Tax Considerations When You Move to the UK
Relocating to the UK brings with it an array of logistical, cultural, and financial adjustments, among which understanding the local tax system is paramount. The UK tax system can be intricate, with various rules applying to residents and non-residents. If you're considering a move, it's crucial to get acquainted with these rules to ensure compliance and optimise your tax position. This article explores some key tax considerations for individuals moving to the UK, including residency status, income tax, National Insurance contributions, and other relevant taxes.
1. Determining Tax Residency
The first step in understanding your tax obligations in the UK is determining your tax residency status, which significantly affects how much tax you will pay. The UK employs a Statutory Residence Test (SRT) to determine tax residency. This test considers the number of days you spend in the UK and certain ties you have with the country, such as a family, accommodation, work, and how much time you spend in the country in a given tax year, which runs from 6th April to 5th April in the following year. Generally, if you spend 183 or more days in the UK in a tax year, you will be considered a UK resident for tax purposes. If you spend less than 183 days in the UK during a tax year, determining your tax residency status is more complicated and will depend on the aforementioned factors.
In addition, under the SRT, if you are considered a UK tax resident, there are additional tests that can apply in a year where you move to (or leave) the UK which split the tax year in to a resident part and a non-resident part.
2. Income Tax
Once you're considered a resident, your worldwide income will be subject to UK income tax. This includes earnings from employment, profits from self-employment, rental income, and other sources. The UK has a progressive tax system, with rates ranging from 0% on the first portion of your income, which falls within the personal allowance, up to 45% for income above a certain threshold. It's important to note that the personal allowance decreases for high earners. Non-residents, on the other hand, are only taxed on their UK-sourced income.
3. National Insurance Contributions (NICs)
In addition to income tax, individuals working in the UK are required to pay National Insurance contributions, which fund state benefits such as the state pension, unemployment benefits, and the National Health Service (NHS). Employees, employers and the self-employed must make these contributions, which are calculated as a percentage of earnings above a certain threshold.
4. Capital Gains Tax (CGT)
If you dispose of assets, such as property or shares, you may be liable for Capital Gains Tax on the profit you make. There are annual tax-free allowances and different rates of CGT depending on your overall income and the type of asset. Non-residents are generally only subject to CGT on the disposal of UK property or land.
5. Inheritance Tax (IHT)
The UK imposes an Inheritance Tax on the estate of someone who has died, with the tax rate depending on the value of the estate and the beneficiaries. There are various exemptions and reliefs available, particularly between spouses and civil partners.
The scope of IHT depends on your domicile status (domicile is different to residency), with UK-domiciled individuals being subject to IHT on their worldwide estate, and non-UK domiciled individuals generally only being subject to IHT on their UK assets, but there are a number of intricacies in this area.
6. Other Considerations
Double Taxation Agreements (DTAs): The UK has DTAs with many countries, which can prevent you from being taxed twice on the same income.
Remittance Basis for Non-Domiciled Residents: Non-domiciled UK residents have a unique tax consideration, being the option to be taxed on the remittance basis. This means that instead of being taxed on their worldwide income, they're only taxed on their UK income and any foreign income or gains brought into the UK. This option can be particularly beneficial for those who have significant income or gains outside the UK. However, this requires careful planning as individuals sacrifice certain allowances when they claim the remittance basis and after a certain period of residency, claiming the remittance basis incurs a charge. In addition, where the remittance basis is claimed, careful bank account and fund structuring is required to ensure overseas income & gains are not remitted to the UK at some point in the future, which would then bring the remitted income/gains into the scope of UK tax.
Please note, however, that in the recent Spring Budget, the UK government announced a proposed change to these rules which may come into effect from April 2025. We will be writing a separate article covering the proposed changes.
Owning and/or running your own business: If you have your own business and move to the UK, your personal tax position can potentially have an impact on your business’s tax position, whether you operate the business as a sole-trader, a partnership or as a company.
Conclusion
Navigating the UK tax system can be complex, particularly for newcomers. Understanding your tax residency status and the various types of taxes you may be subject to is crucial. Given the complexities and potential for tax planning, it may be beneficial to consult with a tax professional who can provide advice tailored to your specific circumstances. Proper planning and advice can help mitigate tax liabilities and ensure compliance with UK tax laws, making your transition to the UK smoother and more tax efficient.
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Please note that the above is for general information only and does not constitute financial or tax advice. You should not rely on this information to make or refrain from making any decisions. You should always obtain independent professional advice in respect of your own situation.