Everything You Need to Know About UK Non-Resident Tax

HMRC collected tax receipts worth an estimated 827.74 billion British pounds during the 2023/24 financial year.

We often hear people asking, as a non-resident, do I need to file a UK tax return? How do you pay your taxes, and what deadlines do you need to be aware of? This guide will walk you through everything you need to know about paying UK tax as a non-resident.

Definition of Non-Resident for Tax Purposes

As a non-resident, you'll only pay UK tax on your UK-sourced income. For instance, this includes UK rental property income or workdays in the UK. To qualify as a non-resident, there are some tests known as the statutory residence tests. Essentially, it depends on how many days, workdays, and ties you have with the UK. To determine your residency status, use this calculator.

If you rent out UK property, you'll need to register for self-assessment and file a tax return reporting this income. The good news is you can deduct allowable expenses like repairs, insurance, and management fees.

If you're self-employed in the UK, you must pay both income tax and National Insurance on your profits. In the UK, you do not pay tax when selling shares in a company unless it falls under the temporary non-residence rules.

Dividend and interest income are typically treated as disregarded income in the UK, meaning there is usually no tax owed. However, in rare cases, if it is deemed appropriate, you can claim to have it considered and pay UK tax on it. You can claim the tax back on pensions if it was withheld by the UK.

With some planning, you can minimise your UK taxes. But failing to pay what you owe can lead to penalties and interest charges. You can get in touch with Taxd, who will assist you throughout the process.

Who is Considered a Non-Resident for UK Tax Purposes?

You qualify as a non-resident for UK tax purposes when:

• You work full-time (i.e., at least 35 hours per week) and were in the UK for less than 91 days, of which no more than 30 were spent working in the UK.

• You spend less than 16 days in the UK in a tax year (or 46 days if you were not considered a UK resident for the three previous tax years).

Scenario Example: If you work full-time in Germany and visit the UK for 60 days in one tax year - 10 of which were spent working - you would likely qualify as a non-resident.

As an expat, investor, or nomad, the key is ensuring you understand how the SRT applies to your unique situation. However, as a general rule, limiting the number of ties you have to the UK and the time you spend there is the safest approach to qualify as a non-resident.

HMRC Statutory Residence Tests (SRT)

The SRT helps determine whether you're considered a UK resident or non-resident for tax purposes. It takes several factors into account, including the following tests:

Automated Overseas Test:

You will automatically qualify as non-resident if any of these conditions apply:

• You spend no more than 16 days in the UK during the tax year and no more than 46 days in total during the previous three years, regardless of whether those days are working days.

• If you work full-time overseas and spend less than 91 days in the UK, with no more than 30 of those being workdays, you won't be considered a UK resident.

Automatic UK Test:

You will be considered a UK resident if:

• You spend at least 183 days in the UK during the tax year, or
• You live exclusively in the UK for at least 30 days, or
• Your work requires you to spend at least 40 days in the UK during the tax year.

Ties Test:

If neither of the above tests applies, your residency status will depend on your connections (or "ties") to the UK, such as:

• Family ties,
• Availability of accommodation,
• Time spent in the UK during previous years.

This system helps clarify whether you should be taxed as a UK resident or not.

Tip: Maintain a detailed record of your travel dates and activities to support any residency claims that arise.

Tax Requirements for Non-Residents With UK Income

As a non-resident with income from the UK, your tax requirements are:

Tax Return

As a non-resident with income from the UK, you are required to file an annual tax return. The filing deadlines have changed this year due to complexities around residency status. For the 2024/25 tax return, paper returns must be submitted by 31 October, and digital returns by 31 January. You can file these returns using HMRC-recognised software, like Taxd, or hire an accountant (though this option can be expensive).

Paying Tax

Any outstanding tax must be paid in two installments—31 January and 31 July. HMRC will not automatically deduct tax from your UK income, so it's your responsibility to make the payments directly through their website or via bank transfer.

Tip: Set reminders so you won't incur late fee penalties!

Keeping Records

Make sure you keep records of all your UK income and expenses to report on your tax return and calculate your tax bill accurately. Records should be kept for at least seven years.

Using a Tax Advisor / Tax Software

As a non-resident taxpayer, I know that the UK tax rules can be complicated. It is a good idea to use a tax advisor or software like Taxd that is tailored to expat and non-resident taxation. They can help ensure you meet all your UK tax obligations and pay the correct amount of tax.

Tax Rates and Allowances for Non-Resident Landlords

The rates and allowances that apply to you depend on whether you’re a UK citizen living abroad or a foreign national.

UK Citizens Living Abroad

If you’re a UK citizen living abroad, you’ll pay UK income tax on your UK rental profits at the same rates as residents. The current basic rate is 20% on profits between £12,571 to £50,270, the higher rate is 40% on profits between £50,271 to £125,140, and the additional rate is 45% on profits over £125,140. As a UK citizen/national, you’re also entitled to the same personal allowance, currently £12,570, which is tax-free.

Example Scenario: A British citizen living in Spain rents out a property in London, earning £30,000 annually. They would pay 20% of their profits after deducting allowable expenses.

Foreign Nationals

As a foreign national, you won’t qualify for the UK personal allowance unless:

• You are an EEA state national.
• The country in which you are a resident/national allows for a personal allowance in the UK.
• You live in the Channel Islands or the Isle of Man.
• You have worked for the Crown, either as a civil servant, diplomat, or member of the UK military forces, or you presently do.
• You're part of a missionary organisation.
• You were a resident of the UK before relocating overseas for medical reasons.

UK Non-Resident Tax Rules

As a non-resident, there are a few key rules you need to know about paying tax in the UK.

Residency status

If you spend too much time in the UK, you risk becoming a resident and paying taxes on your worldwide income.

Withholding tax

For some UK income like rent, tax is deducted at the basic rate of 20% before you receive the funds. This is known as withholding tax. You can then claim back any overpayment or pay any underpayment when filing your tax return.

Double taxation treaties

The UK has treaties with many countries to avoid double taxation. Check if a treaty exists between the UK and your country of residence. It may exempt certain types of income from UK tax or provide tax credits for taxes paid in your country of residence.

Reporting non-resident income and capital gains tax

You must report your income and capital gains each tax year (6 April to 5 April) by completing the appropriate self-assessment tax returns. The main forms are the SA100 for income tax and SA108 for capital gains tax.

HMRC receives information from banks, letting agents, and tenants about non-resident landlords’ UK rental income and property sales, so make sure you declare everything. The UK does have ‘anti-avoidance’ rules to prevent people artificially diverting UK-source income abroad to avoid tax.

Reporting Non-Resident Income and Capital Gains Tax (CGT)

Each tax year (from 6 April to 5 April), non-resident individuals must file self-assessment tax returns, using the SA100 for income tax and SA108 for capital gains tax.

Tip: If you sell property or shares, it could trigger Capital Gains Tax (CGT), even if you're a non-resident. HMRC receives information from banks and letting agents about non-resident landlord income, so it's important to report everything accurately to avoid issues.

Capital Gains Tax (CGT) Implications

As a non-resident, you may owe CGT when selling certain UK-based assets, including:

• Real estate properties
• Shares in companies that derive more than 75% of their value from UK real estate

If your gains exceed £12,300 (the annual exempt amount), you must report them to HMRC.

Example Scenario

Let’s say you sell a buy-to-let property that you purchased while being non-resident and haven’t filed CGT payments for yet. If the property sells for £300,000 and you owe CGT on the gain of £87,700 (after deducting costs like legal fees and any reliefs), you'll need to report and pay the CGT due on that amount to HMRC.

Claiming Non-Resident Tax Relief and Repayments

Tax relief can reduce your UK tax bill and may even entitle you to tax repayments. You can use a tax calculator to figure out how much tax you owe based on the time you spent in the UK. Foreign Tax Credit, which can be claimed to avoid being double-taxed on the same income. However, the exact amount you can claim depends on how much tax is paid in the other country you reside in.

To claim non-resident tax relief or apply for tax repayments, you’ll need to provide details about your income, the dates you entered and left the UK, and the country you now reside in. If you meet all the conditions, claiming non-resident tax relief and any tax repayments you’re owed can help reduce your UK tax liability.

Conclusion

So there you have it, a quick guide to paying UK non-resident tax. While the rules can seem complicated, the key is keeping good records of your income and expenses to make sure you’re paying what you owe but not a penny more. If you do find yourself confused by the UK tax, get in touch with Taxd to help you navigate the system. We can save you time, money, and headaches in the long run.

The most important thing to remember is that even if you don’t live in the UK full-time, you still need to pay your fair share to keep services up and running when you visit. Pay your taxes, stay out of trouble, and enjoy your time in the UK!

Frequently Asked Questions

1. What does "UK non-resident tax" refer to?

UK non-resident tax is the tax imposed on individuals who are not considered residents of the United Kingdom for tax purposes. It applies to their UK-sourced income and gains.

2. What is the non-resident personal allowance in the UK?

The UK has a tax-free allowance of £12,570, which is available for non-residents, too. Provided they are a British/EEA National, or the allowance is provided as part of the Double Tax Agreement between the UK and the country they reside in.

3. What's the process for filing an online UK tax return as a non-resident?

To file your UK tax return online, you need to register for the UK tax self-assessment. HMRC will provide you with a UTR (Unique Taxpayer Reference), complete the online questionnaire, and report your relevant income.

4. What types of income are typically non-taxable in the UK for non-residents?

Non-taxable income UK for non-residents includes income like dividends and interest, which are treated as disregarded. Also, any non-UK sourced income, e.g., working overseas, will not be taxable in the UK.

5. Can you highlight some of the essential UK non-resident tax rules?

Key UK non-resident tax rules include understanding the tax of capital gains and inheritance, reporting worldwide income, and the implications of various tax treaties with other countries.