British Expats Abroad – Financial Questions

Part 2: Tax and Living Abroad

More and more expats are living and working abroad. These global citizens forge new lives in foreign countries and experience new cultures and traditions. While this can be a once-in-a-lifetime experience for UK expats, it can also be stressful and challenging, especially when it comes to Tax time.

When living and working abroad, UK expats face multiple tax jurisdictions: tax on local UK earnings and assets and tax on assets and earnings in their country of residence.

Below are a few common tax questions UK expats ask about taxation.

Are there tax implications for earning income abroad while still having financial ties to the UK?

Yes, it is possible to be treated as a UK resident for several years after leaving the UK.

Taxation also depends on whether you are considered UK-domiciled or UK resident.

If you return to the UK within five years of leaving, any gains can be subject to capital gains tax under temporary nonresidence rules.

If you are a UK national, then the UK inheritance tax applies.

How do I file taxes in both the UK and my country of residence?

Both jurisdictions will require tax returns if an individual is a resident of both.

Most countries have double taxation treaties, so income/gains are only taxed once. Check with your tax advisor whether your country has double taxation treaties with the UK.

Where no treaty exists, a tax credit for tax paid in another jurisdiction may be given.

How do I avoid double taxation on my income?

You may be taxed on your UK State Pension or income by the UK or the country where you live.

If you live in a country that has a double taxation treaty with the UK, you should only pay tax on your pension once. This may be to the UK or the country where you live, depending on that country’s tax agreement. Most countries have double taxation agreements. Where no treaty exists, a tax credit paid into another jurisdiction may be given.

What are the inheritance tax implications for assets held in both the UK and abroad?

This depends on whether an individual is treated as UK-domiciled or not. If yes, then assets worldwide are subject to UK inheritance tax, and if non-UK-domiciled, then only UK assets are subject to UK IHT.

What is a non-domiciled status?

According to The Guardian, non-domiciled status means that “ a person who is registered as non-domiciled with HM Revenue and Customs is tax resident in the UK but does not have to pay UK tax on income and capital gains earned overseas—including on company stocks or cash made from selling a second home—unless they bring their money into the UK or deposit it into a UK bank account. However, non-doms do still have to pay tax on money earned within the UK.”

The country of residence may also have a liability, but the UK typically gives a tax credit for any foreign taxes paid.

It is essential that you consult with your financial advisor regarding the taxation of your income and assets, globally and within the UK. Ask about tax-efficient solutions that will help mitigate taxation.