Global expatriate tax guide

Expatriate tax - United Kingdom

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The United Kingdom has complex tax and social security laws and most expatriates will need professional assistance to complete their tax returns. Grant Thornton UK LLP has several offices around the country with expatriate expertise. We also provide specialist advice in the areas of employer compliance, pensions, share schemes, as well as guidance on general tax and social security issues.

Click on each of the areas below to expand for more information:

Facts and figures
Pre arrival procedures

Visitors from outside the EU will need a work permit to work in the UK. Visas may be required depending upon the country of origin.

Tax year

The current UK tax year began on 6 April 2019 and runs to 5 April 2020.

Tax returns and compliance

For the 2019/20 tax year, the tax return filing date is 31 October 2019 for paper returns and 31 January 2020 for on-line filing. There are penalties for late filing of a return. Interest and tax-based surcharges are due on late paid tax.

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

UK tax rates

Income tax rates for England, Northern Ireland and Wales

Rate

2018-19

2019-20

Personal Allowance 0% Up to £11,850 Up to £12,500
Basic rate: 20% £11,851 - £46,350 £12,501 - £50,000
Higher rate: 40% £46,351- £150,000 £50,001- £150,000
Additional rate: 45% Over £150,000 Over £150,000

Income tax rates for Scotland

Rate

2018-19

2019-20

Personal Allowance 0% Up to £11,850 Up to £12,500
Starter rate: 19% £11,851 to £13,850        £12,501 to £14,549
Basic rate: 20% £13,851 to £24,000 £24,945 to £243,430
Intermediate rate: 21% £24,001 to £43,430 £24,001 to £43,430
Higher rate: 40% £43,431 to £150,000 £43,431 to £150,000
Top rate: 46% Over £150,000 Over £150,000

The personal allowance is phased out by £1 for every £2 in excess of £100,000 so it will not be obtained by higher earners. The personal allowance entitlement also does not apply to taxpayers excluding over £2,000 of non-UK income and gains from UK tax under the remittance basis.

Sample income tax calculation

Sample income tax calculation (2019/20)

        Amount (£)
Base salary       110,000
Bonus       24,900
Car allowance       4,000
Medical benefit       1,500
Housing allowance       15,000
Total earnings       155,400
Less: Accommodation     (15,000)
  Subsistence     (3,000)
  Travel     (2,400)
  Total deductions     (20,400)
Total       135,000
Less: Overseas workday relief        
  Days worked o/seas total  
    55 240 (30,938)
Overseas pension contributions       (7,470)
Gross income       96,592
         
  Amount (£) Amount (£)   Amount (£)
Gross income 96,592      
Less: personal allowance (12,500)      
Taxable income 84,092      
    37,500 @ 20% 7,500
    46,592 @ 40% 18,637
    0 @ 45% 0
  Total 84,092    
Net tax liability       26,137

 

Basis of taxation
Charge to tax

Taxation in the UK depends upon your residence and domicile status. Non-residents only pay tax on UK sourced income.

Residents who are not domiciled in the UK, pay tax on either their worldwide income (Arising Basis) or on UK sourced income plus remitted worldwide income (Remittance Basis). Remittance Basis taxpayers who have more than £2,000 of non-UK source income are typically not able to claim the personal allowance. Remittance basis taxpayers may also have to pay a £30,000 a year charge to claim this basis after they have been residents in the UK for at least seven of the previous nine tax years. This charge rises to £60,000 a year for individuals who have been residents in the UK for at least twelve of the previous fourteen tax years.

Complex rules apply with respect to remittances.

Residence

The UK statutory residence test (SRT) was introduced from 6 April 2013, which 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 also 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 test
  • 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 a resident.

Income from employment

All employment related income is taxed in the UK, but 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 but there may be an exemption for incidental workdays and also relief 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 to the tax authorities, by the employer, the deemed employer, or the employee
  • personal allowances are available in some circumstances, but they are not available to high earners (the allowances are phased out by £1 for every £2 in excess of £100,000) or those excluding over £2,000 from UK tax under the Remittance Basis
  • income from employment relating to UK workdays is taxed no matter where or when it is paid, however, in certain circumstances, employment income relating to non-UK workdays may avoid UK taxation.
Source of employment

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

Benefit in kind

Most benefits in kind are taxable but some are exempt and some are subject to scale rates. Car tax and car fuel is taxed based on the emissions 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.

It may be possible to structure the delivery of the benefits in a tax effective way.

Expatriate concessions

The remittance basis enables expatriates who are residents but are domiciled outside of the UK to avoid tax on non-UK workdays.

There are planning opportunities around pensions, accommodations, travel and subsistence expenses as well as the timing of payments.

Overseas workday relief – where an individual receives employment income that is not remitted to the UK, it may be possible to exclude remuneration that relates to overseas workdays from UK taxation. Certain rules must be followed in order to claim this relief. In addition, complex 'Special Mixed Fund' rules have been introduced 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. In order 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.

Relief for foreign taxes

Relief from double taxation is available under domestic law and also by virtue of the many tax treaties that the UK has with other countries.

Deductions from taxable income

Deductions are available for some travel expenses, pension contributions, charitable donations and business expenses.

Other taxes
Capital gains tax

Capital gains tax is separately charged on all residents. For 2019/20, the rate is 10% for basic rate taxpayers (18% on residential property) or 20% for higher rate taxpayers (28% on residential property).

An annual exemption may also be available (£12,000 in 2019/20) but this is not available to those excluding over £2,000 from UK tax under the remittance basis.

There are a number of exemptions and reliefs available, such as the main residence exemption for an individual's principle private residence and entrepreneur’s relief which reduce the tax rate to 10% on up to £10 million of gains in certain circumstances. The rules are complex and specific advice should be sought.

Gains on foreign assets may be taxed on a remittance basis for expatriates where they are domiciled outside of the UK.

Inheritance, estate, and gift taxes

The UK charges inheritance tax on some lifetime gifts and upon inheritance received following a death. The rules are very complex as there is a wide range of exemptions and reliefs.

Expatriates are usually taxed only on assets located in the UK.

Investment income

All investment income is usually taxed at normal income tax rates, but the tax treatment of dividends is complex. A taxpayer may also get up to £5,000 of interest tax-free. This is a taxpayer’s starting rate for savings. The more you earn from other income (for example wages or pension), the less the starting rate for savings will be.

Expatriates on the Remittance Basis will only pay tax on foreign source investment income to the extent the income is remitted to the UK.

There are some tax-exempt savings available in the UK.

Local taxes

Living accommodation, whether owned or rented, is subject to ‘council tax’ in the UK. Each local authority (council) sets their own rates, and each property has a 'council tax band', dependent on the property value. The tax applies to the property, regardless of the income of the occupants. Some discounts may be available, for example if there is a single occupant.

Social security taxes

The rates for social security, also called National Insurance, vary. From 2019/20, employees pay social security at 12% on income between £8,632 and £50,000, and 2% on any excess. Employers pay 13.8% without a cap.

Stock options

Stock option income specifically, and all income derived from securities, is taxed in the UK. The rules are complex based on the nature of the share plan and should be reviewed on a case by case basis.

Wealth tax

There are no wealth taxes other than inheritance tax.

Other specific taxes

Other specific taxes do not apply in the UK.

Employer’s obligation regarding assignments to and from the UK

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, are key elements of a company’s pre-assignment process.

UK payroll

Employers must ensure that they are paying the correct amount of UK income tax when their UK employees UK are going overseas as well as when their overseas employees are going to the UK. The UK income tax is known as ‘Pay As You Earn’ (PAYE). A review of the UK payroll should be undertaken.

It's important to determine whether UK employees sent overseas should remain taxable on the UK payroll based on their UK residence and UK work pattern. Alternatively, it is important to determine whether overseas employees sent to the UK should be included on the UK payroll or should fall under short term business visitors reporting standards as detailed below.

Social security contributions

Employers are required to check whether employee and employer UK social security contributions have to be made 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 or A1. Without this document social contributions for the employee’s home country & the UK could both become payable.

Short-term business visitors

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 have a legal obligation to withhold PAYE deductions from such individuals, even if the visit is just for one day. This heavy administrative burden can be avoided through a STBV agreement, which relaxes PAYE withholding requirements for STBV to the UK if certain conditions relating to double taxation treaties are met.

STBV agreements can help achieve or maintain a low risk rating as the UK tax authorities have indicated that they are likely to target international employers with a UK presence, who do not currently have such agreements in place.

Tax planning opportunities

UK tax can be reduced by planning in these areas:

  • temporary workplace relief
  • overseas workday relief
  • 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

For further information on expatriate tax services in the United Kingdom please contact:

UK Katy Bond.png

Katy Bond
Director
E katy.bond@uk.gt.com

UK Davyd Fisher.png

Davyd Fisher
Director
E davyd.e.fisher@uk.gt.com

UK Gavin Blackman.png

Gavin Blackman
Director
E gavin.r.blackman@uk.gt.com

UK Heather Smallwood.png

Heather Smallwood
Director
E heather.smallwood@uk.gt.com

Verena Heyd
Associate director
E verena.heyd@uk.gt.com

Clinton Knox
Associate director
E clinton.j.knox@uk.gt.com