The expat Brit’s guide to managing UK tax

Mark Williams: Hello, and welcome to the second episode of a brand new podcast called Tax Tea Break With Go Simple Tax. It's a six part podcast series where I speak to tax and Self Assessment experts who offer free, time and money saving tax tips for sole traders, private landlords, and expat Brits. My name is Mark Williams and I'm your host.

Mark Williams: Hopefully you've made yourself a nice cuppa. Now each 20 minute episode has its own subject. And in this, our second episode, we'll be offering guidance on how to manage UK tax. If you're an expat Brit, some 5 million British people are now reported to live permanently outside the UK with a third calling Australia or New Zealand home, and 28% living in the USA or Canada.

Mark Williams: A quarter live elsewhere in Europe with Spain, by far the most popular choice, many expats still have to pay tax in the uk. Of course. Before we get some tax tips for expats from today's guest expert, let's find out how GoSimpleTax could benefit you if you pay tax via Self Assessment.

GoSimpleTax Ad: Tax returns. Do they fill you with fear?

GoSimpleTax Ad: Self Assessments can be, uh, well taxing... at GoSimpleTax our software makes it a doddle. Submit your return quickly and easily. Simple. GoSimpleTax flags, potential tax savings, and deductions you may be entitled to and could save you money. An inbuilt error checker ensures no mistakes are made. And with tens of thousands of returns submitted, you're in good hands.

GoSimpleTax Ad: Our excellent support team is there to support you at every step of the way. Go Simple tax. The easy solution for making tax digital. Did I mention it's free to try. Let us help you. Go Simple Tax, the simple way to tax return.

Mark Williams: It's time now to introduce our expert, Mark Allsopp, who is Associate Director UK /US Personal Tax at Leading accountancy and business advisory firm

Mark Williams: BDO.

Mark Williams: BDO operates 18 UK locations and is part of a global network that's active in 164 countries. BDO also provides advice on personal tax and wealth management, and its clients include many expat Brits. Mark has 15 years experience. He's qualified in both the UK and US. He's a member of the Association of Taxation Technicians, as well as a US enrolled tax agent. Based in Nottingham.

Mark Williams: Mark as a highly experienced member of BDOs Expat team, welcome, Mark. Thanks for joining us.

Mark Allsopp: Thank you very much for having.

Mark Williams: So to begin, at the beginning, Mark, for, for any expat Brits out there is struggling to understand UK tax rules and their UK tax obligations, that's perfectly understandable, isn't it?

Mark Williams: Because the rules can be quite difficult to understand.

Mark Allsopp: Oh, that's right. The rules are quite, can be quite difficult for nonresidents to follow. That's because there's a bit of an overload of information on the internet. Some of it may or may not be right. Some of it may or may not apply to you. So what I traditionally say to help understand the rules, um, check in on HMRC's website and then kind of go from.

Mark Williams: And also those rules are subject to change maybe annually, maybe every couple of years. But, But things don't stay the same, do they?

Mark Allsopp: That's right. It's ever changing. And even very recently, we've had the, the mini budget, or which is quite a large budget, which is, which has changed a lot of that.

Mark Williams: And, and when someone from the UK moves to another country permanently, the amount of.

Mark Williams: UK tax they pay or don't pay is determined by their tax residents and domicile status. Can you please explain the difference between a non dom and an expat who still resides in the UK for tax purposes?

Mark Allsopp: Absolutely. There there's two different concepts here of residents and domicile and effectively you have to look at each of them and then look at them together to to kind of understand your position as an individual.

Mark Allsopp: Effectively, your residence is more or less gonna dictate what you're taxed on from income and a capital gains tax perspective. Your domicile. More or less going to be your inheritance tax, and that's what we'll consider for for this. This question, residence is, is calculated by something called the statutory residence test.

Mark Allsopp: It's effectively looking at your days of presence and other factors to determine whether or not you're a resident of the UK in a particular year. We'll get onto a domicile in second, but I just wanted to kind of go through the residency. The resident, non-resident positions to sort of add a bit of color to that.

Mark Allsopp: So if you are a UK um, domiciliary and you're resident in the UK, effectively you're going to be taxed on your worldwide income and gains because you're UK tax resident. If you're a UK domiciliary and a non UK tax resident, you're only going to be taxed on your UK site income and gains. So income arising from UK sources.

Mark Allsopp: The domicile piece, I'll come onto in, in a. There is a difference. However, if you are a non domiciled person and a UK tax resident, in this case, somebody who's non domiciled and is a UK tax resident, they can make an annual election to either be taxed on something called the rising or remittance basis.

Mark Allsopp: The, a rising basis is where they're taxed on their worldwide income gains, just like a UK dom. The remittent basis is where they're taxed solely on their UK earnings and any income they bring into the UK. This is a year on year election for these guys, and they usually choose what's most economic to them because they can, under the legislation, there are charges if they want to do the remittent basis, you know, if you, if they've been here seven outta nine years, it's 30 K charge.

Mark Allsopp: It's a 60 k charge if you want to do it, 12 outta 14. If you've been here 12 outta 14 years, But once somebody's been resident in the UK and they're a non domiciliary and they've been here for 15 out 20 years, that election's not available to them. They're considered something called Dean Dom, and they're taxed on their, um, worldwide income gains to the extent they're a UK tax resident.

Mark Allsopp: So to sort of add to that, what is domicile? Domicile's a little bit more complex and it's harder to change than your residency. Your residency is, is is relatively straightforward. It's where you are at the current moment in time in that tax year, your domicile effectively. Affects how your estate is attacked upon death.

Mark Allsopp: So it's, it has a big role to play in your inheritance tax. So if you're a UK domiciliary, you're subject to UK inheritance tax on your worldwide assets when you die. If you're not a UK domiciliary, you're only subject to your UK site assets when you die. And that's things like a UK house. So to kind of understand how domicile works, there are three types of domicile under UK law.

Mark Allsopp: The first one is domicile of origin. That's where you're from, where you're born and bred. The UK has quite old rules. It also pertains to where your dad's from. If your dad's UK and your UK you, you consider UK domiciliary if you're under 16. It depends where your, sort of, who's legally bound to look after you is from.

Mark Allsopp: And you can have a domicile of choice, which, which may impact some of the people listening here is that you need to be in a new. To obtain a new domicile. You know, typically domicile is, is, you know, like I said, where you're born and bred, but you thi this can be changed if you're in a new location, but you'd have to make new steps and big steps in that new location to change your domicile.

Mark Allsopp: Things like citizenship in that new country, Obtaining a passport in that new country, looking to live there forever. Morbid things like having a burial plot in that country. Those are the things you have to look at. If you're going to change your domicile, it's very hard to change it. I've not seen instances where people have gone from UK to non UK.

Mark Allsopp: Usually it's the non domicile guy becomes domiciled after being here for 15 years. So you should seek advice if you want to test that position. So I guess in mind to the question, and I appreciate it's quite a long answer cause it's quite a sort of a large concept.

Mark Williams: It's complex issue.

Mark Allsopp: It's a complex issue.

Mark Allsopp: Is effectively, if you are a UK dom, and you're not living in the UK at this point in time, you're a non UK tax resident. You're going to be taxed on your estate upon death, and you're only gonna be subject to UK tax on your UK site income and gains. If you're a UK domiciliary and you're in the UK, you're going to be taxed on

Mark Allsopp: everything you earn in the world as well as your IHT so that's kind of the difference there.

Mark Williams: So, So if someone moves to another country from the uk, it doesn't mean they automatically stop paying UK tax does it?

Mark Allsopp: It doesn't. It goes back to that understanding whether or not you are a resident of the UK or not when you, when you leave.

Mark Allsopp: It also determines whether or not you actually have any assets remaining in the uk, which is gonna generate income.

Mark Williams: For anyone listening who's still living in the UK but is considering moving abroad to Spain or France to live, when and how do they need to let HMRC know about that for tax purposes?

Mark Allsopp: So there's a form called P85.

Mark Allsopp: Um, usually you complete that when you've left. You can Google it and find out on HMRC's website. Once you've left and you've set up residents in your, in your new country, France, Spain, wherever you complete that and that informs the government. In addition, I would say filing a UK tax return in the year you leave because that would also.

Mark Allsopp: To HMRC the date you left because you, you add that onto the residency pages. So those are the two ways of doing.

Mark Williams: What common sources of UK income might an expat Brit might have to pay on tax pay, tax on rather? Is UK tax payable on all sources of UK income, including pensions, savings, interest, rental, property, shares, everything.

Mark Allsopp: By and large, yes, you are considered for tax on these, but whether or not you're actually tax depends on if you can claim allowances and, and, and the quantum of of income you. This UK So for example, UK interest and dividends is taxable, but you get the saving and dividends allowance. So if you're receiving nomin, Income from a UK company.

Mark Allsopp: You know, a uk your UK dividend is, is couple hundred pounds and your interest is a couple hundred pounds. You're not gonna be taxed on that cuz you're gonna be covered. UK pensions are taxable. You know, you, you're generally fine if you, maybe, if you're in a, a private scheme that you receive P60 with your pension on and that may have UK withholding its source.

Mark Allsopp: Rental income is going to be taxable. That's, that's kind of, I guess the big one for a lot of the guys listening is, is, is rental income is, is key. You know, it comes out of UK soil. The UK has the first right to tax that. There is instances where UK employment is also taxable to you, even if you've left the uk.

Mark Allsopp: Those sort of scenarios are, if you've been involved in a share scheme at work, so say you, you, you get the option to participate in the company share scheme. It's a three year vesting period for two years you're working in the UK for year three, you moved to Germany. The income derived in those two years out, three is gonna be taxable in the uk if you've got, if you leave the UK and then you get a delayed termination payment after you've finished work, the termination payment's gonna be taxable in the UK because it's from your services performed for a UK company.

Mark Allsopp: The same way as a bonus. You know if, if you get a bonus in 2022 and you are living Germany, but it relates to your performance in 2021 and you were living in the UK. Effectively that's UK taxable.

Mark Williams: Okay. And another common scenario. What if I, uh, an expat Brit and I've moved overseas and I inherit money. Say a member of of the family passes away in the UK and I inherit a fairly substantial amount of money.

Mark Williams: Is that taxable? Do I have to pay tax on that?

Mark Allsopp: Potentially. From the UK standpoint, typically the estate of the person who died, is there a state that's considered for tax? And usually you are receiving something after that state is being considered for tax? So for UK tax purposes, traditionally you won't.

Mark Allsopp: I mean, if you do receive a house and then you rent out, you are gonna pay tax on, on the rental income. But I, I would say to you, if you're unsure, check with the executor of that estate as to your UK position. But I would say to you that locally, the country that you live, You need to check the rules there because they may have slightly different rules.

Mark Allsopp: Um, for example, France, the, the system is completely different to that of the uk. It, it's, it's like chalk and cheese. Same with Spain. You, you'd want to ask somebody locally, what's my local implications of receiving this? .

Mark Williams: Yeah. Great sound advice that Mark. So next question then Mark. So what if an expat Brit earns taxable income from the country they've moved to?

Mark Williams: Is that subject to local or UK tax?

Mark Allsopp: Likely That's subject to local tax? It, a lot of it depends on your residency status. You know, if you are no longer a UK resident, and this is income you're earning in the local country, Spain, for example, the UK won't tax that because it's, you're not a resident anymore.

Mark Allsopp: The UK would only care. UK income from a position of a non-resident. So it should only be reportable and taxable in, in, in the local country.

Mark Williams: Okay. And how importance is it then? An expat Brits make sure that they're not paying tax in two systems, two countries.

Mark Allsopp: Is, is, is quite important The, the, the biggest kind of.

Mark Allsopp: Issue you're gonna see is where there's maybe a crossover between the two where you are moving from the UK to the foreign country because like I kind of alluded to is if you keep your UK residency, if you're not able to break that, the UK still can tax you on your worldwide income and gains. So it is mindful to make sure that you're not taxed, um, because of something like that.

Mark Allsopp: But also the same, the same instance, you know, if you are a non-resident of the UK, have a UK rental property, the UK may well tax that you're going to have to report that on your local return. You can't help that, that, that, that's going to be the case. And you may be able to use foreign tax credits to offset local tax on that same income.

Mark Williams: And, and if someone, an expat Brit moves overseas but rents out their UK property, the tax can be deducted by the tenant or agent. In the UK and paid directly to HMRC or the expat landlord can fill out an NRL one form so that all of the renters paid directly to them and then they pay the tax to HMRC. What option is likely to be the best for an expat landlord?

Mark Allsopp: I don't think it makes too much of a difference. I think maybe it depends how, how much you expect to receive from his property and how you are as a person. I think if you're terrible at budgeting and you expect to receive a good net rental yield, perhaps you would want to have the tax withheld at source and then you chew it up at the end when you do your tax return.

Mark Allsopp: If, however, you've done your sums, you potentially know, you can claim the personal allowance and maybe the, the rental yield that you're gonna get in your pocket is equal to or slightly over. You don't want to have the withholding its source. You want to just pay it at the end. When you do your tax return.

Mark Allsopp: So I don't think it makes too much a difference, but I think it's a case by case situation. And I would say, look, if, if you're not expecting to earn a significant amount from it and it's, it's, it's gonna be a trickle of income, it's probably best to not have the withholding a source.

Mark Williams: The in income tax thresholds and allowances that somebody living in the UK, do they change when you're an expat living overseas or do exactly the same, say the personal allowance, for example, the same that would be taken into account whether you, you're an expat Brit living overseas, or whether you're a taxpayer living in the UK.

Mark Allsopp: It, it, you know, it still applies. You know, the rules around whether or not you. Personal allowance, uh, you know, you can get it to the extent you're a UK national and national of the European economic area. You know, if you're a UK National Living abroad, you, you will get access to the personal allowance as if you were, you were here too.

Mark Allsopp: You know, you do get access, like I said earlier on, you know, to the savings and dividends allowance. You still get the relief on your principle private residents for the last nine months, you know, deemed as if you were occupying it for those nine months. So by and large, the answer is yes. Um, but I would say that if there's something very specific.

Mark Allsopp: research that and, and make sure you can, but those sort of main items that I've mentioned there, you can, to the extent you're a UK national.

Mark Williams: And as you've said previously, it pays to sort of seek tailored advice to make sure that you're claiming all the reliefs and allowances that you're, that, that you're entitled to.

Mark Allsopp: Absolutely. It's, it's, it's always best to do that. You don't wanna end up in a position where maybe you've, you've paid too much tax, but there is a fair, decent bit of guidance on HMRC's website about these sorts of things. Cuz these are relatively common and these, these will be quite common questions asked by people.

Mark Williams: What, what about capital gains tax? Then if, for example, I'm an expat Brit and I sell my property in the, in the UK, is that sort of subject to capital gain tax in the uk? And if so, what tax planning measures do you recommend?

Mark Allsopp: In terms of being subject to capital gains tax. Typically Nonresidents in the UK aren't subject to it, but there are exceptions.

Mark Allsopp: One of them is if you dispose of a UK property interest. So a non-resident selling UK property is subject to capital gains tax on that property. And the other one is if you carry on a trade in the uk, buy a branch or agency. That's not important on this question, so I won't go any further. There are rules about if you leave the UK.

Mark Allsopp: And you're leaving the UK to just sell your property, then come back to the UK and avoid capital gains tax. Uh, that's something called temporary non-resident rules. You know, you have to be out of the UK for a full five tax years in order for your capital gains to not be taxable. Um, if, if you have, you know, if you leave in year one, sell your house in year two, come back in year three, when you come back in year three, HMRC you're going to know, and the gains you had during that period are all going to.

Mark Allsopp: Come to fruition and be taxed. So that's important to, to note. And, and I'm assuming no one is listening to this anyway, is gonna be in that position. It is a case that they're fully out of the uk. So on the assumption then that everyone's been out of the UK and are going to be outta the UK for four or five years, your UK property is going to be subject to UK tax.

Mark Allsopp: Now my, my planning and my approach to this is, is, is is kind of threefold. First let, before anything is signed and before anything is agreed and you've sold it, determine the tax impact on the sale, including how to report this. HMRC have calculators on their website to help you. Typically, if you are selling your home, the the period of time in which it was your home isn't taxable.

Mark Allsopp: But if you've moved to Spain and you've been there for a year, you've had a home in Spain for a year. So you've opened up a year of years's worth of, of gain. You know, if you've owned for 10 years, arguments sake, one over 10 is potentially subject to UK tax. But HMCs calculators will help you kind of work through that as well.

Mark Allsopp: And you know, if you sell an ex rental. There are calculators there to help you too. So I would say work out roughly what you think the UK tax is gonna be. If you need advice and you think it's, Oh, it's a little bit too much for me to deal with. Seek it for sure cause it's, it's a big thing and usually it's the biggest thing that most of us do in terms of, in terms of income.

Mark Allsopp: When you do sell that property, do note, however, for UK tax purposes as a non-resident, you need to pay the tax within 60 days of sale to HMRC so you do need to have done your calculation and your homework. You do need to report it to HMRC via capital gains form and then you also report that, report it on your tax return too.

Mark Allsopp: So there's, there's a little bit of admin there and there's also paying at the tax. So the first port of call is, is figure out your UK position, because that's gonna be the primary taxer the. After this, seek local advice. So once you've got in your back pocket, what you think's gonna happen to you in the uk, go to your local advisor and say, I'm selling my house, or I'm selling this property.

Mark Allsopp: This is what it looks like for a UK on a UK standpoint. What happens to me here in France, and they'll probably say in France, this is taxable to us too. So then you want to work with our local advisor to say, Well, I need to pay UK tax. When do I, No, I need to pay it by this date for UK purposes. Do I need to accelerate that for French purposes?

Mark Allsopp: That way you're not caught Sure. Either by the UK or where you live. Um, so I think in this sense where you. Effectively a taxation in two places is, is, is to seek local advice, at least at the local level.

Mark Williams: And is it a similar scenario then if you are based overseas, Expat Britain and you sell a UK business?

Mark Allsopp: Same thing. It, it is more or less the same thing. I mean, as we mentioned, you know, , Um, non-residents aren't taxable on their capital gains. So if Bob owns Bob the builder limited and sells his shares in Bob, the builder limited and gets cash. Typically. He's not gonna be subject to capital gains tax on that, but as we all know, everyone's business is different.

Mark Allsopp: You might have business partners, some of them might be resident, You might have a subsidiary, You might have been working for a portion of your business in the country where you live, you know, so, so my sort of plan there would be plan ahead, know what your proposal looks like, obviously never agree to sell the business just yet until you've got the tax advice.

Mark Allsopp: That's key. Find out what it is, work out what you want from the company, and then just like the house, go speak to a local advisor because in your local area, France, Spain, the US, wherever there's gonna be local tax to consider for sure. And if you get involved early with a local advisor and as well as a UK advisor too, you know, you can work through as any reliefs available to you that maybe you would've missed because you don't do that every day.

Mark Allsopp: But a local advisor who advises on the sale of overseas businesses sees every day and they know it. And they'll be able Exactly. And they'll be able to say to you, Look, you know, you can invest this money into a new business, or you can invest it here and, and this will give you a tax break. So I would say is work out what it is you want from, from the, from your business, what the sale looks like.

Mark Allsopp: Go seek local advice and then take it from there.

Mark Williams: Yeah, it seems to be a theme that's run through most of the things that you're saying. If you're in any doubt about the tax liability or your tax obligation, seek tailored advice. Know exactly what, what, what the lie of the land is.

Mark Allsopp: I mean, it's absolutely key.

Mark Allsopp: Mind you, most people listen to this will probably go well with the tax advisor. Of course. He's, uh, he's gonna then go, Oh yeah, you should definitely seek local advice and tax advice. But, but it really is key. A lot of the advice you're going to see online is either going to be incredibly generic. Or it's going to be tailored to somebody's specific situation.

Mark Allsopp: So you, your situation might be nuanced and then you need to find out about it. You know, the UK operates a Self Assessment basis. It's for the taxpayer to work out on themselves what it is they need to do. If they submit that HMRC and HMRC thinks it's wrong, HMRC will correct you, but there's open for.

Mark Allsopp: Potential interest and penalties if you've been deliberate or careless or things like that. So, you know, I'd always say to the extent something sort of gets out of your comfort zone. You know, if you've been reporting a UK rental property for years and you're comfortable with that, go ahead and keep going.

Mark Allsopp: You know, if HMRC haven't come back to you and you think you are, you are correct, keep on going. But if it's something that's complex, you know, the worst thing to do is to. Just do anything and then, Oh, I'm done. It's out of my hair. You know, unpicking a problem costs more than getting advice at the start to get it right, you know?

Mark Allsopp: And also I'd say, you know, the worst thing to do is, is to not action anything. The worst thing is just to put your head in the sand and, and then not do anything, you know? And. It, it, it may seem expensive advice, but in the long run, good quality advice is cheaper than getting it wrong and having to pick it.

Mark Williams: HMRC software can't cope with the SA109 form, which is probably the most important tax return form for expats. What are the solutions to that problem? Do you recommend using specialist software?

Mark Allsopp: Absolutely, specialist software or a specialist service provider can take care of that filing for you. Usually, you know, specialist software will give that to you in a nice, easy, readable format, which, you know, you wanna keep hold of your tax return and, and keep them in your records.

Mark Allsopp: So I definitely suggest using those. I myself was an expat for three years and I did that as opposed to using HMRC system.

Mark Williams: Lots of, uh, really interesting food for thought and guidance there. Mark, thanks very much indeed for your time and being a great guest today. Thank you.

Mark Allsopp: No problem. Thank you very much.

Mark Allsopp: Been my pleasure.

Mark Williams: So what are the three key takeaways from this episode? One, just because you no longer live in the UK, don't assume that you won't have to pay any UK tax. UK tax can still be payable on a variety of sources of income. Two tax rules can be complex when you're an expat Brit so it can be wise to seek tailored professional tax advice, especially if you're earning taxable income in the country in which you now live.

Mark Williams: Three. You cannot file your SA109 form online if you live overseas. And that's a key form for expat Brits with income that's subject to UK tax. Third party Self Assessment software offers a solution if you're an expat Brit. Hopefully this episode has given you a greater understanding of how to better manage UK tax.

Mark Williams: You can also head over to the Go Simple Tax website gosimpletax.com for more free guidance on a wide range of tax related topics. Go Simple Tax also offers a highly popular tax return checking service for expats and others wanting added peace of mind from knowing that their tax return has been filled incorrectly and that they're claiming all of their tax expenses and allowances.

Mark Williams: Once again, Find out more by visiting gosimpletax.com. Our next episode, we'll look at expenses that you can claim when you rent our property in the uk, which is something that many expats do. Of course, deducting these expenses from your rental income helps to minimise your tax bill. If you're a private landlord, don't miss it.

Mark Williams: We hope you've enjoyed this episode and that you've learned lots of valuable information. Please tell others about the podcast and follow us and like us and share our social media posts because we really do wanna help as many expats, sole traders, and private landlords as possible. Thanks very much for listening.

Mark Williams: Until next time.