When you move to the UK, or spend part of your time in the UK, tax might not be at the forefront of your mind. Despite this, it probably should be. Thinking about tax now can save you from a costly tax bill later. Whether you have to and/or what you will need to pay tax on in the UK depends on a few key factors. Among these factors is your UK tax residency status.
At its core, tax residency in the UK is a relatively simple concept. In its simplest terms, if you reside in the UK for 183 days or more in a tax year then you are automatically a tax resident. Nevertheless, there are other factors which may or may not affect this that can complicate matters. In today’s article, we will seek to explain this and help you to establish whether you are a tax resident.
Being a tax resident means that you are generally liable for all income on UK-based employment, as well as non-UK employment and other possible sources of worldwide income and gains.
Being a non-resident means that you generally only pay tax on specific UK-source income and that UK tax is not paid on foreign income.
What determines your tax residency status?
The Statutory Residence Test (introduced in 2013) is the primary means of determining whether someone is resident in the UK for tax purposes. It contains a number of components which are used to determine whether you are a resident for UK tax purposes.
As well as being a resident if you spent 183 or more days in UK in the tax year, you may also be resident if:
- your only home was in the UK for 91 days or more in a row – and you visited or stayed in it for at least 30 days of the tax year
- you worked full-time in the UK for any period of 365 days and at least one day of that period was in the tax year you’re checking
- You meet the sufficient ties test, including family, accommodation, work etc, spent 90 days or more in either of the previous two tax years, or spent more days in the UK than any other country
The number of ties you have with the UK and the length of time you have spent in the UK will determine whether you are a tax resident. This means that the more ties, the fewer number of days you will need to be in the UK to qualify as a tax resident. However, if you spend fewer than 46 days in the UK and were not a resident in the previous three tax years, then you will normally be non-resident. This means that even if a foreign citizen has immigration permission to reside in the UK, they may not in fact spend enough time in the UK to be a tax resident.
So, we have now established some of the general rules that determine whether you will be taxed in the UK as a resident. Now, let’s take a look at what income will be taxed and how it will be taxed.
How will my income be taxed?
Being resident in the UK means being liable to pay income tax and capital gains tax. While the former is fairly self-explanatory, capital gains tax refers to tax on the profit of an asset you sell or dispose which has increased in value. You could pay it on personal possessions worth £6000 or more other than your car, as well as a second home, business assets etc.
Being a resident in the UK means that you will generally be required to declare and pay income tax on all income from outside the UK. Furthermore, UK land and buildings may also be subject to capital gains tax and is not something which is affected by residence status.
The exceptions to the above are those who are remittance basis users, which prevents non-UK income and assets being subject to UK tax as long as they are not brought into the UK directly or indirectly. This is only available to those who are not domiciled in the UK, but are resident here. Click here for more information about remittance basis.
Income tax
Being employed means that you will be subject to income tax, which for the vast majority of people in the UK is paid at source via the PAYE (pay as you earn) system. This is quite simple as it will be done for you by your employer, however it is still worth checking that your tax code is correct. For others, including those who are self-employed, you will not be taxed at source, and may have to complete a self-assessment tax return with HMRC on an annual basis. The deadline for the 2022/2023 tax year is 31st January 2024.
Capital gains tax
Capital gains will also be taxed in the event that you are tax resident in the UK and sell foreign assets subject to the capital gains tax, such as property or investments. This will be paid on the value of any gain which exceeds £6,000 until April 2024. Those who are remittance basis users will only pay capital gains tax on any foreign gain which is remitted to the UK but they will lose the annual exemption amount.
Our thoughts
It is always worth speaking to a tax expert when moving from another country to the UK beforehand. The tax laws here can seem confusing to a newcomer, and by speaking to someone this ensures that any nasty surprises are avoided later on! Lisa’s Tax specialises in providing tax consultancy to individuals, us today to learn more.
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