Moving between countries, whilst a fantastic and often life-changing experience, can create a huge amount of additional personal administration, not least of which involves ensuring you are complying with all the new local tax legislation. UK tax law is extremely complicated so, understandably it will be impossible to answer this question exhaustively in a short article. Here, we are going to give an overview of the main types of tax you might need to pay if you have just arrived in the UK from another country (please note, this is not aimed at UK expats moving back from overseas).
If you have any income in the UK, in most cases, you should declare it to HMRC and pay the appropriate amount of tax. The way you declare this depends mainly on whether you are an employee or a company director/self-employed.
If you are on the company’s payroll, your employer will be registered for PAYE (pay as you earn) and your income tax will be deducted from your salary to give your net salary. There are various levels or ‘bands’ of income tax over your personal allowance (£12,500 for the tax year 20/21), which is tax-free. Income tax bands are shown below:
- Personal allowance – up to £12,500 – 0%
- Basic rate – up to £50,000 – 20%
- Higher rate – up to £150,000 – 40%
- Additional rate – above £150,000 – 45%
It is important to understand that these rates are marginal, which means that if, for instance, your gross salary is £55,000, you do not pay tax on the first £12,500, you pay 20% income tax on £37,500 (£7,500) and you only pay the higher 40% rate on the £5,000 that remains (£2,000, i.e. £9,500 in total). You do not have to pay 40% of £55,000 (£22,000).
If you are self-employed or a company director and you want to pay yourself a salary, you will also have to pay income tax through the payroll (please see our article on profit extraction strategies if you would like to learn more about doing this as tax-efficiently as possible). You must also complete a Self Assessment tax return and submit this to HMRC.
Capital Gains Tax and Rental Income
Capital Gains Tax (CGT) is a form of income tax on the profit from the sale (‘disposal’) of an asset that has increased in value like a house or some shares. Gains on your main residence are generally exempt from CGT as long as you have lived there throughout the period of ownership.
If you have income from a rental property, you must also pay tax, which will differ depending on whether you have a business or own the property personally.
The tax rates for CGT are below:
|Tax bracket (2019)||CGT (assets)||CGT (property)|
|Higher or additional-rate payer||20%||28%|
Income from CGT must also be recorded on your Self Assessment.
Tax on Foreign Income
Taxation rules on foreign income are very complicated, and we would generally advise consulting with a specialist on the subject (like, say, Schoolgate Accounting Services) if you are unsure. The costs of making mistakes in this area most often greatly outweigh the expense of a one-off consultation.
In general, however, if you are a UK tax resident (based on the Statutory Residence Test (SRT)) you must pay tax on overseas income or capital gains, unless they are dividends of under £300. There are some things, such as pensions, rental income and certain types of employment income that are taxed differently.
An important thing to consider before you become a UK tax resident is where you are ‘domiciled’. Your domicile is usually the country your father considered his permanent home when you were born, though this may have changed if you move overseas and you do not intend to return. There are different tax rules if you are a so-called ‘non-dom’ which can often be beneficial. You can claim on a remittance basis on your Self Asssessment tax return and not pay tax on overseas income (with, needless to say, many caveats).
Importantly, anything you earnt before you became a UK tax resident can be brought to the UK tax free (so-called “clean capital”). It is vital, however, to ringfence these funds from any income earnt subsequent to becoming a tax resident, as otherwise it may be subject to mixed fund rules and all the funds taxed accordingly.
It is also possible that you are taxed twice on your income by the UK and the country the income is from and you can often claim tax relief to get some or all of it back. The amount you can claim often depends on the UK’s ‘double-taxation agreement’ with other countries.
Once again, any income you receive from abroad should be recorded on your Self Assessment tax return. If you are unsure about how to complete your Self Assessment, or if you would like further information on any of the taxes mentioned in this article, please don’t hesitate to get in touch.