If you go to live and work abroad, you will need to work out where you should pay tax. This is determined by your tax residency status, although even if you are considered non-resident in the UK, you may still be liable to pay UK income tax in some circumstances.
When are you deemed tax resident in the UK?
In order to be considered and treated as non-resident in the UK for income tax purposes from the day you leave the UK, you will need to demonstrate that:
- you left the UK to go abroad permanently or for at least the whole tax year;
- you do not live in the UK for 183 days or more in the tax year (6 April to 5 April)
- you are not in the UK for more than an average of 90 days a year over a four-year period.
Informing HMRC of your departure
It is important that you contact HM Revenue and Customs (preferably before you move abroad) to tell them that you have moved, or plan to move. You will be required to complete Form P85 ‘Leaving the UK – getting your tax right’. HMRC will use the information provided to determine whether you will be non-resident and to process any tax refund that you may be owed. Sometimes you will need to fill out a tax return as well as form P85, for example if you will be working abroad full time for at least one complete tax year for a UK-based employer.
If you are deemed non-resident in the UK for income tax purposes, you will not have to pay UK tax on income earned from your employment abroad.
However, if you are
non-resident but work partly in the UK, you will have to pay UK tax on the part of your income allocated to your work in the UK, which will usually be determined by the number of days you work in the UK compared with those worked abroad. You should contact HMRC if you are a seafarer, a crown employee, an oil and gas worker, a student, or an entertainer or sportsperson, as there are special rules applicable to these types of employment.
Double taxation agreements
‘Double taxation agreements’ mean that you should not be taxed twice on the same income by two different governments. The UK has double taxation agreements with many countries.
A double taxation agreement may be used (if one exists) with regard to UK pensions. If you are non-resident, you should still pay UK tax on your UK pensions; however, you will not have to do so if the country you have moved to has a double taxation agreement with the UK.
Tax on UK Bank and Building Society interest
Normally, a bank or building society will deduct tax at source on any interest payments you receive. If you move abroad, you may therefore be taxed twice on these payments: once in the UK at source, and once as income in your new country. In order to get your interest without tax deducted, you should submit form R105 to your bank or building society.
In the UK, income tax is deducted at source before you receive your pay packet. However, in many other countries, you will have to declare your own income to the government. You will therefore need to set some of your income aside as you earn it in order to pay your tax bill later on.