UK Non Resident Tax Explained
UK non resident tax can get complicated real quick. This guide is here to help. Generally, non residents need to pay UK tax in three areas: income generated in the UK, any profits made from selling property, and heirs may have to pay inheritance tax on non residents’ estates.
If you’ve made any money in the UK you’ll probably need to do a self assessment tax return whether you live there or not.
This guide gives you the low down in seven key areas:
- The Personal Allowance
- UK Non Resident Tax for Property
- UK Non Resident Tax for Investing
- Inheritance Tax
- Do I need to complete a tax return?
- Resident Status UK
- Certificate of Residence UK
If you want help with your taxes. We’ve written about how you can find a good tax accountant here, and compared tax software packages here.
1. The Personal Allowance
Generally, above a certain amount you must pay tax in the UK, but below that amount you won’t have tax to pay if you are eligible to receive the personal allowance.
There are different personal allowances for different types of tax. The main ones are applied to income tax and capital gains tax.
At the time of writing the personal allowance threshold for income tax is £12,570 and the personal allowance threshold for capital gains tax is £12,300.
Consequently, if you are eligible to receive the income tax personal allowance and your income is less than £12,570 you need not pay any tax.
Similarly, if you are eligible to receive the capital gains tax personal allowance and you sell something for more than you buy it for, you do not pay any tax either provided the gain is less than £12,300.
The bad news is, it is not available to everyone. If you are a UK resident you have more chance of being eligible. However, you should also be eligible if you fulfil one or more of the following criteria:
- You have a British Passport
- You are a British citizen
- You are a European Economic Area (EEA) citizen
- You worked for the UK government at any time during the tax year in question
- Your country of residence has a double-taxation agreement with the UK which enables you to receive the allowance
2. UK Non Resident Tax for Property
Many expats own property. Some had property before they left the UK, some purchase property in the UK whilst they are living abroad. Some treat their properties as investments and some don’t.
No matter which group you fall into, there are likely to be some tax implications of owning property as an expat.
Stamp Duty
You need to pay stamp duty when you buy a property. There have been some updates to this recently and it has impacted expats in a pretty big way. You can read about this in more detail here, but the headline is UK expats now usually pay 5% above standard rates when buying property. This is essentially because in most cases it will be hard to argue you are buying a property to live in as your own home if you reside overseas.
Take a look at the rates below:
| Property or lease premium or transfer value | Standard rate | Expat stamp duty rates |
| Up to £125,000 | Zero | 5% |
| The next £125,000 (the portion from £125,001 to £250,000) | 2% | 7% |
| The next £675,000 (the portion from £250,001 to £925,000) | 5% | 10% |
| The next £575,000 (the portion from £925,001 to £1.5 million) | 10% | 15% |
| The remaining amount (the portion above £1.5 million) | 12% | 17% |
In our article dedicated to stamp duty we show how an expat pays four times as much stamp duty on a £295,000 property.
Non Resident Landlord
You are classed as a ‘Non Resident Landlord’ by HM Revenue and Customs (HMRC) if you have rental property in the UK and live abroad for 6 months or more per year.
Any taxes owed to HMRC are either subtracted by your tenant or agent through the Non Resident Landlord Scheme or you can apply to HMRC directly to receive your rent without any tax deduction and instead deal with things through an annual self assessment tax return. (You can read more about the Non Resident Landlord Scheme here. )
Income Tax
Rental income is subject to income tax. There’s a personal allowance of £12,570. Above that rate you pay tax. The amount you pay is directly related to the amount of income you generate.
| Tax Band | Taxable income | Tax Rate |
| Personal allowance | Up to £12,570 | 0% |
| Basic rate | £12,571 to £50,270 | 20% |
| Higher rate | £50,271 to £150,000 | 40% |
| Additional rate | over £150,000 | 45% |
You can find the official HMRC income tax calculator here.
Capital Gains Tax for Non Residents
Selling property incurs capital gains tax for non UK residents on any profits you make. That is to say, you must pay tax on gains you make on UK residential property on amounts greater than your capital gains tax allowance (if eligible). This applies even if you’re an expat.
Though this doesn’t apply to your main home, as an expat, it may be difficult to argue that your main home is in the UK when you are living overseas.
That said, to lower or even avoid capital gains tax non residents do sometimes come back to the UK and live in their property for a period of time before selling. If you know you are going to sell and you aren’t in a hurry, this could be worth looking at.
You don’t pay capital gains tax on amounts below the (capital gains) personal allowance (£12,300). Though capital gains tax is generally separate from income tax, there is a relationship: The amount of capital gains tax you pay depends on the income tax band you are in.
You pay 18% capital gains tax on property if you are a basic income tax rate payer and 28% if you are higher income tax rate payer. Looking at the income tax table above, you can see that you’d need to have a UK income over £50,271 before you would be liable for the higher rate.
Property Sales
All non-residents need to inform HMRC of all property or land sales within 30 days. This applies regardless of whether or not you made a profit on the sale.
3. UK Non Resident Tax for Investing
Every question we’ve ever received about UK Non Resident Investing has related to Exchange Traded Funds (ETFs), so this section is concentrated there.
That said, it’s worth pointing out a few things about other types of funds and shares in general.
OEICs, Unit Trusts, Investment Trusts and Shares
Though the most common types of investment vehicle in the UK are Open Ended Investment Companies (OEICs) or Unit Trusts, expats don’t usually have access to these. Some platforms do let you keep your OEIC or Unit Trust if you have them before you become non resident, but more don’t.
Even if you are lucky enough to use a platform that lets you keep your fund, it is unlikely that you will be able to add fresh money.
Investment Trusts are a little different. Like ETFs, non residents can get easy access via a stock exchange. Investment Trusts are companies, and as such you buy their shares in exactly the same way you buy individual company shares.
When you buy shares of individual companies or investment trusts from the London Stock Exchange you pay 0.5% stamp duty.
ETFs
ETFs are taking over the investment industry due to their convenience, passive nature, tax efficiency and low fees. They are particularly attractive for non residents because you can buy them directly off a stock exchange, without paying stamp duty.
The key things to be aware of for ETFs are Reporting / Distributor Status, Domicile / US Withholding Tax, and Country Exchange. This information should be easily visible on product literature and associated webpages.
Reporting / Distributor Status
It is important that your ETF is ‘reporting or ‘distributor’ status because this means an ETF’s gains are subject to capital gains tax rather than the more expensive income tax. Most of the big providers’ ETFs have this status but it’s worth confirming before you invest.
Domicile / US Withholding Tax
Most European ETFs are domiciled in either Ireland or Luxembourg. However, they often hold lots of US shares, so they require a Tax Treaty with the US. Some countries’ tax treaties are better than others.
For example, Ireland has a double-taxation treaty with the US which allows most Irish domiciled ETFs to receive dividends from US companies after a 15% deduction for withholding tax.
Other countries may charge more. Dividends from ETFs domiciled in France, Luxembourg and the US may be subject to a withholding tax of 30% for example.
Country Exchange
US estate tax laws can be complicated. If you purchase US ETFs from a US exchange you may be liable to pay US estate taxes, whether you are American or not. The really bad news is that if you’re not American the starting balance for which this tax kicks in is much lower.
No matter where you are from, an expat with holdings of over $60,000 in US ETFs may come under US estate tax law. Whoever you leave your money to could be taxed up to 40%.
If you are buying off non-American exchanges such as the London Stock Exchange you shouldn’t have a problem, but these days many brokers let investors make purchases off lots of different exchanges and the cheaper fees often tempt them into buying off US exchanges, which may be a big mistake.
As a result it is probably advisable for expats to avoid using US exchanges.
Dividend and Interest Payments
ETFs of stocks may pay dividends.
As you don’t pay dividend tax on UK assets if you a non resident you’ll not have to pay this.
However, be warned, this only applies if you do not return to the UK to live within 5 years. If you return any earlier HMRC will expect any tax savings you made to be reimbursed.
At the time of writing there is a dividend allowance of £2,000 so you would pay tax on any amount above that. A basic rate tax payer pays 8.5%, a higher rate tax payer pays 33.75% and an additional rate tax payer pays 39.35%.
Bond ETFs pay interest and interest is taxable. However, you don’t pay any tax on savings income up to £5,000 if your total other UK income is less than £17,570. If your UK income is over that amount there’s a personal savings allowance. Basic rate tax payers have a £1,000 tax free allowance and higher rate tax payers have a £500 tax allowance.
Your personal income tax allowance can also be used alongside the dividend and personal savings allowances, which is going to mean most expats won’t pay tax on their interest.
Capital Gains Non Resident
As with dividends, you don’t pay Capital Gains Tax on UK assets that are not property unless you return to the UK within 5 years of leaving, so long term expats don’t have to worry about UK capital gains on their ETFs.
If you return to the UK any earlier, however, you would pay just like UK residents do and would have to pay back any tax savings you’ve made during your time away. The amount you pay is lower than for property, though. It is 10% for basic income tax rate payers and 20% for higher rate payers.
4. Inheritance Tax
Inheritance Tax is a tax on the estate (money, investments, houses etc) of somebody who’s passed away.
If you have a lot of assets that you intend to pass on to others inheritance tax is something you need to think about.
As far as the UK government is concerned, it comes into play at £325,000, so if the value of the your total assets (property, money and other possessions) is less than £325,000 there’s usually no inheritance tax to pay in the UK.
Amounts above £325,000 still may not be subject to inheritance tax if they are left to the your spouse, civil partner, a charity or community amateur sports club.
And perhaps the best news for anybody with kids is the fact that this threshold increases to £500,000 if everything goes to them or their kids (your grandchildren).
In fact, as long as the value of your entire estate is lower than your threshold, unused threshold can be passed on to your partner. This means the threshold can increase to £1,000,000 if one parent passes on their estate to the other one who in turn leaves it to their children or grandchildren.
The bad news is, if your heirs are liable for inheritance tax the standard rate is 40%.
5. Do I Need to Complete a Tax Return?
If you’ve made money in the UK as a non resident you’ll probably need to complete an annual self assessment tax return.
There are three ways to do this. First, you can complete the hand written forms yourself and stick them in the post. Second, you can get some software to help you and finally you can pay a professional to help you.
If you are taking the handwritten form approach there are multiple paper forms that you may need to fill out.
To start with, there is the main form (SA100), and then there are some supplementary forms that may or may not apply to you as follows:
employees or company directors – SA102
self-employment – SA103S or SA103F
business partnerships – SA104S or SA104F
UK property income – SA105
foreign income or gains – SA106
capital gains – SA108
non-UK residents or dual residents – SA109
Each of the above links takes you directly to the government’s web page. You can then download the form in question and some supplementary notes if required. If you are not sure which forms apply to you, the supplementary notes should help you decide.
UK Online Tax Returns
Alternatively, you can take advantage of the internet. Nowadays there are plenty of services available.
First, there’s getting some software to help you. Taking the best part of a day to fill paper forms becomes about half an hour when taking the app/software approach. I’ve compared some tax software packages here, but for tax returns specifically you might want to try GoSimpleTax. Right now you can try it for free here.
Alternatively, if you want to minimize the chance of errors and maximize your time, you can pay somebody to do everything for you. Prices are a lot lower than they used to be. I’ve talked more about that here, but UK Landlord Tax would be a safe place to start. This page contains their contact form. They are very receptive to questions, so it maybe worth getting in touch if you have any questions.
Whichever method you choose to complete your tax return do be aware that the UK tax system operates from the 6 April in one year to the 5 April of the next year.
And forms need to be submitted by 31 October by post or 31 January for online.
Meeting these deadlines avoids a minimum £100 fine and I’m sure it goes without saying that HMRC has all kinds of options if you don’t pay your tax. These include accessing your bank account directly and selling your possessions.
6. UK Resident Status
According to HMRC, you’re automatically non-resident if either:
- you spent fewer than 16 days in the UK (or 46 days if you have not been classed as UK resident for the 3 previous tax years)
- you work abroad full-time (averaging at least 35 hours a week) and spent fewer than 91 days in the UK, of which no more than 30 were spent working
If that’s not clear, there are also resident status UK tests that look at it from the opposite end of the spectrum. In other words, they can tell you if you are classed as a UK resident. You can find them here.
And if that doesn’t clear things up, you would probably be advised to go through the Statutory Residence Test which is the formal approach for letting you work out your residence status for a particular tax year. You can find it here.
There’s also a Sufficient Ties test you can do. It looks at your ties to the UK, like family members and properties. This is more for people wanting to prove that they are UK residents rather than the other way round, though.
And note we are taking about resident status here, not domicile. Non domicile UK rules are something different. You can read more about this here.
7. UK Certificate of Residence
If it turns out you are in fact a UK resident even though you spend time overseas you may be able to claim tax relief if you have a UK tax residency certificate, otherwise known as a Certificate of Residence.
Certificate of Residence UK rules are pretty straight forward. You can apply for a Certificate of Residence if:
- you’re classed as a resident of the UK
- there’s a double taxation agreement with the country concerned.
You can read more about this here.
UK Non Resident Tax Summary
- Whilst there’s no UK capital gains tax on shares for non residents, the same can’t be said for property. Everyone pays this.
- UK non resident Brits are eligible for the personal allowance
- Property sales in the UK need reporting to HMRC within 30 days
- You are classes as a ‘Non Resident Landlord’ if you have rental property in the UK and live abroad for 6 months or more per year
- It’s probably safest to buy ETFs with Reporting or Distributor Status that are domiciled in Ireland
- UK tax rules are constantly being updated. You can find all the latest information directly here
- If large amounts of tax are at stake it may be worth getting some advice
- If you’ve made any money in the UK don’t forget to submit a self assessment tax return
