The amount of tax you pay in the UK depends on your residential status. You may find that if you live abroad, you may still be classed as a UK resident for tax purposes and therefore have UK tax obligations.
How is UK residency defined for tax?
In the UK, your residence status for tax purposes is established through the Statutory Residence Test. The Statutory Residence Test is devised of four essential components:
- How much time you have spent in the UK in a tax year
- Automatic Overseas Test
- Automatic UK Tests
- Sufficient Ties Tests
If you are present in the UK for more than 183 days (counted at midnight) in a tax year, you will automatically be considered a resident and therefore still need to pay UK taxes on your income and gains. The reverse however is not true. Just because you spend fewer than 183 days in the UK, does not mean you will be automatically classed as a UK non-resident.
You will be considered a non-UK resident for tax purposes if you:
- meet the automatic overseas test or,
- you do not meet the automatic UK test or Sufficient Ties Test
You will be considered a UK resident if you:
- do not meet the Automatic Overseas Test and,
- you meet one of the Automatic UK Tests or the Sufficient Ties Test
How long do you have to stay outside of the UK to avoid paying tax?
As tax obligations are based on the Statutory Residence Test, it will be a combination of your ties and the time you spend in the UK that ultimately determines your UK tax residence status.
If you work abroad but are considered a UK resident, you may also need to pay UK income tax on your foreign income such as;
- Foreign investments and savings interest
- Rental income on an overseas property
- Income from pensions held overseas
If your income is taxed in more than one country, you may be able to claim tax relief. Double Taxation agreements exist between many countries and the UK to prevent taxpayers from paying tax twice. For those that are eligible, there is also the possibility to claim Foreign Tax Credit Relief when you report your overseas income in your tax return.
Get help with UK Taxes
If you have any questions about your residence status or your UK tax return, speak to one of our advisors today. Our expert team can help you understand the Statutory Residence Test and how it applies to you, advising on how to get compliant.