At one stage it was generally considered that moving abroad to become a British expat would allow you to escape UK tax. With UK tax rules now much tighter this is very much an outdated concept. Recently there’s also been increased focus from the tax authorities on those seeking to avoid or evade UK tax. But what are the rules? Peter Webb, our Head of Tax Advisory, dispels some of the myths around expat tax.
Do Middle Eastern expats have to pay UK taxes?
There are three main taxes which British expats need to be aware of – Income Tax, Capital Gains Tax and Inheritance Tax. Different rules apply to each one.
Capital Gains Tax – this applies to any capital gain which you might receive, such as from the sale of a property. The Statutory Residence Test is again used to help determine which sales or disposals this tax applies to. It’s also worth noting that if you’ve lived overseas for more than five years there are some additional tax benefits which apply.
Inheritance Tax – this is affected by your legal country of domicile. Domicile is a complicated term but generally means your permanent home country. So, for example, even if you are a British expat working in Hong Kong, your domicile is likely to remain the UK. As a result, if you are UK domiciled, Inheritance Tax, is charged on your worldwide assets. This can be a very important point and careful planning may be needed to help mitigate your tax bill. It’s worth noting that if you aren’t UK domiciled it’s generally only your UK assets that are within a possible 40% Inheritance Tax charge. On the flip side, a non-UK domicile’s overseas assets are outside of the UK Inheritance Tax net.
Key considerations:
Tax residency
Your residence status generally determines where you will be charged tax. Understanding the rules of both the UK and the country in which you’re living or working in is of course very important. Our Guide to understanding the Statutory Residence Test can help explain some of the complexities.
Tax treaties
The UK has entered into various tax agreements to help avoid instances of you being ‘double taxed’. Currently more than 130 of these double-tax treaties have been established so there is a significant network in place. This remains a highly complex area so it’s important to seek advice from a tax professional.
Working overseas
If you are not UK tax resident but perform any employment duties in the UK you may be charged UK tax on your UK workdays. Careful tax planning may be needed. There are special rules for income from certain types of employment income including work in the oil and gas sector.
If you’re a British expat understanding your exposure to UK tax can be complicated. It may also change over the years in which you live outside of the UK, depending on your circumstances. The Fry Group has been helping British expats with all areas of tax planning for over 120 years. For help and advice contact your nearest office.
Would you like to find out more?
Download our expat’s guide to UK tax
