domicile (Base Costs)
Non-UK Resident having a property bought before the 5th April 2015 there will be no capital gains tax up to that date, the capital gains tax will be payable after that date based on the selling price less the base cost value of the property as at the 5th April 2015. Declared on the non-residence capital tax return and the tax must be paid within 30 days
If you were deemed as being UK domicile because you leaved in the UK for 15 years out of the last 20 years, then the base cost for your UK property, Land or overseas properties will be based on the value of 6st April 2017 and you are subject to UK tax worldwide.
Tax for UK Resident but not UK domicile: your permeant father home is aboard.
You will not need to pay UK tax on your foreign income or gains if they are:
- Less than £2000 in the tax year
- You do not bring the money into the UK
If your income is > £2000 or you don’t bring the money into the UK then you must report the foreign income into your self-assessments tax return, and either pay the tax on arising basis or apply for the remittance basis. And on year 8 out of 9 years you will need to pay annual charge of £30k and on year 12 out of 14 years £60k.
Foreign workers exemption:
If you are eligible for foreign workers exemption then you do not need to pay UK tax even if you bring the foreign income into the UK as long as
- Your overseas income is job related and is less than £10,000
- Bank interest earned is less than £100
- All your foreign income has been subject to tax even if tax was not paid or exempt.
- Your combined UK and foreign income is within the basic band rate
If all above is true then you don’t need to do any thing or register with HMRC.
Tax if you return to the UK withing 5 years (Leaving aboard and decided to return back)
There will be no tax to pay on your wages income while you were aboard, however there might be UK tax to pay on certain income or gains while you were not UK Resident because you returned back with 5 years. This is known as Temporary non residence.
Foreign students – coming to study in the UK
Overseas student coming to study in the UK will not pay UK tax on their foreign income while they are studying as long as the income is used to pay for their study fees and living costs or working part time in the UK, and there is a double taxation agreement that cover students between the UK and the student’s country. If your living costs is more than15k then HMRC might ask for account.
Foreign student might need to pay UK Tax under the following circumstance
- There is no double tax agreement with the UK
- You bring money and is spend on other things not related to your studies and livings.
- Plan to stay in the UK as permanent
- You have income that you don’t bring to the UK
- You work in the UK, and you will be taxed as others who come to live in the UK.