You might think that if you are non-UK tax resident you have no exposure to UK taxes – but is this correct?
A non-UK tax resident individual thinking of visiting the UK, working there or buying assets there (such as property) may incorrectly assume that there is no exposure to UK tax or filing obligations.
The following examples give a flavour of some of the triggers to be aware of.
The general rule is that income which has a ‘UK source’ is subject to UK income tax. For example, if a non-UK resident individual rents out a residential property situated in the UK, any rental profits are taxable and they will need to submit UK tax returns. Unless they are registered for the Non-Resident Landlords’ Scheme, tax at 20% may need to be deducted from the rents by the tenants or property agents.
Similarly undertaking ‘substantive’ work in the UK for an employer can result in all or part of the employment being taxable here.
Working in the UK exercising control or decision making powers can have UK tax implications for the employer. This can include companies owned by the individual or their family.
UK income tax is due on UK savings and other investment income, but the amount is typically limited to tax deducted at source.
Individuals operating unincorporated businesses may be liable to UK income tax on the income arising from activities or establishments in the UK, whether the activities are carried out by them or, in some cases, by others on their behalf.
In the past non-UK resident individuals have not paid UK tax on investment gains realised on UK assets. But a key new exception is UK residential property, with gains accruing from 6 April 2015 now liable to capital gains tax at a current rate of up to 28%, although main residence relief may be available in exceptional cases.
UK assets used in a trade carried on in the UK are also liable to UK capital gains tax.
UK situated assets are potentially liable to UK inheritance tax (IHT), although liabilities associated with those assets (e.g. mortgages) may in certain circumstances reduce the extent of any UK IHT exposure. For a non-UK resident but UK domiciled or deemed domiciled individual assets situated anywhere in the world are within the scope of UK IHT.
There are other taxes to consider too, such as national insurance, the annual tax on enveloped dwellings or ‘ATED’, VAT, council tax and corporation tax.
Most of these potential UK tax issues may be mitigated (generally in the taxpayer’s favour) by the provisions of any appropriate double tax treaty between the UK and, for example, the country of residence. This article is focused on the non-UK resident. However, sometimes individuals need to first consider whether they are in fact UK tax resident. The UK has a Statutory Residence Test (SRT). Visits to the UK, working in the UK or owning UK homes could, perhaps unexpectedly, result in triggering the conditions to become UK tax resident.
For example, if a non-UK resident has a UK home, but fails to spend a sufficient amount of time in their overseas homes, spending as little as 30 days visiting the UK home in a tax year could automatically trigger UK tax residence under the SRT. Once UK tax resident an individual can be subject to UK tax on worldwide income and gains. Again the effect is subject to double tax treaties.
If you are a non-UK resident who enjoys coming to the UK or are interested in developing business interests in the UK you might want to consider and ensure you understand, at the earliest opportunity, the potential UK tax implications of your actions.