Tackle ex pat tax, before you pack…


There’s been few glimpses of sunshine of late…but not nearly enough for some of us. If you’re thinking of heading for warmer climes on a permanent basis, read our ex-pat tax tips guide…

Expatriate taxation is a complex area of personal taxation, not least because it often involves the interaction of the tax systems of two countries. Yet at the same time, it can create opportunities for saving tax which often go unexploited.

Before you leave…

Before you wave goodbye to Blighty, you are obliged to inform HMRC if you’re leaving the UK to live abroad permanently or you’re going to work abroad full-time for at least one full tax year. To do this, you’ll need to fill in form P85 (handily entitled “Leaving the UK”) and state your intentions in term of length of stay outside the UK. This is important as it will determine whether you are classed as “non-resident” or not (see below)

You’ll also need to enclose parts 2 and 3 of your P45 form from your employer and if you usually complete a self assessment tax return, then you’ll also need to submit this – although be aware that you can’t use the usual HMRC online services to do so; in this specific case, you’ll need to send in a paper return (beware earlier filing deadlines!) or file via your accountant who have specific software to facilitate this.

Submitting these documents will advise HMRC that you are leaving the UK for tax purposes, and calculate any rebate you may be due.

Am I now a non-resident?

Your UK residence status affects whether you need to pay tax in the UK on your foreign income. Non-residents only pay tax on their UK income – they don’t pay UK tax on their foreign income. Residents normally pay UK tax on all their income, whether it’s from the UK or abroad, although special rules apply for UK residents whose permanent home (‘domicile’) is abroad.

You may be non-resident the day after you leave the UK, and this will be determinted by the statutory residence test (SRT) – which applies to income tax, capital gains tax, inheritance tax and corporation tax (although not NI). This has only been in place since 6 April 2013 (although it had been on the legislative agenda for 77 years prior!) and is a three part test: an automatic overseas test, an automatic UK test and a sufficient ties test. An individual starts with the automatic overseas test, if that is not met the automatic UK test is considered next, and if that is not met the sufficient ties test must be applied. The criteria are complex and are outlined in full on our website under Private Clients.

However, in general terms, whether you’re UK resident usually depends on how many days you spend in the UK in the tax year (6 April to 5 April the following year). You’re automatically resident if either:

  • you spent 183 or more days in the UK in the tax year
  • your only home was in the UK – you must have owned, rented or lived in it for at least 91 days in total – and you spent at least 30 days there in the tax year

You’re automatically non-resident if either:

  • you spent less than 16 days in the UK (or 46 days if you haven’t been classed as UK resident for the 3 previous tax years)
  • you work abroad full-time (averaging at least 35 hours a week) and spent less than 91 days in the UK, of which less than 31 days were spent working

What are the tax advantages of being non resident?

When you become non-resident for tax purposes in the UK, numerous financial options and alternatives are available to you, for example, if you’re taking early retirement abroad you may benefit from moving your pension to an offshore QROPS fund, a Qualifying Recognised Overseas Pension Scheme that’s backed by the British government. Funds can also be transferred into offshore pensions and savings. Seek advice on such matters to maximise tax efficiency.

For more information, read the full text of this article which appeared in iNsight magazine Spring 2015.