What is Expatriate Tax? The UK & Non-UK citizen differences

If your business has staff who work for long periods on overseas postings – or you are considering working overseas yourself for any length of time – then you will probably already know that the tax situation for expatriates (expats) can be complex. It is, therefore, important to understand the impact that spending time outside of the UK can have on UK taxes.

The key to determining the tax treatment of UK citizens working abroad is in understanding their individual residency status – the number of days a year in which they actually reside in the UK, as well as a series of factors relating to issues such as family location and UK accommodation. The basic principle is that, as a UK resident, an individual is liable to pay UK income tax and capital gains tax on worldwide income and gains; but as a non-resident, UK tax arises on only certain income and gains which arise in the UK.

What is a UK tax resident?

The Statutory Residence Test is UK tax legislation that determines whether an individual is regarded as UK resident for tax purposes in a single tax year. The legislation is detailed and requires specific advice, but the basic elements of the test are:

  • You are automatically a UK resident if you spend 183 days or more in the UK,
  • If the above does not apply, then there are three tests to see if you are automatically non-resident,
  • If the above also does not apply, there are then two further tests to see if you are automatically UK resident,
  • And, if none of the above apply, there is a sufficient ties test (essentially a tie breaker test).

The number of days spent in the UK in a single tax year is essential to the statutory residence test and features in all of the tests mentioned above.  An individual is considered to have spent a day in the UK if they were here at midnight, at the end of that day. There are other factors which can effect this determination, including the ‘deeming rule’, the number of ‘transit days’ and any exceptional circumstances (such as bereavement), and again, it’s good to get expert advice on these issues.

There are also special rules concerning the tax year when an individual leaves or arrives in the UK which are designed to split the tax year in two.

You can read our flyer on the residence test for more information:.

What UK taxes are payable for a non-resident?

If an individual is deemed to be a UK resident under the tests above, but spends considerable periods of time working outside of the UK (and may even have a residence overseas), then they are likely to be liable to pay UK rates of income tax and capital gains tax on worldwide income and gains.  Where the same income has already been taxed in another country, it may be necessary to claim relief for double taxation and this can depend on the wording of the double tax treaty between the UK and the other country (if indeed a treaty is in place).

If the individual is deemed to be a non-UK resident then the general rule is that they are only required to pay tax in the UK on certain income arising from a source in the UK, and CGT on certain capital gains. The individual would still be expected to pay income tax on the profits of any trade or profession carried out in the UK, or on the profits of a UK property business if the land or property is situated in the UK, as well as on any employment income relating to UK duties (other than incidental duties).

Tax is also likely to be payable on dividend income, interest, and other savings (although some of this income may be treated as ‘Disregarded Income’ which makes it effectively tax free in the UK).

For income tax purposes, the personal allowance is available to certain non-UK residents (including British passport holders) and is the same as for UK residents – i.e. £12,570 for the tax year 2023/24.

It is worth remember that while an individual may be treated as non-resident for UK tax purposes, anyone working abroad for long periods of time is likely to have personal tax compliance obligations in the country they are working in.  Employers may also face reporting obligations for employment tax (i.e. via payroll) and social security in that country. For more information, you can read our article discussing working remotely abroad.

There are tax planning opportunities for individuals planning to change their country of residence and it is important to take action long before making the physical move.

If you are looking for advice on your residence status (or that of your employees) whether you are from the UK are moving abroad or living outside the UK and moving here, we can advise you on all areas including income tax, Capital Gains Tax (CGT) and Inheritance Tax (IHT).  Contact one of the team using the form below if you would like to speak to us about your particular circumstances.

We always recommend that you seek advice from a suitably qualified adviser before taking any action. The information in this article only serves as a guide and no responsibility for loss occasioned by any person acting or refraining from action as a result of this material can be accepted by the authors or the firm.


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