Expatriate tax - United Kingdom

Following the UK leaving the EU, freedom of movement from the EU ended on 31 December 2020.

From 1 January 2021 a new immigration system was implemented. The new system is a points-based system prioritising highly skilled workers. The new system apples to EU Citizens (except Irish citizens) and non-EU Citizens. Visitors will need a work permit to work in the UK.

Some EU & EEA citizens may qualify for a Frontier Worker permit where they had a pattern of working in the UK prior to 31 December 2020 but did not reside in the UK.

Non-visa nationals (including those from the US, Canada, Australia, Gulf states) require an Electronic Travel Authorisation ETA to enter the UK for short visits of less than six months including for business visits. As part of the UK plans to digitalise the UK borders the continued phased rollout of (ETA) extends to EU citizens entering the UK starting 02 April 2025.

The UK tax year began on 06 April 2025 and runs to 05 April 2026.

For the 2025/26 tax year, the tax return filing date is 31 October 2026 for paper returns and 31 January 2027 for online filing. There are penalties for late filing of a return. There is an immediate £100 penalty if the return is not filed on time with further penalties accruing depending on when the return is filed.

Interest and tax-based surcharges are due on late paid tax.

Tax due must be paid by 31 January following the end of the tax year, however, two instalments of 'Payments on Account' may be required in advance in certain circumstances. The first is payable by 31 January within the tax year, along with the filing of the prior year return, and the second by 31 July following the tax year end.

Making Tax Digital for income tax is being introduced from April 2026 and will impact the way some taxpayers report income to HMRC.

Income tax rates for England, Northern Ireland and Wales

Rate                                                                                    2025/26
Personal Allowance 0%                                               Up to £12,570
Rates on Taxable Income    
Basic rate: 20%                                                            £0 - £37,700
Higher rate: 40%                                                          £37,701 - £125,140
Additional Rate: 45%                                                   £125,140 +

The above basic rate and higher rate thresholds level and Personal Allowance have been fixed to 2027/28 for England, Wales, and Northern Ireland.

Income tax rates for Scotland

Rate                                                                                2025/26
Personal Allowance 0%                                          Up to £12,570
Rates on Taxable Income                               From:                         To:
Starter rate: 19%                                             £0                              £2,827 
Basic rate: 20%                                               £2,828                      £14,921
Intermediate rate: 21%                                   £14,922                     £31,092
Higher rate: 42%                                             £31,093                    £62,430
Advanced Tax Rate 45%                                £62,431                    £125,140
Top rate: 48%                                                           Over £125,140

Scottish tax rates are fixed to 2026.

The personal allowance is phased out by £1 for every £2 in excess of £100,000, so is not available to individuals earning in excess of £125,140. The personal allowance entitlement is also lost for those making claims to exclude foreign income/gains under the ‘Foreign Income and Gains’ (‘FIG’) regime.

Sample income tax calculation (2025/26) – England, Northern Ireland and Wales

                                                                                                               Amount (£)

Base salary                                                                                             £ 110,000

Bonus                                                                                                       £ 24,900

Car allowance                                                                                        £ 4,000

Medical benifit                                                                                       £ 1,500

Housing cost                                                                                           £ 15,000

Total earnings                                                                                          £ 155,400

Less:                                 Accomodation          - £ 15,000

                                         Subsistence               - £ 3,000

                                         Travel                          - £ 2,400

                                        Total deduction                                            - £ 20,400

Total                                                                                                       

Less: Overseas workday relife (Forigen Employement Relief) £ 135,000

                                      Days worked overseas    Total     

                                                  60                           240          25%       -£ 33.750

Overseas pension contribution                                                         -£  7,470

Gross income                                                                                            £ 93,780 

                                                   Amount (£ )          Amount (£ )    Amount (£ )

Gross income                            £   93,780

Less: pension allowance           £Nil( FER Claim)

Taxable income                                                   £ 37,700       20%    £  7,540

                                                                             £ 56, 080      40%    £  22,432

                                                                             £  -                 45%    £     -         

                                                   Total                 £  93, 780                 £29.972   

Tax calculation rates for England, Wales and NI. Assumes Temporary Workplace Relief available.

Taxation in the UK depends upon your tax residence status.

Non-Residents are typically taxable on UK-sourced income only (e.g., personal income arising in the UK and employment income relating to UK workdays). Individuals may also be liable to UK Capital Gains Tax on the disposal of UK residential property only.

UK residents are normally taxable on their worldwide income (personal investment income and employment income). Any capital gains will also be taxable in the UK, subject to the annual exemption of £3,000.

Following major reforms taking effect from 06 April 2025, the concept of domicile has been removed from income tax and CGT. Instead, ‘Qualifying New Residents’ (‘QNR’) pay tax on either their worldwide income (arising basis) or can elect to exclude items of foreign income, foreign gains and foreign employment income under the new ‘FIG Regime’. Exemption no longer requires the income/gains to be received and retained outside of the UK. The taxpayer can make the election on their UK tax return.

A QNR is somebody who was not tax resident in the UK in the ten years prior to their arrival. This status applies for the first four tax years of UK residence following such an arrival.

Those QNRs who make a claim to exclude certain Foreign Income and Gains cannot claim the personal allowance, CGT Annual Exemption, or receive UK tax relief for foreign losses.

Also, the FIG regime does not apply to certain types of foreign income/gains. Such excluded income will be taxed on the arising basis. Notably, foreign income from offshore bonds and offshore life policies are subject to the chargeable event gains regime.

The UK Statutory Residence Test (SRT) sets out detailed rules in legislation for determining whether an individual is a tax resident in the UK.

It applies for Income Tax, Capital Gains Tax and other taxes such as Inheritance Tax. It does not apply to National Insurance Contributions (social security), which retains its own concept of residence.

The test is divided into three parts, with each part considered in turn, and only if the previous part fails to provide a conclusive answer.

• The automatic overseas tests
• The automatic UK tests
• The sufficient UK ties test

The tests consider factors such as the number of days spent in the UK, as well as subjective criteria, such as personal ties to the UK to determine whether an individual is resident or not resident.

If an individual arrives or departs the UK part way through the year, they can consider one of the eight cases for split year treatment. Not every individual qualifies for split year treatment as various conditions need to be met.

If an individual does qualify for split year treatment, they are then able to break the tax year up into a UK part and an overseas part. During the overseas part of the year, they are effectively treated as a non-resident of the UK and are only taxable on UK sourced income and gains.

If the individual is resident in the UK or they are non-resident with UK duties, all employment related income is taxed in the UK. However, there are specific and complex rules for benefits in kind and share schemes (there are deductions and exemptions available):

• expats become taxable for a single day's work in the UK with the exception of workdays where only 'merely incidental' duties are performed; exemption is also possible under a double tax treaty between the UK and the country of residence of the expatriate.
• there is usually a requirement for tax and social security to be deducted and paid over to the tax authorities, either by the employer, the deemed employer, or the employee themselves.
• the personal allowance is available in some circumstances, but not to high earners (this is phased out by £1 for every £2 in excess of £100,000) or those excluding foreign income/gains under the FIG Regime.
• employment income relating to UK workdays is taxed no matter where or when it is paid. However, this may be subsequently exempted under a double taxation agreement.
• in certain circumstances, employment income relating to non-UK workdays may fall outside the scope of UK taxation.

The source of employment income follows the OECD model treaty, which means if the employee is working in the UK the employment income will be sourced to the UK for that day.

Most benefits in kind are taxable but some are exempt and some subject to scale rates.

Taxation of company car and fuel is based on the emissions and list price of the car.

Benefits are taxed on the employee but withholding taxes (PAYE) are usually adjusted to collect the tax on the benefits during the year.

There is some scope for the delivery of benefits in a tax effective way.

The remittance basis is abolished with effect from 06 April 2025 in relation to income and gains that arise thereafter.

Instead, Qualifying New Residents are eligible to use the FIG regime to exclude items of Foreign Income, Foreign Gains or Foreign Employment Income from UK tax. Foreign Employment Relief is more commonly known as Overseas Workday Relief (OWR)

Overseas Workday Relief – allows an individual to exclude the proportion of employment income which arises in respect of work duties performed outside of the UK from UK income tax. For new claimers from 06 April 2025, an annual cap now applies to the amount of OWR available. The cap is the lower of £300,000 or 30% of the qualifying employment income, While OWR is only available for the initial four years, it can also be claimed on income received in subsequent years which was partially earned in one of those four years. 

Transitional rules apply to those who began claiming OWR under the old rules. Not every such individual will receive the new fourth year of OWR, nor might they be subject to the new cap. 

The pre-06 April 2025 rules regarding remittance and bank account structuring will still apply to trailing income received after 06 April 2025 which was earned / partially earned before this date. Certain rules must be followed in order to claim this relief. In addition, 'Special Mixed Fund' rules have been introduced to simplify the complexity of the rules and as a result special planning is required to ensure that claims are fully compliant.

Temporary Workplace Relief – expatriates who are regarded as working at a “temporary workplace” may be able to obtain tax relief on assignment related expenses such as accommodation, utilities, travel and subsistence payments. To qualify for relief an individual must be working away from their normal work location for a period of no longer than 24 months. There are strict record keeping obligations which must be satisfied in order to claim this relief.

Alternatively, an individual may still qualify for temporary workplace relief if they spend less than 40% of their working time at the location. In this case, the 24-month restriction does not apply provided the workplace is considered to be a temporary workplace.

There are planning points around pensions, accommodation, relocation payments, travel and subsistence expenses and timing of payments.

For tax residents, relief from double taxation is available under the provisions of the many tax treaties that the UK has with other countries or unilaterally under domestic law. Relief is typically given as a credit against the UK tax.

Deductions are available for certain travel expenses, qualifying relocations costs, pension contributions, charitable donations, professional subscriptions, medical costs when working abroad and business expenses.

Capital Gains Tax is separately charged on all residents. For 2025/26, the rate is 18% for basic rate taxpayers or 24% for higher rate taxpayers (including on residential property), and 32% in respect of carried interest.

An annual exemption may also be available (£3,000 in 2025/26) but this is not available to those making claims under the FIG regime.

There are a number of exemptions and reliefs available, such as the main residence exemption for an individual's principle private residence and Business Asset Disposal relief which reduce the tax rate to 14% (18% from 6 April 2026) on up to £1 million of gains in certain circumstances. The rules are complex and specific advice should be sought.

A qualifying taxpayer may be able to exclude gains on foreign assets from UK CGT using a Foreign Gains claim.

Individuals who are non-resident in the UK are typically not subject to capital gains tax. Exceptions to this include:

1. Where an individual disposes of a residential property in the UK
2. An individual who disposes of assets that were held at the when they left the UK, during a period of temporary non-residency. Temporary non-residents are taxed in the year of return on gains made on such assets.

Both of these areas are complex and specific advice should be sought prior to the disposal of any assets.

The UK charges Inheritance tax (IHT) on some lifetime gifts and on death. The rules are very complex as there are a range of exemptions and reliefs.

With the removal of domicile, a new residence-based system for IHT is also introduced from 6 April 2025. This will affect the scope of property brought into UK IHT for individuals who have been resident in the UK for at least 10 out of the last 20 preceding tax years. As a ‘Long Term Resident’, they will also be subject to IHT on their worldwide estate. The time they remain within scope after leaving the UK can continue for between three and ten years following their departure from the UK. Transitional rules apply.

Expatriates who are not Long Term Residents are usually taxed only on assets located in the UK. 

For 2025/26, the tax-free dividend allowance is set at £500, meaning that dividends received up to this amount are not taxable in the UK. In excess of the allowance, dividends are taxed at separate rates. These are currently 8.75% for basic rate, 33.75% for higher rate and 39.35% for additional rate taxpayers.

Other investment income in excess of the personal savings allowance is taxed at an individual’s marginal rate of tax.

The personal savings allowance for 2025/26 is set at £1,000 for 20% taxpayers and £500 for 40% taxpayers. No savings allowance is applicable for additional rate taxpayers (taxable income in excess £125,140 per year).

Foreign investment income may be exempt from UK tax if a qualifying taxpayer makes a Foreign Income claim.

There are some tax-exempt savings available in the UK. Also, low earners (those whose other income is less than £17,570) may benefit from a savings rate of income tax.

Other than differing rates for Scottish taxpayers outlined above, there are currently no local taxes based on income.

Living accommodation is subject to a ’Council Tax’. This is charged per property regardless of the income of the occupants.

Acquisition of interests in real estate is subject to stamp duty. This varies depending on the region – Stamp Duty Land Tax in England and Northern Ireland, Land and Building Transaction tax in Scotland, Land Transaction tax in Wales.

Tax can apply where a 'non-natural' person holds UK residential property, for example, property held indirectly via a company. This is known as Annual Tax on enveloped dwellings (ATED).

The rates for social security, known as National Insurance (NI), vary. For 2025/26, employees pay NI at 8% on income between £12,571 and £50,270, and 2% on any excess.

Employers pay 15% on earnings above £5,000 without a cap.

Share incentives (except certain approved schemes) are taxed in the UK as employment income. The UK tax treatment of share incentives will depend on the nature of the award and how the award is categorised for UK tax purposes. From 2015, in relation internationally mobile employees, as defined, the legislation broadly taxes the proportion of the chargeable amount based on the proportion of time worked in the UK. Advice should be sought on the UK tax treatment in relation to company share incentives plans of which an individual is a participant.

Capital Gains may also arise on sale.

There are also reporting requirements at the employer level. If an employer provides employment-related securities (ERS), it must submit a return by 6 July following the end of the tax year declaring certain information. Failure to comply could result in penalties and interest.

There are no wealth taxes other than Inheritance tax.

Employers with an annual wage bill in excess of £3 million are required to pay an Apprenticeship Levy at a rate of 0.5% of the employer’s annual pay bill (broadly the total amount of wages subject to class 1 National Insurance). Expatriates will often remain in the home country social security system and are not subject to National Insurance, thus excluded in determining the levy.

A key area of risk for businesses with international workforces is ensuring compliance with all the relevant tax laws and regulations. It is important that all employees pay the appropriate level of tax, within the correct jurisdiction at the required time. Issues can quickly become a source of stress for employees and provide an unwanted distraction from the commercial objectives of overseas assignments. Effective tax planning and compliance, therefore, form the key pro-active elements of a company’s pre-assignment process.

In terms of assignments involving employees seconded either from the UK to overseas, or from overseas to the UK, employers must ensure that the correct amount of UK income tax, known as ‘Pay as You Earn’ (PAYE), is paid to the UK tax authorities and reported in accordance with Real Time Information obligations.

A review of the UK payroll should be undertaken to check the following: 

• if you send employees overseas from the UK then you have to determine if they should remain taxable on the UK payroll based on their UK residence position and UK work pattern. However, there are options to explore which could be beneficial from a cash flow perspective.
• if you send overseas employees to the UK then you have to determine whether they should be included on the UK payroll or fall under short term business visitors reporting as detailed below. There is a specific payroll regime (modified payroll) for tax equalised assignments to the UK.

Employers are required to check whether UK employee and employer social security contributions are due for assignees to and from the UK. It is also essential to have the correct documents in place which confirm where social security contributions are payable.

For example, assignees to the UK that are eligible for UK social security contribution exemptions require a Certificate of Coverage (relating to countries with which the UK hold a reciprocal agreement) or Form A1 (relating to moves within the EU, EEA and Switzerland). Without this document, then from a practical perspective, dual social security liabilities could arise.

While there are exemptions to be explored, where there is no social security agreement between the UK and the second country, dual liabilities could arise.

Typically, a short-term business visitor (STBV) is an employee who visits the UK for work, but is employed, pay-rolled and lives overseas and not on a formal assignment to the UK. Without prior UK tax authority clearance, employers may have a legal obligation to withhold PAYE deductions from such individuals, even if the visit is for just one day.

This heavy administrative burden can be avoided through a STBV agreement, which relaxes PAYE withholding requirements for STBVs to the UK if certain conditions relating to double taxation treaties are met.

STBV agreements and associated reporting can help achieve or maintain a low-risk rating with the UK tax authorities being seen as best practice. For those who do not meet the requirement to be included on the STBV report but spend less than 60 days in the UK they can potentially be included under a separate agreement allowing for an annualised payroll. This is called the Appendix 8 and is relevant if tax is due, irrespective of whether the employer is settling the tax on the employee’s behalf.

The filing deadline for both schemes is 31 May following the end of the tax year.

UK tax can be reduced by planning in these areas:

• temporary workplace relief
• overseas workday relief
• transitional rules arising from non-domicile reforms
• timing of payments
• timing and duration of assignments
• pension scheme contributions
• relocation expenses
• incentive scheme planning
• using HMRC approved share plans
• overseas bank account structuring
• use of spousal exemptions to spread income and gains and reduce taxation
• minimising social security costs