Filing for and paying taxes is a troublesome part of moving to any country or living there as an expatriate. The tax regulations, as well as financial loopholes available to people moving to the UK, can be difficult to navigate especially if you are not well-versed in finance law. Here are a few top tips for you to maximize your benefit and stay out of trouble regarding taxes as an expatriate.
1. Obtaining Domicile And Residence
If you have just moved or are considering moving to the UK, your domicile will feature greatly in your tax statements and how much tax is due for you. Your situation regarding residence is also pivotal in the calculation of tax especially capital gains and income tax and inheritance tax is typically related to your domicile. Domicile shows where you are born and residence is more about the area where you are currently residing.
Domicile documents are never problematic in one’s home country but when you want to change your place of birth for citizenship purposes or permanent residence, they can be trickier to obtain. Contact a financial lawyer in the UK to help you navigate the changing tides of such countrywide regulations. As a rule, if you become domiciled in the UK all your assets regardless of where they are in the world can be taxable by the UK through inheritance taxation.
2. Reduce Income Tax Wherever Possible
Expatriates can reduce the income tax they pay if they fall within certain conditions such as being an employee of the British Government for at least a year, belonging to any European country, or having citizenship of any country that is inside the European Union lastly if you have a British passport. The above conditions can create a personal allowance for the expat that is largely exempt from tax.
For non-UK residents, the personal allowance may not be possible and instead, they need to pay tax on ‘disregarded income.’ By agreeing to this clause the resident no longer has a personal allowance but instead pays source taxes for a variety of financial transactions. These transactions can be anything from dividend payments, interest, national savings, investment portfolios, social security benefits, and so forth. The beauty of paying tax at the source is that it is usually lower or non-existent.
3. Becoming A UK Tax Resident
One can be put in the category of ‘resident’ even within 16 days of landing in the UK but this is not a unanimous assumption as some people may still be categorized as a non-resident even after more than 182 days. Contact an expat tax CPA in the UK otherwise known as a certified public accountant to help you navigate the taxes due on residents and non-residents alike.
The Statutory Residence Test is vital for determining residence in the UK and is an important step if you want to escape a variety of taxes. Non-UK residents usually only need to pay tax on income earned within the country and the tax net they fall under typically does not include capital gains tax.
The test is designed for those that want to have non-resident status and the rules vary according to the type of taxpayer you are which is typically divided into 3 categories. The first category is people who are non-residents, then there are people who are residents automatically, and those that are interested in settling in the UK and want to spend a considerable amount of time there.
If you find you are going in and out of the UK due to work or personal obligations back in your home country you can also talk to a lawyer and divide your tax year into two so that you are not paying for the whole year during which time you may be mostly absent from the UK.
4. Keep HMRC In The Loop
Her Majesty’s Revenue and Customs handles all tax collection and administers related tax regulations in the UK. Always be sure to keep HMRC in the loop and regularly inform them of your arrival and departure in the country whenever it happens since your tax obligations may be pending even if you are abroad.
UK income continues to be taxed for non-residents even if they exit the country temporarily, and any assets they hold in the UK such as property or other investments are also liable to taxation by the government. Signing up for initiatives like the Non-Resident Landlord Scheme can help you waive off some taxes at the source.