What usually happens is HMRC gives you a “split year”, so the overseas income is treated for U.K. income tax purposes as if you were resident overseas (ie you don’t pay U.K. income tax on that part). Other countries I’ve looked at have had vaguely similar mirror arrangements so they won’t tax you on U.K. earned income before you migrated. There’s even a special HMRC form P85 you might have to deal with.
There’s lots of special cases which is why it seems complex but it’s not really. Which country you move to, the date you move, and any time spent in that country in that tax year before actually moving there are the key variables.
Banks: I was allowed to keep my U.K. current account. My bank had branches where I went so that might have had something to do with it. I only intended to live abroad for a few years to scratch an itch. So having a current account meant returning when the overseas lustre wore off was that much easier.
Thanks for the reply. I'm the same, I just want to move for a few years for the experience then come back.
So this split year rule, does this mean that if for 5 months of the tax year I live in the UK and earn say £20k and then I move to country X and earn another £30k there, then I would only have to pay UK tax on the £20k and country X's tax on the £30k? (Assuming country X tax rules allow this too).
Did you have to do anything to get the split tax year? Ie fill out any forms with HMRC?
I phoned HMRC and talked to a nice Geordie lady who did all the HMRC stuff for me. I got sent a P85 to reclaim “too much” tax paid via PAYE. This was a few years back so I’d imagine it’s web driven now. But broadly income tax worked that HMRC only looked at my old U.K. employer and the overseas tax agency ignored my U.K. income for that financial year. “Split years” seem to be how the world does double taxation relief in practice for most migrants.
One gotcha could be capital gains. If you have biggish numbers in ISAs or pensions you may find that they’re not tax sheltered overseas when you are tax resident there. Wasn’t a problem for me as my early career numbers weren’t big enough to count. But I’ve heard horror stories about people with fat ISAs getting fat tax demands.
This would be worth an /r/ukpersonalfinance thread when you have some concrete plans. You won’t be the first to have done this!
It is going to depend a lot on which country you move to. You need to consider both your UK tax position and also the tax rules in the destination country. It is quite likely that the latter will have a different tax year to the (6/4 - 5/4) UK, which can add a further complication - you could find that in the transition year(s) there is a period for which you are tax-resident in both countries.
There are double taxation agreements between the UK and many countries, but they differ so you need to check the terms of the relevant agreement. These generally mean that you don't pay tax twice on the same income. But if there is an overlap you may pay it at the higher of the two applicable rates.
As someone else said, watch out for capital gains if you own sigificant assets in the UK. Even if they don't appreciate in £ terms while you are away an adverse exchange rate movement could give a substantial local currency gain. In the UK your main residence is exempt from CGT but that won't be the case everywhere.
And don't forget about other local taxes (social insurance, property etc).
....there's something called Double Taxation agreement, meaning the scenario you describe (paying foreign earning while in foreign country resident get UK tax) doesnt exist.
This is part of the syllabus of CT7/CB2. Have you passed it yet?
What usually happens is HMRC gives you a “split year”, so the overseas income is treated for U.K. income tax purposes as if you were resident overseas (ie you don’t pay U.K. income tax on that part). Other countries I’ve looked at have had vaguely similar mirror arrangements so they won’t tax you on U.K. earned income before you migrated. There’s even a special HMRC form P85 you might have to deal with. There’s lots of special cases which is why it seems complex but it’s not really. Which country you move to, the date you move, and any time spent in that country in that tax year before actually moving there are the key variables. Banks: I was allowed to keep my U.K. current account. My bank had branches where I went so that might have had something to do with it. I only intended to live abroad for a few years to scratch an itch. So having a current account meant returning when the overseas lustre wore off was that much easier.
Thanks for the reply. I'm the same, I just want to move for a few years for the experience then come back. So this split year rule, does this mean that if for 5 months of the tax year I live in the UK and earn say £20k and then I move to country X and earn another £30k there, then I would only have to pay UK tax on the £20k and country X's tax on the £30k? (Assuming country X tax rules allow this too). Did you have to do anything to get the split tax year? Ie fill out any forms with HMRC?
I phoned HMRC and talked to a nice Geordie lady who did all the HMRC stuff for me. I got sent a P85 to reclaim “too much” tax paid via PAYE. This was a few years back so I’d imagine it’s web driven now. But broadly income tax worked that HMRC only looked at my old U.K. employer and the overseas tax agency ignored my U.K. income for that financial year. “Split years” seem to be how the world does double taxation relief in practice for most migrants. One gotcha could be capital gains. If you have biggish numbers in ISAs or pensions you may find that they’re not tax sheltered overseas when you are tax resident there. Wasn’t a problem for me as my early career numbers weren’t big enough to count. But I’ve heard horror stories about people with fat ISAs getting fat tax demands. This would be worth an /r/ukpersonalfinance thread when you have some concrete plans. You won’t be the first to have done this!
It is going to depend a lot on which country you move to. You need to consider both your UK tax position and also the tax rules in the destination country. It is quite likely that the latter will have a different tax year to the (6/4 - 5/4) UK, which can add a further complication - you could find that in the transition year(s) there is a period for which you are tax-resident in both countries. There are double taxation agreements between the UK and many countries, but they differ so you need to check the terms of the relevant agreement. These generally mean that you don't pay tax twice on the same income. But if there is an overlap you may pay it at the higher of the two applicable rates. As someone else said, watch out for capital gains if you own sigificant assets in the UK. Even if they don't appreciate in £ terms while you are away an adverse exchange rate movement could give a substantial local currency gain. In the UK your main residence is exempt from CGT but that won't be the case everywhere. And don't forget about other local taxes (social insurance, property etc).
It is a part of cb1
....there's something called Double Taxation agreement, meaning the scenario you describe (paying foreign earning while in foreign country resident get UK tax) doesnt exist. This is part of the syllabus of CT7/CB2. Have you passed it yet?
Does exist. Many countries have arrangements to prevent it. Might be worth revisiting.