The rise of remote work has inspired more and more UK citizens to embrace a location-independent lifestyle. Whether you’re travelling full-time or settling abroad, there’s one thing you can’t pack in your suitcase — UK tax rules.
In this guide, we’ll break down:
- How UK tax residency works
- What happens when you leave the UK
- Your tax obligations as a non-resident
- Key considerations for business owners
1. How UK Tax Residency Works
The UK follows a residential taxation system.
- Residents pay UK tax on their worldwide income.
- Non-residents only pay UK tax on their UK-sourced income.
The Statutory Residence Test (SRT)
Unlike some countries with complex residency rules, the UK uses a relatively straightforward test — the Statutory Residence Test — to determine whether you’re considered a tax resident.
In short:
- If you meet certain day-count thresholds or other criteria, you’re a resident.
- If not, you’re a non-resident.
Tax Rates for Residents
If you qualify as a UK tax resident:
- Income tax is charged on a progressive scale from 20% to 45%.
- The first £12,570 is generally tax-free (Personal Allowance).
- Capital gains tax is based on your income bracket.
- No wealth tax exists in the UK.
Other notable taxes include:
- Stamp Duty Land Tax (0–12%)
- Inheritance Tax (40% above £325,000)
- National Insurance contributions (2–15%)
- Council tax (rates vary by local authority)
Tax year: Runs from 6 April to 5 April.
Deadlines:
- Paper returns: 31 October following the tax year
- Online returns: 31 January following the tax year
Non-Resident Rules
If you’re a non-resident:
- You pay UK tax only on UK-sourced income.
- Non-residents usually don’t get the Personal Allowance — unless you’re a UK or EU national.
- “Source” generally refers to where the work is performed, not where the client or employer is located.
2. Leaving the UK — Tax Implications
Leaving the UK can lead to substantial tax savings — in some cases, eliminating your personal UK tax liability entirely.
Good news:
- No exit tax applies when leaving.
- You can still own or manage a UK company from abroad.
If You Were Employed Before Leaving
- Submit form P85 after departure (along with your P45 from your employer).
- This updates HMRC about your residency status and may secure a tax refund.
If You Were Self-Employed or Had Other Income
- File a Self Assessment return covering the year you left.
- Include:
- SA100 (main return)
- SA109 (residency pages)
- Any relevant supplementary pages
Tip: You don’t need HMRC “approval” to become a non-resident — it’s determined by fact, not permission.
Five-Year Capital Gains Rule
If you sell certain assets while abroad and return to the UK within five years, you may still owe UK capital gains tax. This rule prevents short-term relocations purely for tax avoidance.
3. Tax Obligations for Non-Residents
If you’re a non-resident and have no UK income:
- You generally have no UK tax liability
- You don’t need to file a UK return
Exceptions:
- Partners in UK partnerships or LLPs often must file, even with no UK income — unless they apply for and receive an exemption.
If you do receive UK income:
- You may need to file a Self Assessment return unless all taxes are withheld at source.
- Non-residents are not taxed on UK company dividends and usually not taxed on capital gains from UK shares — except for property and land sales.
4. Business Tax Considerations
UK LLPs & LTDs
The tax treatment depends on the structure and the residency of the owners. LLPs are generally transparent for tax purposes, while LTDs pay UK Corporation Tax on profits.
Foreign Companies Operating in the UK
If a foreign-registered company generates UK-sourced income, it can still be subject to UK Corporation Tax — regardless of its registration country — if it has a UK permanent establishment or place of management.
5. Key Takeaways
- Residency status is the foundation of your UK tax obligations.
- Leaving the UK doesn’t require HMRC approval — but you must maintain evidence of non-residency.
- Non-residents can often eliminate their UK tax liability entirely, but there are exceptions.
- Business owners need to consider both corporate and personal tax implications when operating across borders.
This guide is for general information only and should not be taken as legal or tax advice. Always consult a qualified tax professional before making decisions affecting your residency or tax position.