Are you considering emigrating? If so, you must consider whether or not you will still be liable to pay tax in the UK. Even if you move abroad, you may not escape the UK’s tax system. So what are the rules?
There are a complex set of rules which decide whether an individual is a tax resident in the UK or not. These rules can mean that it is relatively difficult to escape the UK tax system unless you spend only a few days visiting the UK.
Once an individual has left a UK tax residence, there are still reasons why the UK tax system can apply.
1. Will UK tax apply to all my income in future?
No, but UK tax will still be due on UK property income, income from employment, self-employment or partnerships carried out in the UK. In addition, pensions earned from UK employment will also be liable to UK Income Tax. This means that non-resident individuals may need to continue filing UK tax returns after emigrating.
2. I will retain my property in the UK, so how do I pay tax on the rental income?
HM Revenue & Customs (HMRC) has set out a procedure known as the non-resident landlord scheme. This requires that Income Tax should be withheld and paid directly to HMRC each quarter by the tenant, or by the letting agent if an agent is used, if the rent exceeds £100 per week. The deduction is at a rate of 20% of the gross income net of expenses that are considered deductible for tax purposes.
The non-resident landlord may opt out of this arrangement provided certain conditions are met, including the landlord continuing to submit UK Self-Assessment tax returns. The rent may then be received gross, on the basis that any tax will be paid via Self-Assessment.
3. Will employment income continue to be taxed in the UK?
Income from overseas employment will not be taxable in the UK when the individual is a non-UK resident. However, note that termination payments taxable on cessation of a UK employment will remain taxable in the UK irrespective of being received after the date of departure.
Also, the exercise of share option awards after departure that relates to duties carried out for a UK employment will also remain taxable in the UK.
4. Will I escape Capital Gains Tax when I am a non-UK resident?
At present, non-UK residents are subject to UK Capital Gains Tax on disposal of residential properties. Capital Gains Tax can also apply to those who are temporary non-residents (broadly less than five years outside the UK). The government is also proposing to apply Capital Gains Tax to non-residents who sell non-residential properties from April 2019.