Date posted: 15th May 2023
Many individuals move between countries over the course of their lifetimes and I often advise individuals who are moving overseas to work or indeed return to the UK after a period of working overseas.
However, the tax issues in this area can be incredibly complex and given the variety of different circumstances – when they left, working hours, how much time they spend in the UK during absence, how tied they are to the UK, when they plan to return (if at all) – there is no one size fits all solution.
Reasons for moving into and out of the UK are usually for work but can be for retirement (who has never dreamed of retiring in a sunny clime?) or perhaps because extended family have moved and they wish to be with the family to see grandchildren, for example.
The starting point
From a UK perspective, the starting point is that you are either resident or non-resident for an entire tax year – as a reminder the UK tax year runs from 6 April to 5 April.
This means that you are either taxable in the UK on your worldwide income, if you are resident and domiciled (domicile would need another blog!) or if you are non-resident, some of your income may be outside the scope of UK tax. Even if you are non-resident, there are income sources that remain taxable in the UK – rental property being a main income still taxed in the UK on non-residents.
Going off-piste for a moment, if that was the case, then you would need to complete with self assessment and the non-resident landlords scheme. You also can’t file a tax return via the HMRC portal if you are non-resident, so you will need to use a tax adviser (like us) with bespoke software to prepare the tax return. Or of course file a paper tax return with HMRC…..good luck with that!
Getting back on track, the regular question we encounter is what happens in the common case of individuals leaving the UK for work during a tax year? They may be going to a low tax or even tax free jurisdiction but are they liable to UK tax on that overseas income? The answer is possibly yes, depending upon their circumstances. If the answer is yes, they may be able to claim relief for any foreign tax paid but for those in a tax free jurisdiction, it can come as a surprise that they may be required to pay UK tax on their overseas earnings, particularly they haven’t appreciated the conditions required to break their residence status.
To help those moving in and out of the UK, there the possibility of claiming split year treatment……
Split year treatment
It sounds painful and it can be if you get it wrong from a tax perspective but essentially, depending upon your own individual circumstances, you may qualify to split the tax year into two separate periods. One of residence and one of non-residence.
As you can imagine, the tax legislation in this area is very complex and even if you think you may qualify for split year treatment at the outset, it can be withdrawn if conditions are not met. There is a case that can help where you go overseas for work but one of the many conditions to qualify is that you need to stay overseas for a complete tax year after the year of departure.
So it may be the case that you left the UK on say 1 March 2023 and haven’t returned so far. Assuming you meet the various other case conditions for split year treatment, you will also need to stay non-resident until 6 April 2025 as a minimum. However, six months into life overseas and you are starting to doubt that you can cope with the weather, the language barrier, being away from family etc and you think you will need to come back to the UK to work before 6 April 2025. If you return to the UK, you could be exposing the income earned overseas to UK tax. This may come as a nasty shock if you haven’t taken advice on this before you left the UK…..
If you are considering relocating overseas or indeed coming/returning to the UK, then you need to make sure that you understand the tax implications in both the UK and the country that you will be working in, so please take tax advice for your own circumstances.
As ever, we are here to help, please contact us here.