UK Income Tax for Non Residents

Many individuals in the UK will naturally feel like they are paying far too much income tax and National Insurance Contributions.

So much so that they believe that by moving offshore, they will be able to save a large amount of tax and therefore make themselves better off (this is not necessarily the case and will largely depend on the type and volume of income you receive).

Here we look at the UK tax position for those individuals who move abroad and become non resident. We will also briefly touch upon non-resident companies and how they are subject to UK tax.

Individuals

Firstly, we need to consider what a ‘non-resident’ is for income tax purposes. Under a shake up to the rules on residency, new statutory residency tests were introduced in on 6 April 2013 which required each individual to consider firstly whether they are automatically non-UK resident.

If this test was not conclusively satisfied, we would then move on to determining whether the individual was automatically a UK resident.

Again, if this is not conclusively satisfied, we will then move on to the last test which looks at both the number of days that the individual spends in the UK vs. the total number of ties they hold to the UK.

Although this seems to be far more complex, this provided individuals greater clarity over the previous 183 day or 4 year 91 day average test.

Having considered the above, if an individual is non-UK resident, then UK income tax for non residents will be calculated on only any UK sourced income.

This means that on the non resident income tax return, only the UK income will be included and subject to income tax whilst non-UK income is excluded completely.

Depending on the nature of income received in the UK (i.e. PAYE, interest or dividend income), the UK income tax rates for non residents can range from 20% (the basic rate) al the way up to 45%.

It is also important to consider whether you will also need to complete an annual self-assessment tax return as a non resident in order to correctly report your income and calculate the amount of tax you are required to pay to HMRC correctly. 

Of course the country in which you are now deemed resident may well have their own taxation implications on your income and therefore it is hugely important again to check with a relevant professional as to your taxation obligations to ensure you are compliant with both jurisdictions.

Corporates

A corporate entity will be non-UK resident typically if it is incorporated outside of the UK and it is centrally controlled, owned and managed outside of the UK.

As such, currently, non resident companies will only pay UK corporate tax if they have a trading business in the UK. The current rate of corporation tax here is 19%.

Those non resident companies that own UK rental properties (which will also need to be registered under the non-resident landlord scheme with HMRC) will be subject to UK income tax.

The UK income tax rates for non resident companies is just as above ranging from 20% to 45% [it should however be noted that at present there is an ongoing consultation to bring those non resident companies into the scope of UK Corporation tax – although there is no definitive date as of yet]. 

As such, UK income tax for non residents and non resident companies are not entirely straight forward (largely due to the determination of an individuals residency status under the new Statutory Residents Tests) and therefore it is recommended that you contact a UK taxation specialist who will be able to provide guidance as well as assistant with your non resident income tax returns and other issues.

Also if you are a landlord and require advise on non resident UK tax return stay in touch on 020 8429 9245 or email [email protected].