Tax on your UK income if you live abroad

Our experts tell you how your UK income will be treated by HMRC if you live overseas

Our experts at DSR Tax Claims know how hard it is to find good, quality information about HMRC’s tax regulations that is easy to understand, and that’s why we have created these handy guides to tell you everything you need to know. Our aim is to make life easier for our clients and that is why we want to share our expertise with you. You can also call our friendly team on 0330 122 9972 – we’re the tax experts you can trust. Or you can check out our online calculator to see if you could be due a refund.

What counts as UK income?

If you live overseas, you are usually required to pay tax on your UK income for such things as pension income, rental income, savings interest and any wages you might earn. If you are eligible for your tax-free Personal Allowance, you will pay Income Tax on any income above that tax-free allowance. If you aren’t eligible for the personal Allowance, you will have to pay tax on all of your UK income.

Depending on the country you live in, you may also be taxed in your UK income there. If this is the case, that country might have a ‘double-taxation agreement’ with the UK so you would be able to claim some tax relief to avoid you having to pay tax twice on the same income.

You won’t usually have to pay any tax if you sell any UK assets, with the exception of UK residential property, which would be subject to Capital Gains Tax.

What isn’t liable for UK tax?

If you are a non-resident of the UK, you won’t usually pay UK tax on your State Pension or any interest you receive from UK government securities (also called gilts).

If you live abroad and work in the UK, your tax is automatically calculated on those days you work in the UK.

Income Tax is no longer taken automatically from interest on investments and savings.

How do you report your income to HMRC?

You will usually be expected to send a Self Assessment tax return to HMRC if any of the following apply:

  • You are self-employed in the UK
  • You rent out property in the UK
  • You have a pension from outside the UK and were a UK resident in any of the previous 5 tax years
  • If you have other untaxed UK income.

If you have already claimed tax-relief under a ‘double-agreement agreement’ you don’t need to report this income to HMRC.

You can’t use the online Self Assessment service if you’re not a UK resident, so you will need to send a paper Self Assessment tax return or use commercial tax software to submit your tax return. you need to fill in the ‘residence section’ to tell HMRC you are a non-resident. Don’t forget that the deadlines are earlier if you are sending a paper tax return – 31st October. You will be fined if you miss that deadline, even if it was only by 1 day.

What happens if you think you have overpaid UK tax?

If you have overpaid, you are entitled to claim a refund on that overpaid tax. To do this you need to send form R43 to the HMRC, if you can’t claim a refund through your Self Assessment tax return.

How is rental income taxed?

If you rent out property in the UK, you will be required to pay UK tax on your rental income. You may also be subject to Capital Gains Tax if you sell UK residential property and make a profit (gain).

If you live abroad for at least 6 months in any tax year, HMRC consider you to be a ‘non-resident landlord’, even if you are otherwise classed as a UK resident for tax purposes.

If you have to pay tax on rental income, you can either receive the rent in full and then declare this rental income in your Self Assessment tax return, or you have the option to have the tax deducted by your letting agent or tenant before you receive the rental income.

If you want to receive the full rental income yourself and pay the tax on it yourself through your Self Assessment tax return, you need to apply to HMRC using form NRL1i. If HMRC approve your application, they will inform your letting agent or tenant not to deduct tax from your rental income and it will be your responsibility to declare this in your tax return. However, if your taxes aren’t up to date, it is likely that HMRC will reject your application.

If you have the tax deducted by your letting agent or tenant, they will deduct basic rate tax from your rent and then give you a certificate at the end of each tax year stating how much tax they deducted. If you don’t have a letting agent and your tenant pays you more than £100 in rent per week, they will deduct the tax from their rent.

Unless you are told otherwise by HMRC, you need to declare your rental income in your Self Assessment tax return. You can’t use the online Self Assessment service if you’re not a UK resident, so you will need to send a paper Self Assessment tax return or use commercial tax software to submit your tax return. You need to fill in the ‘residence section’ to tell HMRC you are a non-resident. Don’t forget that the deadlines are earlier if you are sending a paper tax return – 31st October. You will be fined if you miss that deadline, even if it was only by 1 day.

If you think you have paid too much tax on your rental income, you can request a refund if both of the following apply:

  • Your rental income is less than your tax-free Personal Allowance
  • Your letting agent or tenant has already deducted basic rate tax from your rental income.

If you’re not entitled to receive the Personal Allowance, you can’t claim back overpaid tax.

What about companies or trusts as non-resident landlords?

A company can be treated as a non-resident landlord if it receives income from letting UK property and it either has its main office or business premises outside the UK or it’s incorporated outside the UK.

If your company is considered to be a resident in the UK for tax purposes, it will receive rent in full. This includes UK branches of overseas companies if they have been registered with Companies House.

A trust is considered to be a ‘non-resident landlord’ if it receives UK rental income but all its trustees live overseas.

To apply to get rent in full, companies need to apply to HMRC using form NRL2i. trusts should apply using NRL3i.

How do HMRC treat assets?

If you’re not classed as a UK resident, you won’t usually be required to pay Capital Gains Tax if you sell most types of assets in the UK. You also wouldn’t be subject to Inheritance Tax if you sell assets which are located in the UK.

There are a few exceptions to these rules. You might have to pay Capital Gains Tax if any of the following apply:

  • If you are selling UK residential property and you make a gain (profit)
  • If you used to be a UK resident and return to the UK within 5years of leaving.
  • The assets you sold were used in a UK branch of a foreign company.

You might be liable for Inheritance Tax if you inherited property, money or shares in the UK and the deceased’s estate doesn’t have the money to pay the Inheritance Tax. The normal non-resident rules apply to any Income Tax you might have to pay if you are receiving income from something you have inherited, for example rental income from an inherited property in the UK. If you are a non-resident of the UK and you sell a UK residential property you inherited, you will be subject to Capital Gains Tax but this only applies to UK residential property, not other UK assets.

Are non-residents entitled to a Personal Allowance?

You will be entitled to receive a tax-free Personal Allowance of UK income if either of the following apply:

  • You are an EEA (European Economic Area) citizen. This includes British passport-holders.
  • You have worked for the UK government at any time during that tax year.

You might also be entitled to a Personal Allowance if it is included in any double-taxation agreement in place between the UK and the country you live in.

If you’re not a UK resident, you have to claim your Personal Allowance from HMRC at the end of each tax year in which you have received UK income. You need to send form R43 to HMRC to do this.

What can you do if you are taxed twice?

It is possible that you might be taxed twice on the same UK income, depending on the tax rules in the country you live in. However, if that country has a ‘double-taxation agreement’ with the UK, you might be able to either claim partial or full tax relief before you are taxed in the UK, or reclaim any overpaid tax.

Each double-taxation agreement sets out how much tax relief you would be entitled to, as well as stating which country you need to pay tax in and which country you claim the tax relief from. If the rates of tax in the 2 countries are different, you will have to pay the higher rate of tax. Tax years may run differently in other countries – the UK tax year runs from 6th April to 5th April the following year.

You can usually claim double-taxation tax relief on the following kinds of income:

  • Most pensions (UK government pensions are only taxed in the UK)
  • Wages and other employment income, including income from your self-employment
  • Bank interest on your savings
  • Share dividends

To see how double-taxation works with regard to the country you live in, you can check out HMRC’s Double-taxation Digest which will explain how different forms of income will be taxed. You will need to use a standard claim form to claim this tax relief, unless you are a resident in one of the following countries, in which you will use a country-specific form:

  • Australia
  • Canada
  • France
  • Germany
  • Ireland
  • Japan
  • New Zealand
  • Netherlands
  • South Africa
  • Spain
  • Sweden
  • Switzerland
  • USA

Once you have filled in the form, you send it to the relevant tax authority in the country where you live. They will then conform your eligibility for the tax relief – the form then needs to be sent to HMRC.

Although you won’t usually pay Capital Gains Tax on any UK assets (except UK residential property), if you return to the UK after being non-resident, you may have to pay tax on any assets you owned before you left the UK. If you have paid gains tax in the country you moved to, you will probably be able to claim double-taxation relief.

The situation can be different for people with dual residency. You can check out the HMRC guidance on dual residency double-taxation relief if you need more information about this.

What if you are a UK resident?

If you spend 183 days or more in a tax year in the UK, you could still be classed as a UK resident even if you live abroad. If this is the case, you will pay tax on your income and gains in the same way as a UK resident. You may also have to pay tax on your foreign income as well.

How can DSR Tax Claims help?

We aim to make life as simple as possible for our clients and that includes giving you the information you need to make your taxes (and your life) simpler and less stressful.  Our team of experts at DSR Tax Claims are always on hand to help our clients and our excellent standing with HMRC means that we can make sure you don’t fall foul of their regulations, while claiming your maximum tax rebate. We can even take care of all that paperwork and deal with HMRC on your behalf too. Call our friendly team on 0330 122 9972 – we’re the tax experts you can trust.

Start Your Claim Today!

Call our experts

Let’s get started on your tax rebate or self-assessment return