Leaving the UK to work overseas: Income tax and social security

This insight provides a general overview of the UK income tax and social security implications for an individual leaving the UK to work overseas. Several areas must be assessed prior to your departure, and the below provides some of the common areas of consideration that Price Bailey assists with.

UK tax residency

The first step in apprising an individual’s UK tax position when leaving the UK is to ascertain their residence status. The tax year runs from 6 April to 5 April the following year, and the test is applied to each year individually.

The UK residency test is complex and requires professional analysis in most cases. We have set out details of the statutory residence test with details of how it applies in practice.

Will I pay UK tax if I work and live abroad?

In summary, non-UK residents only pay tax on their UK income; they do not pay UK tax on their foreign income. UK residents normally pay UK tax on all their income, whether it’s from the UK or abroad.

It is important to note that tax residency in another territory does not automatically override UK tax residency. In most cases, it is beneficial to file a Self-Assessment tax return to make sure the correct UK residence position is recorded, particularly where it is possible to ‘split’ the UK tax year or if it is necessary to consider the treaty residence position where an individual is a tax resident in more than one territory.

The UK residency position determines the reporting requirements in the UK, and it is therefore key to carrying out the analysis correctly.

Undertaking new employment with an overseas employer

Where the individual is a non-UK resident in the tax year, the earnings from an overseas employer would not be subject to tax in the UK.

In contrast, UK tax residents will be subject to tax on their earnings from overseas employment. A credit may be permitted for overseas tax paid depending on the provisions of the Double Taxation Treaty with the other territory.

Remaining employed in the UK

Where taxpayers remain employed by a UK company while working abroad, any UK workdays will remain taxable in the UK both to PAYE and National Insurance. Overseas duties may be subject to tax in the other territory. Professional tax advice is recommended in the other country to confirm how the earnings will be taxed overseas.

Where the relocation is by reason of a temporary work assignment abroad with a UK employer, an application can be made to disapply UK tax on overseas duties. Such an application allows for a portion of earnings sourced from a UK employer in relation to overseas duties to escape automatic UK income tax and National Insurance.

Renting out your home while overseas

Many individuals choose to rent out their home while overseas. Regardless of their residency position, the rental income from the UK property will remain taxable in the UK.

Where the property is rented out by a non-resident, the Non-Resident Landlords (NRL) scheme provisions automatically apply. The scheme requires UK letting agents (or tenants) to deduct basic rate tax (20%) from any rent they collect for non-resident landlords.

Provided that an individual’s tax affairs are up to date, an application can be made to request the payments are made without the deduction. Self-Assessment tax returns will need to be filed to report rental income and allowable expenses even if no tax is due. In cases where the property is jointly owned, each individual is liable to pay tax. Both the income and expenditure are split between the two parties.

It may be beneficial to transfer the ownership between spouses to maximise the tax savings, subject to individual circumstances.

Selling your home while overseas

Where a UK residential property is sold during the period of non-residency, a separate return will be required for filing with HMRC within 60 days of completion, even if the property is sold at a loss.

If the residence was occupied by the taxpayer as their one and only home for any period of time, then such period would be exempt from tax under the Principal Private Residence relief, in addition to other provisions.

Where the home is retained and subsequently reoccupied as a main residence by the taxpayer, further relief may be available subject to a number of conditions.