2023/24 UK Tax Planning for Expats
Who needs to do a UK tax return for 2022/23?
Year ending 5TH APRIL 2023
Anyone who receives notice from HMRC.
This will always include Expat leaving or returning to the UK for a few years until HMRC are satisfied your tax affairs are in order.
This can catch out returning expats who have not prepared their returns and financial records correctly.
Any UK income over £100k requires a UK tax return.
If you have income from a UK source that is more than a £1000 in the year you have tax return obligation.
Even though you report , may have no additional tax liability in the UK for your overseas income under the double taxation treaty in operation.
You could have a penalty if a return is required and you failed to submit the correct information on returns.
Penalties can be applied up to 6 years later normally, but up to 20 years if deliberate tax evasion has taken place.
Don’t let years of living and working abroad amount to a large tax liability.
UK based income and gains liable for a tax return include property rental income, contract or employment contracted in the UK, capital gains from crypto or investment sales.
It could also include UK based Government service pensions.
Do non-resident expats have to submit a UK tax return?
The simple answer is yes.
Let me explain. Non resident expats still retain a liability to declare and pay tax on their UK Income.
As we saw above if you have other incomes over £1000 arising in the UK a tax return is due.
Non resident expats only need to declare their UK sourced income in the UK.
Under the double taxation treaty with the country of tax residence, the UK income is reportable but the tax will not be charged twice.
You could pay the tax overseas, your tax report to the UK allows HMRC to collect their share of tax from other tax jurisdictions.
Not all income is the same. Some move with you to your country of tax residence. Some remains in the UK.
This offers opportunities for expats to utilise allowances across border for tax savings.
How can expats in the UK use domicile tax planning?
If an expat qualifies for non domicile status there are some opportunities for tax planing and saving.
Non Doms to the UK could elect to only pay tax on remitted income.
So a UK based employment would be taxed but overseas income and dividends could avoid UK tax.
Domicile tax planning has complex rules but offers opportunities for tax savings on worldwide income
Split year tax treatment & the tax year end (5 April)
Split year is magic that gives an expat relocating in or out of the UK tax saving opportunities.
Split year is 2 tax years in one and allows to double up personal allowances.
But, you can’t use every year or for short term overseas contracts. Generally you need 3 full tax years between relocating in and out of the UK. Sometimes 2 years could be enough at HMRC discretion.
If you can’t use split year when returning or leaving the UK , the part year overseas income becomes taxable in the UK.
For example return in the summer from a no tax Middle East contract to feel the heat.
All income earned overseas from 6th April to a late summer return in August could fall under UK tax up to 45%.
That makes 5th April an important decision day.
Leave the UK 5th April, and your first tax year abroad starts next day 6th April.
That means leaving the UK just before 5th April 2023 would allow you to return after 6th April 2026 with overseas income ring fenced from the UK, and not using a split year.
An inbetweener tax year date outbound and inbound could mean up to 23 months more overseas - 5 years in full - to protect income and capital earned offshore.
Plan ahead your relocation dates with tax efficiency planning.
Personal Service Companies (PSC)
What have they ever done for expats?
IR35 rules means many contractors of large businesses are taxed as UK PAYE employees.
When working remotely this arrangement could continue.
However the contracting company should set up a branch in the contractors country of tax residence if this arrangement is to persist over 3 months.
This is an expense and complication that could put the contract at risk.
Using a personal service company can escape this.
With funds flowing through a PSC the profits are taxed at a flat corporation tax rate from 19%, while UK income tax rates rise to 45% over £125k earnings going forward.
An expat using a PSC allows the UK company to be UK tax resident , then for the contractor to sub contract to their own PSC. This subcontract income would become taxable in their country of tax residence.
Dividends paid from the PSC are not taxable in the UK and non dom expats in Cyprus for example would then pay 0% tax on unlimited dividend income.
Potentially Corporation tax rules do rise in the year ahead, by planing and timing to maximise allowances and reliefs - tax efficiency can be earned.
Social national insurance taxes
These can be expensive additional tax liability.
Plan to protect your family and business with the right taxes and benefits payable.
Your PSC may need to register a branch overseas, or the contractor as a sole trader.
State pension and health benefits are dependant upon registration and payment, and could be lost to family and business.
But they are also a tax and could be payable with penalty if missed.
To review your social national insurance registrations, payments and benefits.
For help & guidance with your UK tax, contact us.
ProACT Know How.
For more information and guidance, contact us.
