Expats in the UK, this one's for you: guide to paying overseas taxes in the United Kingdom

New to the UK? Find out whether you'll be considered a UK resident and what taxes you'll be liable for, before tax season is upon us.

Xe Consumer UK

December 10, 20205 min read

Expat living in the United Kingdom

Moving to the UK is all about embracing a new way of life — the cars go on the right side of the road, everyone offers you a cup of tea, and you learn how to live with temperamental weather. The UK is also home to many fantastic cities bursting with arts and culture and a true melting pot that makes it a unique place to explore.

But that's not all you have to think about when making the move.

Living and working in the UK as an expat means that you also need to figure out your taxes. Fun, right? If you're a resident in the UK, you're potentially liable to UK Income Tax and Capital Gains Tax on your worldwide income. Remember that tax rules can be complicated in the UK, so you should seek expert advice if you're not sure how much you'll have to pay or which taxes you're liable for.

In this guide, we cover everything you need to know about your tax requirements as an expat in the UK. 

How do you determine your UK tax liability?

If you're an expat in the UK, your liability to UK tax depends on multiple factors, including your residence and domicile status. You're considered a UK resident for tax purposes if your only home is in the UK or you spend at least 183 days in the UK each tax year.

Here's a broad outline of how your residence status determines your liability to pay UK taxes:

  • Non-resident — you're only taxable on personal income that you gain in the UK. If you dispose of UK residential property, you may also be liable to UK capital gains tax.

  • Resident — your worldwide income is taxable in the UK, including employment income and personal investment. You also have to pay UK taxes on any capital gains you generate.

  • Non-domiciled — tax relief may be available for your non-UK personal income and reliefs may also apply for non-UK investment gains.

How do you determine whether you're a resident or non-resident?

Whether you're a UK resident depends on the number of days you spend in the UK in a tax year, which runs from April 6 to April 5 the following year. If you spent 183 or more days during the tax year, you're considered a UK resident for tax purposes, but the situation may vary from one individual to another. 

Sometimes, you need to confirm your status as a tax resident in the UK. This is generally the case for more complicated cases, but the HMRC has a statutory residence test in place for such situations. The test was introduced in 2013 to determine whether individuals with connections to the UK need to pay taxes there. 

The test is a complex one and includes 4 key components:

  • Number of days you have spent in the UK in a tax year

  • Automatic overseas test

  • Automatic UK test

  • Sufficient ties to the UK test

You need to work through all the components of the test to assess your residency status in the UK. All references to "years" in the test are a UK tax year. Days in the UK are counted if you are physically there at midnight. 

Broadly, you'll be considered a UK resident for tax purposes if you meet one of the sufficient ties test and automatic UK test but don't meet the automatic overseas test. However, if you meet the automatic overseas test but not the sufficient ties test and automatic UK test, you'll be considered non-resident.

Tax rules for UK resident expats

All UK residents are entitled to a personal allowance, which refers to the amount of money you can earn per year before starting to pay income tax. The personal allowance is £12,500 in the 2019/2020 tax year. 

The basic rate of UK income tax is: 

  • 20% for earnings that exceed £12,500 up to £50,000.

  • 40% for income between £50,001 and £150,000.

  • 45% for income over the £150,000 threshold.

If your country of origin has a double-taxation agreement with the UK, you'll only have to pay taxes once. However, if there's no such agreement in place, you may end up being taxed twice on the same income or gains.

Many countries have double taxation agreements with the UK, including Canada, the US, India, Japan, and China. If you're moving to the UK from a European country, current rules protect you from paying tax twice and double taxation agreements are expected to remain in place after Brexit.

Transferring funds from overseas with Xe

If you need to pay a tax bill in the UK and you need to transfer funds from overseas, make sure you don't pay hefty fees every time, or transfer at an exchange rate that’ll cost you extra. Opening a bank account in the UK before actually moving there is often difficult, but you should make it your priority. 

If you want to have access to your money once you arrive in the UK and avoid paying the high fees charged by UK banks for foreign transactions, you can do so by opening a Xe account. This allows you to send money from abroad to your UK bank account at competitive exchange rates and without any hidden fees.

Moving to the UK is the experience of a lifetime and whether you're looking for a completely fresh start or a temporary relocation, you're bound to have an exciting time. If you want to make your transition easier and avoid hefty bank fees when moving money between your bank accounts, open an Xe account, and transfer funds at competitive exchange rates.