Income tax on your earnings
If you are not resident and not ordinarily resident in the UK, you will be exempt from UK taxation of your overseas earnings, whether or not these are paid in or remitted to the UK.
If you are employed overseas for a period spanning a complete UK tax year, even though some of your duties are performed in the UK, you will still be regarded as not resident and not ordinarily resident for tax purposes. That is provided your visits to the UK do not exceed the limits outlined above. However, you will potentially be taxable in the UK on your earnings which relate to UK duties if they are more than incidental to your overseas employment, although you may qualify for exemption under a tax treaty. Any UK tax liability may also be reduced by using personal allowances.
Incidental duties include reporting to the UK company, receiving further instructions or training.
If you work for a period that does not include a complete UK tax year, you will remain resident and ordinarily resident in the UK. This means that you will continue to be liable to tax in the UK on your worldwide income and capital gains. In these circumstance, it will be necessary to consider double taxation relief.
If you have been granted share options by your employer whilst you were resident in the UK, exercise of these options may give rise to a UK liability. The subsequent disposal of shares will also be subject to capital gains tax unless it occurs during a period when you are exempt.
Overseas investment income
Income from overseas investments is not liable to UK tax if you are not resident in the UK when the income arises, regardless of whether it is remitted to the UK.
If you maintain an overseas investment account after you have resumed residence in the UK, you will normally be taxable each year on the amount arising whether or not it is brought into the UK. It may be advisable for overseas interest-earning accounts to be closed prior to your return to the UK, and in some cases prior to the start of the tax year in which you return to the UK.
Investment income arising in the UK
You will, even as a non-resident, be potentially liable to tax on income arising in the UK.
Banks and building societies deduct tax from interest paid to depositors. You may be able to reclaim this tax if there are personal allowances available to set against the income.
It is possible to avoid deduction of tax, but to do so you must certify to the bank or building society concerned that you are not resident and not ordinarily resident in the UK for tax purposes.
In general, if you are not resident in the UK for a whole year, your liability to UK tax on any interest you receive is limited to the tax, if any, deducted at source. Therefore any interest you receive which has not had any tax deducted at source will not be taxed in the UK although it will be taken into account in determining the tax payable on other income.
The returns from ISA’s are free from income tax and capital gains tax in the UK. However, ISA’s are available only to investors aged over 18 who are UK residents or are employees of the Crown working overseas. You cannot therefore make any investments to an ISA after you cease to be UK resident, although any investment made prior to your departure can remain within the ISA and can continue to enjoy UK tax exemption.
Interest received on all gilt-edged securities is exempt from tax while you are not ordinarily resident in the UK. The exemption applies for the entire period of non residence and you should apply to the Inland Revenue for interest to be paid without deduction of tax over this period. If tax has already been deducted, you may apply for a repayment.
Dividends from UK companies remain taxable whether or not you are resident in the UK. If you are paying tax at the higher rate, further tax will be due on the difference between that rate and the tax credit. If you are liable to tax at the basic or lower rate, the credit is treated as covering the tax arising on the dividend. If you are not liable to UK tax because you have personal allowances to cover the dividends, you can no longer claim repayment for the tax credit.
Capital Gains Tax
The basic rule is that you are not subject to UK capital gains tax on the disposal of assets made in a tax year throughout which you are non resident in the UK. One exception to this rule applies to an individual who, having been a UK resident in any part of four or more of the seven years preceding the year of departure, leaves the UK on or after 17 March 1998, and is not absent for 5 complete tax years.
If you fall within this category, you will remain subject to UK capital gains tax on the disposal of any assets you acquired before the date of your departure from the UK. If you sell such assets before 6 April following your departure, any gain will be taxed in the year of departure. Any gain realised in subsequent years will also be taxable but the tax will be charged in the year that you return to the UK. If you have been charged tax on a disposal in the host country, you should be able to claim credit for that tax against the UK tax payable.
There will be no UK capital gains tax due on assets you have acquired whilst you are non-resident provided these assets are sold in a tax year throughout which you are non-resident.
Your departure from the UK may trigger a charge to capital gains tax in respect of certain gifts you may have received. It used to be possible for a donor and donee to elect jointly for the gain arising on a gift of an asset to be rolled over to the donee. That held-over gain is taxable on the donee when the gift is subsequently disposed of or is deemed to be disposed. A deemed disposal takes place if the donee becomes non-resident although the provision is not applied if the donee returns to the UK to take up residence within three years.
An exemption from capital gains tax is available for gains accruing to your Principal Private Residence (PPR), ie a private home that has always been treated as your only or main residence. Where you have several properties, special rules allow you to nominate one of them as your PPR.
If you sell a property that has always been occupied as your PPR, there will be no UK capital gains tax payable. If the property was occupied as your PPR for only part of the period of ownership, the gain would be potentially taxable.
You are also assumed to occupy your PPR while you are working abroad, so long as it is occupied as your PPR both before and after your overseas assignment. This will also be the case if you are unable to resume residence in your house after your assignment because the terms of your employment contract require you to work elsewhere. Complications may arise if, for example, you buy a home abroad – we recommend you take professional advice on the tax implications before making such a purchase.
As an individual domiciled in the UK, your liability to inheritance tax is not affected by your residence status.
Inheritance tax is charged on death and potentially on the transfer of all assets by individuals who are domiciled in the UK subject to exemptions.
A husband and wife are treated separately. Each is entitled to a personal allowance (currently £4,335 for 1999/00). The married couple’s allowance is abolished from 6 April 2000.
Life Assurance Relief
If you have any life assurance policies which were taken out before 14 March 1984, you will be paying premiums net of tax relief. If you cease to be resident in the UK, premiums become payable in full, normally from 6 April following the date of your departure.
On your return to the UK, the reduced premium is reinstated from the date of your arrival.