Expatriate Tax

Expatriate tax can be a minefield. There are many different factors that affect whether or not the British taxman can demand payment from expatriates, from residency status to property ownership. The ‘rules’ are confusing, but understanding them can save an expatriate a lot of money.

The main decider for expatriate tax is residency status. To enjoy tax advantages an expatriate must be seen as a ‘non-resident’ of the UK. For this to happen, you must work abroad for more than one complete tax year, which runs from the 6th April until the next 5th April, and then not be in the UK for more than 91 days in a 365 days period. As long as you average 35 hours per week, either employed or self-employed, then you are considered to work overseas. But residency isn’t always so black and white…

Some unlucky expatriates find themselves hit twice by tax since it is possible to be seen as a resident of two different countries. The UK has a double taxation agreement with a list of different countries from Argentina to Zimbabwe to lessen to amount of tax paid by the expat to both countries.

However, even if an expat is considered a ‘non-resident’ of the UK, they can still be faced with taxation on property. Before leaving the UK an expat has to make a decision; do they sell their property, leave it empty or let it out? Letting out property leaves any expat open to the taxman since it is UK-sourced income, although the use of an agency can deduct income tax straight from the rental and pass it to the taxman. Leaving a property empty can, therefore, be beneficial as long as this doesn’t infringe on any home insurance agreement.

Being a ‘non-resident’ doesn’t mean that an expat is free of all British tax. If an expat’s father is British then the UK is considered their ‘domicile of origin’. From the age of 16, an expat can appeal to change this with the Revenue, but this is very hard to do. In order to change the domicile of origin an expat has to prove they have severed all ties with the country and will not return. With the UK listed as domicile, this leaves an expat open to inheritance tax. British expats also need to be aware of national insurance – large unpaid gaps can remove eligibility for full UK state pension, although it is possible to ‘buy’ back any missing years.

Despite the taxman’s rather unfavorable reputation, there are exceptions to expatriate tax. Should an expat have to return to the UK for ‘compassionate reasons’, such as the death or grave illness of a loved-one, UK Inland Revenue will be sympathetic. Similarly, civil servants, members of the armed forces, Merchant Navy employees, EU employees and gas and oil exploration workers all face exceptions due to the nature of their employment.

The most important thing as an expat is to make sure that all finances are in order well before the assignment begins, otherwise there could be some nasty financial surprises and big losses.

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