Tax information: going to the UK

Before/once you arrive

Q. Do I need a work permit to work in the UK?

A. UK Immigration Rules require a person who is to take employment for which a work permit is needed to have a permit before entering the country.
 
The following people do not need work permits:

• European Economic Area (EEA) nationals
• Commonwealth citizens who were allowed to enter or to remain in the UK on the basis that a grandparent was born here.
• Those who do not have any conditions attached to their stay in the UK.
• Husbands, wives and dependent children under 18 of people who hold work permits, or who qualify under any of the above categories as long as the endorsement in their passport places no restriction on their employment here.

Q.  Should I complete any Inland Revenue forms upon arrival in the UK?

A.  You should complete a form P86 (“Arrival in the United Kingdom”). The form contains questions about residence and domicile
 
Your spouse and children do not need to register unless they are working in the UK.
 
When you leave the UK you should submit a form P85 (“Leaving the United Kingdom”) or P85 (S) (“Leaving the United Kingdom at the end of my assignment”).  Your employer should issue you with form P45 showing details of your pay and tax to date of departure.  This should be submitted with form P85 or P85 (S).

Q. Should I open an offshore bank account or is it OK to have an account on the UK mainland?

A. In order to claim overseas workday relief the income relating to any non-UK workdays must be paid into a non-UK bank account and not brought into the UK, and therefore an offshore bank account is critical.
 
A non-UK domiciled individual is also not liable to UK tax in respect of non-UK savings income to the extent that it is not remitted into the UK and therefore any interest paid in respect of an offshore account will not be taxable in the UK unless a remittance takes place.

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Tax – Basics

Q.  What is the tax year?

A.  The tax year runs from 6 April to 5 April.   

Q. How will I be taxed in the UK?

A. If you are resident in the UK you are likely to be taxed on your worldwide employment income.  The taxation of your investment income is determined primarily by your UK domicile status (please see below for a definition of “Domicile”). If you are resident but not domiciled in the UK then, you are likely to be taxed on your UK source investment income and capital gains only. Any investment income or capital gains arising from outside the UK are likely to be taxed only to the extent that they are remitted into the UK.

If you are regarded as not resident in the UK you will be taxed only on your UK source employment and investment income.

Q. How is tax residence determined?

A. Whether you are resident in the UK is a question of fact and will be decided under the following rules.
 
If you come to the UK and intend to remain here for less than two years (and you occupy accommodation that does not imply a longer stay) you will be resident for the tax year concerned if you spend 183 days or more in the UK during that tax year. You will be not resident in the UK if you spend less than a total of 183 days in the UK. Days of arrival and departure are normally ignored. You will be considered resident if you have spent 91 days or more on average over the previous four UK tax years and visit the UK in the tax year concerned. You would be considered to be resident from the beginning if on average you intended to spend more than 91 days per tax year in the UK over four years.
 
If you come to the UK to take up residence for a period that is expected to be two years or more, you will be regarded as becoming resident from the date you arrive.
 
Ordinary residence status is based on intention over the length of stay and the type of accommodation you occupy. If you come to the UK and plan to stay here for three years or more, you will be treated as resident and ordinarily resident in the UK from the date you arrive. This will also be the case if you occupy accommodation which implies you will be resident here for three years or more, for example if you buy a property in the UK, or rent a property on a lease of three years or more.
 
You are treated as resident and not ordinarily resident from the date you arrive if your home has been outside the UK and you intend to come to the UK and remain here for at least two years but less than three years.

Q. What does ‘Domicile' mean?

A. A key factor in deciding how your investment income will be taxed in the UK is domicile. Individuals who are resident and domiciled in the UK are generally taxed on their worldwide investment income and capital gains. If you are domiciled outside the UK you will be taxable on your UK source investment income and capital gains but, generally speaking, you will only be taxable on non-UK sources of investment income and capital gains to the extent that the income or capital gains are “remitted” into the UK.
 
Domicile is decided by reference to UK law and is essentially where a person has their long-term permanent home. It is distinct from nationality, citizenship and residence.
 
A domicile of origin is acquired at birth, which will normally be your father’s domicile at the time of your birth. Any changes to the domicile of the parent, whilst the children are still dependent on him, will mean a change in the domicile of the dependant child. Otherwise, the children retain their domicile of origin. It is possible to acquire a domicile of choice. To do so, it is necessary to break your links with your former domicile, reside in a new jurisdiction and intend to make your permanent home in that territory. In practice, it is difficult to acquire a domicile of choice to replace a domicile of origin. The burden of proof lies with the individual to support any contention that their domicile has changed.
 
Most foreign nationals coming to the UK for a short period will be considered to be non-UK domiciled. The UK government have indicated in the last few years that they will be reviewing UK residence and domicile although no conclusions have been published as yet.

Q. Are there any regional or state taxes?

A. No

Q. Can I file a joint tax return with my spouse?

A. No. The UK assesses each individual's tax liability separately.

Q.  What rate of tax will I pay in the UK?

A.  For 2007/2008 the tax rates are as follows:

Personal Allowance £5,225 (i.e. the first £5,225 of income is not subject to tax)

Q. Can I claim a tax deduction for charitable contributions?

A.  You can claim a tax deduction through the Gift Aid scheme for contributions to charities established in the UK if you are a UK taxpayer. Alternatively you may give to charity through the Payroll Giving scheme. You will not be allowed to claim a UK tax deduction for contributions made to a charity registered only in your home country.

Q. Are any other tax deductions available?

A. UK residents, and certain non-residents are eligible to claim tax allowances in the UK, but other deductions are very limited.

Q. I will also be paying tax in my home country. Am I being taxed twice?

A. If you are from a country with which the UK has a double taxation agreement, you may be able to claim exemption or partial relief from UK tax on certain types of income from UK sources. The precise conditions of exemption or relief can be found in the relevant agreement.

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Tax – Administration

Q.      Do I need to file an UK tax return?

A.  If all your UK taxable income is subject to UK withholding tax and you are not a higher rate (40%) taxpayer you may not have to file a tax return. Nevertheless, if the Inland Revenue issue you with a tax return you are obliged to complete and file the tax return.  Most higher rate taxpayers will have to file a tax return.  If the Revenue does not send you a tax return and you need to file a return you must notify the Revenue that you should be issued with a return by 6 October following the end of the relevant tax year.

Q.    When does it need to be filed?

A.  A UK return must be filed by 30 September following the end of the tax year if you ask the Inland Revenue to calculate your taxes, or 31 January following the end of the tax year if you calculate the tax liability.

Q. Can the filing deadline be extended?

A. There are no extensions to file your return or pay any outstanding liability. Penalties and interest are payable in respect of late filed returns and unpaid tax.

Q. What is the procedure for paying tax?

A. All employees working in the UK for a period in excess of 30 days performing UK taxable duties are subject to income tax withholding (PAYE) through their employer’s payroll from the date their employment in the UK begins. If you have taxable income which is not subject to withholding (e.g. savings income) or which is subject to insufficient withholding, payments on account may be payable. Payments on account are calculated based on the balance of liability shown on the prior year’s tax return ignoring payments on account in the prior year. The first payment on account is due on 31 January during the tax year and the second is due on 31 July after the end of the tax year. These payments must be made to the Collector of Taxes responsible for your tax affairs.
 
Any balance of tax that is due on your tax return must be settled by the return-filing deadline, except where the balance is being taken into account through the wages withholding tax system (known as PAYE). Where the return is filed before 30 September following the tax year end and the balance of tax is less than £2,000 it can be collected through the withholding system.

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Tax – Income from employment

Q. Will non-cash compensation be taxable (e.g. housing)?

A. If you are resident in the UK all earnings from employment will be taxable in the UK. This includes all salary, bonuses and benefits (e.g. housing, car, medical) provided by your employer. Your employer will provide you with a year-end summary of your taxable salary on Form P60, and a year-end summary of your taxable benefits on Form P11D.
 
You may take certain deductions in respect of Qualified Travel Expenses (QTE) such as rent, utilities, council tax and reasonable subsistence amounts. To qualify for this relief you must be in the UK working temporarily away from your permanent workplace for a period expected to be 24 months or less.  The relief will cease immediately if circumstances change and you are no longer away from your permanent workplace or you intend to remain in the UK for longer than 24 months. If you are working in the UK under a local contract of employment, rather than a temporary secondment from an overseas employer, it may be difficult to argue that the UK is a temporary workplace and you would need to fully substantiate any claim.

Q.  I will be working in different countries while living in the UK. Will all of my employment income be taxable in the UK?

A.  If you are regarded as resident but not ordinarily resident in the UK, you may be eligible to claim UK tax relief in respect of non-UK workdays. To satisfy the conditions for overseas workday relief the remuneration attributable to duties performed outside the UK must be paid and kept outside the UK.  Relief ceases (with effect from the preceding April 6) in any UK tax year during which you form the intention to remain in the UK for 3 years or beyond or occupy accommodation implying that you will stay here for 3 years or more.
 
Form P86 should reflect your true intention upon arrival in the UK and this, together with other circumstances, is appropriate to claiming any relief you may make on your tax return at the end of the tax year.
 
You should seek advice with regard to the foreign tax implications of working in the other countries.

Q.  I was granted stock options prior to arriving in the UK and will be granted further options during my stay here. Will I be taxable in the UK on this income?

A.   The UK stock option legislation has been re-written and HMRC’s interpretation of pre-UK resident grants has also been re-stated. You should seek professional advice with regard to your specific situation.

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Tax – Other income

Q. Will I pay UK tax on investments and rental income generated in my home country?

A. If you are resident in the UK, you will normally pay UK tax on all your investment income (e.g. interest, dividends, rental income), wherever it arises. The remittance basis will apply to overseas investment income (other than investment income arising in the Republic of Ireland) if you are: 

• resident but not domiciled in the UK, or
• resident but not ordinarily resident in the UK, and either a Commonwealth citizen (this includes a British citizen) or a citizen of the Republic of Ireland.

Where the remittance basis applies, you are liable to UK tax on the amount of your overseas investment income that is remitted to the UK. Income is remitted if it is paid here or transmitted or brought to the UK in any way. Careful structuring of overseas bank accounts is required for non-UK domiciled individuals and you should therefore contact a tax advisor to discuss this.

Q. Is there a Capital Gains Tax regime in the UK?

A. Yes. Capital gains tax (CGT) is a tax on profits arising from the sale of certain assets. Shareholdings, property, businesses, and works of art are all examples of assets that can result in a capital gain. Some assets are exempt from CGT. These include gains on:

• selling your only or main residence
• life assurance policies
• UK government securities
• certain corporate bonds
• private motor cars
• gifts of assets to charity

Losses from the sale of assets can be offset against capital profits for the same year or in later years. They cannot normally be set against income subject to income tax.

There is an annual exemption for capital gains tax (currently £9,200 for the 2007/08 UK tax year). The net capital gain, after deducting eligible capital losses and the annual exemption, is treated as income and taxed at your top rate of income tax.

If you are resident or ordinarily resident, you will be taxed on gains arising from the disposal of UK assets.

Gains arising on the sale of foreign assets by an UK resident who is domiciled outside the UK are taxable only to the extent that the proceeds are remitted to the UK. If only part of the proceeds is remitted to the UK, the gain is pro-rated.

The gain is calculated in sterling using the exchange rate at acquisition and disposal. Losses arising on foreign assets owned by non-UK domiciled individuals are not allowed against other gains.

Q. What do I need to know about any other tax regime, e.g. Inheritance, Estate or Wealth tax?

A. Generally, if you are domiciled, or deemed to be domiciled, in the UK, inheritance tax applies to your assets wherever they are situated. You are deemed to be domiciled for inheritance tax purposes if you have been resident in the UK for at least 17 of the last 20 years (please note that if you are resident for any part of one UK fiscal year this is counted as a full year in determining when you meet the 17-year test).

If you domiciled abroad, inheritance tax applies only to your asserts in the UK.

There is no wealth tax regime in the UK.

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Social security

Q. Am I required to pay UK Social Security?

A. If you arrive here from abroad and take up employment with a UK employer, or take up self-employment, you will generally be required to pay UK National Insurance Contributions. There are some exceptions as follows:

• If an employer in another European Economic Area country has sent you to work in the UK for up to 12 months, you may be able to continue paying foreign social security contributions. Form E101 must first be completed and submitted to the social security authorities in your home country.
• If you have been sent to work temporarily in the UK by an employer in a country with which the UK has a bilateral Social Security Agreement covering National Insurance Contributions, you may be able to continue paying foreign social security contributions.
• If you have been sent to work temporarily in the UK by an employer in a country which is outside the EEA and not covered by a bilateral Social Security Agreement, the general rule is that you do not have to pay UK NICs for the first 52 weeks of your employment in the UK.

Q. How do I register with the UK Social Security authorities?

A. Whether or not you are liable to pay UK NICs you should obtain a UK National Insurance Number from the Department of Social Security (DSS). You must take the following items to the your local Job CentrePlus:

• Contract of employment outlining your personal details, job description, contact details, assignment commencement date, likely end of assignment.
• Your passport and UK work permit
• Any other evidence of ID which bears your photograph such as driver's license
• Utility bill which bears your UK address details
• Any other documents you may have which can be used as proof of ID.

It is better to take original copies (and a photo copy) of documents to avoid the Agency asking for further items.

Q. Are social security contributions deductible for tax purposes?

A. Social Security contributions are not allowed as a deduction for tax purposes.

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Offshore Bank Account

Country Guide: moving to the UK

Guide to moving abroad

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