Understanding UK taxes for expats: what you need to know
Moving to live in a new country is an exciting endeavour, but there are also lots of i’s to dot and t’s to cross legally to ensure a smooth transition. The UK is a popular choice for expats, who constitute 21.4% of the local HNW population and move for a variety of reasons – from the UK’s high-quality educational institutions to its safe and secure living conditions.
If you’re a high-net-worth individual considering a move to the UK, understanding the tax landscape is crucial. Here, we explore what you need to know.
Tax in the UK
Relocating to the UK can have significant tax implications, so being able to estimate these ahead of time will greatly aid your planning. The UK tax system is based on residency status, so you’ll need to calculate yours to fully understand your tax obligations.
This can be determined via The Statutory Residence Test, which considers the number of days you’ve spent in the UK and your connections to the country, such as family, property, and work.
- If you’re considered a UK resident, you’ll be taxed on your worldwide income.
- If you’re considered a non-resident, you will only be taxed on UK-sourced income.
Income tax rates
Understanding the UK’s income tax rates is essential for managing your finances. For the tax year 2023/2024, the rate is 45% for income over £125,141 – down from over £150,000 in 2022/2023. Keep in mind that these thresholds can change year-on-year, so it’s important to stay updated on current rates.
For expats interested in the UK property market, understanding mortgage tax is vital. However, it is complicated, so it’s worth working with an accountant who is familiar with the UK’s financial landscape to help ensure you invest wisely. Buy-to-let properties are a popular choice for UK expats, and currently, all landlords can claim a 20% tax credit – no matter what financial tax bracket they fall in.
Dual residency
If you are deemed to be a non-resident, you’ll want to avoid being taxed twice on the same income by both your home country and the UK. For this purpose, double taxation agreements (DTAs) are in place, to specify which country has the taxing rights over certain income types.
To benefit from a DTA, you’ll need to check if one exists between the UK and your home country and establish your eligibility. If possible, you can then use the provisions of the DTA to claim tax relief on foreign income.
How to pay taxes in the UK as a foreigner
If you have UK income, you’ll need to register for a tax return with HM Revenue and Customs (HMRC). You’ll then submit an annual self-assessment tax return – again, having an accountant to help here is helpful, especially for high-net-worth individuals with multiple income streams.
It’s important to ensure you understand your additional tax liabilities when moving the the UK, including:
- Capital Gains Tax: Applicable on worldwide gains if you’re a UK resident.
- Inheritance Tax: UK inheritance tax may apply to worldwide assets if you become UK-domiciled.
A seamless transfer to the UK
Navigating UK taxes as a high-net-worth expat doesn’t have to be daunting. By understanding your tax residency, leveraging DTAs, and optimising your investments, you can make informed decisions about your financial future in the UK. If you have specific questions or need personalised advice, consider consulting a tax advisor specialising in expat taxation.
Whether you’re relocating for work, education, or adventure, the UK awaits with open arms. If you would like support with your move, why not get in touch with us. We’d love to help!
T: +44 (0)207 088 8310
Naomi Gleeson – Managing Director