In this section:
If you live in the UK but have your permanent home in another country, you may need to decide how you want to pay tax on the income and 'gains' (such as taxable profits from the sale of property or investments) you earn abroad. There are two choices and it is important to decide which is best for you.
On this page:
From 6 April 2013 the rules that determine if someone is resident in the UK for tax purposes have changed. This is known as the Statutory Residence Test (SRT). For the majority of people whether or not they are resident for tax purposes is quite straightforward under the test and their position will not change. For those with complex circumstances the SRT will provide more certainty about their residence status.
To help you understand your residence status we will be launching an on-line residence indicator in the next few weeks. The residence indicator will give you an indication of your residence status after answering a few straightforward questions such as how many days you spent in the UK, where you have a home and if you have family ties. The first version will be a pilot version.
Find out more about the Statutory Residence Test and Overseas Workday Relief by following the links below:
A replacement for the current HMRC6 booklet, reflecting changes to the remittance basis of taxation and the introduction of the SRT will be available soon.
You are probably 'resident in the UK for tax purposes' but 'domiciled abroad' if all of the following apply:
You may be treated as 'not ordinarily resident' if all of the following apply:
If you are living in the UK and are either 'domiciled abroad' or 'not ordinarily resident' in the UK, you can choose how you want to pay tax on your foreign income and gains (a 'gain' is when something which you own is sold for a profit).
|Residence/domicile status||What you pay tax on if you choose the remittance basis|
|Not ordinarily resident in the UK and domiciled abroad||
|Resident in the UK for tax purposes but domiciled abroad||
If the amount of foreign income and/or gains that you leave abroad is £2,000 or more in any year, and you decide to be taxed on the remittance basis, you will lose your annual UK tax-free personal allowances and Capital Gains Tax annual exempt amount. (These are explained later in this guide.)
You will lose these allowances whether you are 'not ordinarily resident' or 'resident in the UK for tax but domiciled abroad'.
If you've been resident in the UK for more than seven out of the previous nine tax years, excluding the current tax year, you may have to pay a £30,000 charge each year. This is called the 'remittance basis charge'. If you have been resident for 12 or more years, excluding the current tax year, the charge rises to £50,000 each year.
If the foreign income and/or gains that you leave outside the UK in a tax year are more than £2,000 and you want to pay tax on the remittance basis you must complete a Self Assessment tax return at the end of the tax year. This is an online or paper form that you have to complete and send to HM Revenue & Customs (HMRC) every year. There is a box to tick where you claim the remittance basis.
You also use the tax return to claim relief for any foreign tax you have paid on your foreign income and gains, and to tell HMRC about foreign income and gains that you bring into the UK.
If the foreign income and/or gains that you leave outside the UK in a tax year are £2,000 or less, you can use the remittance basis without making a claim or completing a Self Assessment return. You will also be able to keep your UK personal allowances and Capital Gains Tax annual exempt amount.
However, if you bring more than £500 of your income and gains into the UK you must still complete a tax return to tell HMRC about it and pay UK tax on it.
If you do not choose to be taxed on the remittance basis, you will automatically be taxed on the 'arising' basis, which means you:
You can read more about the Personal Allowance and Capital Gains Tax annual exempt amount below.
You can tell HMRC about foreign income and gains by completing a Self Assessment tax return. You can also use the tax return to claim relief for any foreign tax you have paid on your foreign income and gains. The tax return is an online or paper form that you have to complete and return every year.
The Personal Allowance is an amount of income you can normally receive tax-free each tax year. For the tax year 2013-14 the tax-free Personal Allowance is £9,440. This means you only pay Income Tax on taxable earnings above £9,440.
However if you are claiming the remittance basis you may lose your annual UK tax-free Personal Allowance and any other allowances - such as Blind Person's Allowance - to which you are otherwise entitled. (See the earlier section 'Allowances and charges if you choose the remittance basis'.)
Capital Gains Tax is a tax on the profit or 'gain' you make when you sell, give away, transfer or exchange ('dispose of') something of value - 'an asset'. The Capital Gains Tax 'annual exempt amount' in 2013-14 is £10,900. This means you only pay Capital Gains Tax on 'gains' (profits from the sale of, for example, property or investments) above £10,900.
However if you are claiming the remittance basis (see 'Tax allowances if you choose the remittance basis' above) you may lose your UK Capital Gains Tax annual exempt amount ('allowance').
Residency, domicile and tax on foreign income and gains are complicated. You can get help and advice on your situation from HMRC.