How to minimise your UK income tax as a British expat
If you are a non-resident of the UK you will only be taxed on money earned within the UK. However, if you are classed as a UK resident all your earnings will be subject to tax, even if you are working abroad. If you are trying to minimise your income tax you need to be aware of your status as the UK may still be able to claim a slice of your monetary pie.
What are the best ways of reducing your income tax?
The quick way of doing this is to reduce your assets in the UK, thus reducing your UK income and going some way to proving that you plan to move abroad permanently. Of course relinquishing your assets may not be an attractive prospect, however tax treatment differs for different types of income so here is a run down of how it works:
Even if you are a non-resident you will have to pay tax on any income gained through properties you own in the UK. Also, as a non-resident a withholding tax of 20 percent will be levied. If your properties are looked after by letting agents they will be responsible for paying the withholding tax. If there is no letting agent then it is up to the tenant to account for the quarterly tax.
If you are a non-resident you can apply to perform a self-assessment on your tax liability in the UK. By doing this you will bypass the withholding tax.
To do this you must apply via the NRL1 form. Revenue and customs will usually give approval if you have previously had no UK tax obligations, your affairs are up to date, and if you do not foresee future liability for UK tax. Rental tax is then based on the self-assessed tax return.
Interest and Royalties
Non-UK residents can gain interest without tax by filling out a “not ordinarily resident” form. However the interest would still have to be declared in your tax return for the year. If you have cash in a UK bank account then you may wish to transfer this money into an overseas account.
Dividends are classified as 'taxed at source', a 10 percent tax credit is then applied that can be claimed by those paying income tax at higher rate. In practice this means higher rate tax payers can reduce their tax on dividends by applying the credit. In April 2009 certain restrictions were removed, which means that overseas dividends received by UK residents are eligible for a 10 percent tax credit.
Income from pensions is generally subject to the same tax rules as regular income. Some overseas receipts are eligible for a 10 percent deduction but unfortunately non-domiciled persons are not eligible for this. We have included some more information in our section about QROPS and Pension Transfers.
Please note, you can only utilise a QROPS if you are between the ages of 18 to 75; and are a non-resident British citizen, or intend to be within the next 12 months, or if you are not a UK citizen and are planning to leave the UK within one year.
UK Personal Allowance
A personal allowance of up to £6,475 is claimable by non-residents of working age and can be used to reduce potential income tax charges.
Regular UK residents will of course be subject to normal income tax; non-residents will be taxed only on UK based salaries.
Expat & Offshore can help put you in contact with an expert to help with offshore tax solutions.