Moving abroad might feel like a fresh start, but UK tax obligations can follow you. Before assuming you’ve left UK taxes behind, it’s essential to understand the rules.
Are you really a non-UK resident (NR)?
Until 2013, the UK didn’t have a statutory definition of residence for tax purposes. Yes, that’s as unbelievable as it sounds. Fortunately, the Statutory Residence Test (“SRT”) was introduced in 2013.
The idea is that it provides a degree of objectivity through a series of tests. Although a statutory test, other than in straightforward cases, it can remain complex.
Generally speaking, one is either a resident or not for the entire tax year (oddly, April 6, 2024, to April 5, 2025, in the UK). However, one can qualify for split-year treatment in certain scenarios, meaning one can slice and dice the tax year into resident and non-resident periods.
A detailed consideration of the UK residence rules is beyond this article. But, certainly, as someone leaving the UK, I cannot stress how important it is to get advice in this area. It will be money well spent.
Understanding UK tax exposure for non-residents
Income tax rules
UK tax applies to UK-source income, while foreign income is generally untaxed. However, there are exceptions. For instance, UK dividends are tax-free for non-residents unless they come from a closely held company (most private companies are ‘close’). If dividends are taken from a close company using past profits accumulated while the individual was a UK resident, they may be subject to an anti-avoidance rule and be taxed in the UK if the individual returns to the UK within five years.
Rental income from UK properties remains taxable in the UK, and landlords may need to register under the Non-Resident Landlord (NRL) Scheme to receive rents gross. Additionally, UK interest is taxable, whereas interest from offshore accounts (e.g., Jersey) is not. Employment income from a UK company is tax-free if all duties are performed outside the UK.
Capital Gains Tax (CGT)
UK Capital Gains Tax (CGT) generally applies only to UK residents, but non-residents must still pay CGT on UK real estate sales. If an individual sells UK properties, CGT applies regardless of when the property was purchased. Additionally, all UK property sales must be reported within 60 days.
Foreign property sales are usually outside UK CGT. However, another five-year rule states that if a non-UK asset owned before leaving the UK is sold and the individual returns within five years, CGT may arise on return.
Inheritance Tax (IHT) Implications
Current Rules (Until April 5 2025)
Under the current domicile-based system, UK-domiciled individuals pay IHT on worldwide assets, while non-domiciled individuals pay IHT only on UK assets. If a non-domiciled individual becomes deemed domiciled (after 15 years of UK residence), they become liable for UK IHT on their global assets. However, determining domicile status depends on physical presence and the intention to remain abroad permanently, making it a complex and uncertain process.
New Rules (From April 6, 2025)
Starting in April 2025, a residency-based IHT system will replace domicile-based rules. Under this system, IHT will apply if an individual has been a UK resident for 10 out of the last 20 tax years. This change offers long-term expats greater clarity, as after 10+ years of non-residency, only UK assets will remain subject to UK IHT.
For those who have been non-residents for fewer than 10 years, UK IHT still applies to all assets.
The above hopefully illustrates that one does not escape UK taxes simply because one has upped sticks and unpacked one’s life overseas. The UK tax system has a long reach, and never assume you’re ‘out of sight and out of mind’ when it comes to HMRC.
If in doubt, ensure you get some proper advice from a suitably qualified person.
