Tax information: Leaving the UK
Welcome to your tax guide on leaving the UK, produced by Deloitte. Looking for tax information about going to the UK, Click here
This document has been prepared based on the legislation and practices of the country concerned as at 01 April 2009. Tax legislation and administrative practices may change, and this document is a summary of potential issues to consider. This document should not be used as a substitute for professional tax and immigration advice which should be sought for the country of arrival and departure in advance of moving in order to discuss your specific circumstances.
This information is provided by Deloitte in accordance with their terms and conditions. Neither HSBC nor Deloitte accepts any responsibility for the accuracy of any of this information. By using this information you are accepting the terms under which Deloitte is making the content available to you - click below to view these terms and conditions. It is strongly recommended that you read the terms and conditions by clicking below before continuing.
Terms and conditions
Please note that in the budget announced by the chancellor on 22 April 2009, there are substantial changes proposed (but not finalised) on the taxation of high earners (above £100,000 per annum) and the amount of tax relief on contributions into a pension plan.
The proposed changes announced in the 2009 budget on 22 April 2009 are not reflected in the content below as they are not finalised in law. Therefore you should seek professional tax advice if you have any questions on this area.
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Before/once you depart Q. Should I complete any HMRC forms prior to leaving the UK?
A. You should submit a form P85 (“Leaving the United Kingdom”) or P85(S) (“Leaving the United Kingdom at the end of my assignment”) to the tax office handling your tax affairs. 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. Is it beneficial to open an offshore bank account when leaving the UK?
A. If you are not resident in the UK you will be liable to UK tax only in respect of investment income arising in the UK. Therefore interest income from an offshore bank account will not be liable to UK tax.
Q. Will I be regarded as not resident in the UK during my period overseas?
A. Whether you are resident in the UK is a question of facts and circumstances and will normally be decided under the following non statutory guidelines issued by HMRC. Please note that the guidance is HMRC’s interpretation of legislation and case law and is not binding in itself. Residence is not defined in legislation and is an area of tax that is ever evolving with ongoing case law. You are strongly advised to seek professional advice on arrival or departure.
If you are leaving the UK to work abroad full-time, you may become not resident and not ordinarily resident from the day after the day of your departure, as long as:
- you are leaving to work abroad under a contract of employment for at least a whole tax year
- you have actually physically left the UK to begin your employment abroad and not, for example, to have a holiday until you begin your employment
- you will be absent from the UK for at least a whole tax year
- your visits to the UK after you have left to begin your overseas employment will
- total less than 183 days in any tax year, and
- average less than 91 days a tax year. This average is taken over the period of absence up to a maximum of four
Any days you spend in the UK because of exceptional circumstances beyond your control, for example an illness which prevents you from travelling, are not normally counted for this purpose.
The above only covers employees leaving the UK.
If you are leaving the UK for purposes other than work, to claim non residence status you will need to leave the UK either indefinitely (at least three tax years) or permanently. This does not mean that you will automatically you become non-resident and/or not ordinarily resident, after you leave the UK. Your UK residence and ordinary residence position will be affected by a number of factors which include:
- the reason you have left the UK (for example to work or live abroad permanently)
- what visits you make to the UK after you have left
- what connections you keep in the UK such as family, property, business and social connections.
If you claim that you are no longer resident and ordinarily resident in the UK, HMRC might ask you to give evidence to show that you have left the UK permanently or indefinitely. For example, we would expect you to show that when you left the UK you had acquired accommodation abroad to live in as a permanent home, taken personal possessions with you and redirected mail.
Q. Can I continue to contribute to my employer's pension scheme?
A. You and your employer may continue to make contributions after you leave the UK and you may make Additional Voluntary Contributions as well. You may not, however, make Free Standing Additional Voluntary Contributions (FSAVC) during a period of non residence.
However, you should take professional advice regarding the foreign tax position for employer contributions as this may be taxable.
Tax Tip: When leaving the UK part way in a tax year and becoming non resident you are able to make contributions after leaving and attract a deduction against taxable earnings relating to the UK resident period. If you plan to make substantial pension contributions and have the available cash, you may be able to pre-fund for all or part of your overseas assignment period and obtain a UK tax deduction before you go. You should obtain professional advice if you think this will apply.
If your contributions for the tax year exceed the annual limits (£235,000 in 2008-09), there will be a 40% annual allowance charge on the excess. There is also a lifetime allowance limit of £1.65 million (2008-09) on the value of your fund at the time of drawing benefits from the pension on which a 25% recovery charge applies to the excess.
Pensions are a complicated area of taxation and the above is very brief and basic guidance so it is recommended that you take professional advice in advance of leaving the UK.
Q. Can I continue to contribute to my personal pension plan?
A. If you are a member of a personal pension scheme and you move overseas you may still pay an amount of your choice but UK tax relief will only be available on the higher of the earnings threshold (£3,600) and your chargeable earnings. Basic 20% tax relief at source is therefore available on net contributions of £2,880, if you have no taxable earnings.
If you have no taxable earnings, relief at source is only available in a particular tax year if you are, or have been, resident and ordinarily resident in the UK at some time in that year, or at some time during the previous five tax years.
Q. Will I still need to complete a UK tax return after my departure?
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 HMRC issue you with a tax return you are obliged to complete and file the tax return. Higher rate taxpayers should file a tax return to ensure correct taxation of non employment income. If HMRC 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.
You will be obliged to file a tax return if you had an application approved under the Non Residents Landlord scheme for a UK property rental business.
Q. Will I have to pay tax in respect of the employment income I will earn overseas?
A. If you remain resident and ordinarily resident in the UK you will be liable to UK tax in respect of worldwide income, including employment income from overseas.
If you are not resident in the UK you will be liable to UK tax only on income arising in the UK (e.g. UK pensions, rental income from UK properties, interest income from UK banks and building societies, dividend income from UK companies or those with UK HQ).
You will not be subject to UK tax in respect of work duties carried out in the UK assuming that these are incidental to your overseas duties (e.g. reporting to the UK Company, training).
Whether or not duties performed in the UK are incidental to an overseas employment will always depend on the circumstances of each particular case. Any decision has to be based on the work carried out in the UK – not the amount of time spent on it. But if you spend more than 91 days working in the UK in a tax year the work will not be incidental as it is reasonable to say that someone who spends such an extended period working in the UK is actually working here rather than undertaking duties which are incidental to an overseas employment.
If the work you perform in the UK is the same or is of similar importance to the work that you do abroad, it will not be incidental. You will have to show that there is a purpose to the work you did in the UK which enabled you to do your normal work abroad and which you could only do in the UK. Examples of work carried out in the UK as part of an overseas employment.
Incidental work
- time spent in the UK by an overseas representative of a UK company to make reports or receive fresh instructions
- time spent training in the UK by an overseas employee which does not exceed 91 days in the tax year and provided no productive work is carried out in the UK by the trainee during that time
Non incidental work
- time spent in the UK as part of the duties of a member of the crew of a ship or aircraft
- attendance at director's meetings in the UK by a director of the company who normally works abroad.
Q. I was granted stock options during my stay in the UK. Will the income from exercise be taxable in the UK?
A. The UK stock option legislation is complex and you should seek professional advice with regard to your specific situation.
Q. Will I have to pay tax in respect of UK investment income earned while overseas?
A. You will be liable to tax in respect of investment income arising in the UK (e.g. income from a UK property, UK bank or building society, dividends from UK corporations).
Taxable rental income is calculated by deducting from gross rental receipts any qualifying business expenses, so long as they are incurred wholly and exclusively for the rental business and are not capital in nature (e.g. mortgage interest, management fees, repairs, insurance, rates, 'wear & tear' allowance equal to 10% of gross rent where the property is furnished).
If a property is held jointly with your spouse the income and expenses must be split equally between you and your spouse, and reported on each of your UK tax returns.
Letting agents (or tenants where there is no letting agent, and the rent payable is more than £100 a week) of any non-resident landlord (for this purpose a non resident Landlord is one who is living outside the UK for more than 6 months) must deduct basic rate tax of 20% from the landlord's UK rental income, and pay the tax to HMRC. Non-resident landlords can apply to HMRC for approval to receive their rental income with no tax deducted. (Note: This does not mean that the rent is exempt from UK tax.) In return the HMRC will usually ask the landlord to complete a P85 and a Self Assessment Tax Return to calculate whether he or she has any liability to UK tax. This application is made by completing form NRL1, "Non-resident landlords - Individuals".
Q. Will I be liable to Capital Gains Tax after becoming non resident?
If you sell or gift assets such as shares or property, you may become liable to capital gains tax (CGT) on the actual or deemed gain.
You are liable to CGT on gains made at any time in a tax year during which you are resident or ordinarily resident. Therefore, you are liable even on gains made while you are non-resident, if they are realised in the tax year of departure or return.
By concession, gains in the non-resident part of the departure year are not charged unless you were resident at any time in any four of the seven tax years preceding the departure year. Similarly, gains realised in the non-resident part of the year of return are by concession not charged if you were non-resident for at least five complete tax years.
Gains may also be charged if realised in a complete year of non-residence. This applies where:
- you dispose of an asset you owned before you left the UK (including foreign assets);
- you were resident at any time in four or more of the seven tax years preceding the tax year you left the UK; and
- you are non-resident for fewer than five complete tax years. In these circumstances, the gain is treated as accruing in the tax year you return to the UK.
Capital gains are taxed at 18%.
You may acquire assets after leaving the UK for a period of temporary residence abroad and if such assets are disposed of in an intervening year any gains or losses on such assets are excluded from the charge upon your return to the UK.
You should seek professional advice prior to leaving the UK if you plan to sell any assets following departure
Q. I plan to sell my UK property while overseas. Are there any capital gains tax implications?
A. If you sell your home in the tax year you become non-resident, any capital gain may come within the scope of UK tax, even if the sale takes place after you have become non-resident. However, if you have – or are deemed to have – occupied the property as your main residence to within three years of the date of sale, the gain is fully exempt.
You are entitled to full relief to the extent that your house was used as your only or main residence during the whole period of ownership. The final 36 months of your period of ownership always qualify for relief if the house has ever been your only or main residence, and some other periods when you were not using the house as your only or main residence will also still qualify for relief. You should therefore contact a tax advisor if you are uncertain about whether you will qualify for full relief due to periods of absence from the property.
Q. Can I continue to contribute to my Individual Savings Accounts (ISA) while I am not resident in the UK?
A. You must be resident and ordinarily resident in the UK for tax purposes in order to contribute to an ISA. If you start an ISA in the UK and then go abroad, you cannot continue contributing to the ISA during your period of non residence. You can however make the full annual allowable contribution prior to leaving the UK. You can also keep your ISAs during your absence from the UK and you will still get tax relief on investments held in the ISAs. When you return you can start contributing again (subject to the normal annual limits).
Q. What about my Personal Equity Plans (PEPs) and Tax Exempt Special Savings Accounts (TESSAs)?
A. PEPs and TESSAs opened prior to 6 April 1999 will retain their tax efficient status during a period of non residence, and so the income and gains will continue to be exempt from UK tax.
Q. What Social Security contributions will I pay when abroad? Will my contributions record with the Department of Work and Pensions (DWP) be affected by my absence from the UK?
A. Your requirement to pay UK or foreign social security contributions during your absence from the UK will depend upon how long you are leaving the UK for, what country you are going to and whether you will be employed by a UK or foreign employer. Your eligibility to qualify to claim UK benefits in the future will also depend upon these factors.
If you remain employed by a UK company, and will be working in the EEA or in a country with which the UK has a Social security treaty, you and your employer may make an application to stay within the UK social security system whilst you are working abroad.
If you do not make such an application and are going to work in a country within the European Economic Area or to a country with which the UK has a Social Security treaty it is likely that any contributions made in the foreign location will be used for the purposes of determining your total contributions period at retirement.
If you will continue to be employed by a UK employer whilst working overseas and are going to a country which is not in the EEA or has no social security treaty then Class 1 NIC will be applicable for the first 52 weeks of the overseas assignment.
You may also decide to make Class 2 or 3 voluntary contributions in order to maintain a full UK contributions record for state pension purposes. You should however note that these do not provide the same benefits as Class 1 contributions and therefore you should check with HMRC (http://www.hmrc.gov.uk/cnr/osc.htm ) and the UK Department of Work and Pensions before determining your course of action.
