Expatriates – UK tax planning
This message on UK expatriate tax and immigration is vital and highly relevant. The UK remains a welcoming country for many types of expatriate, and that message can be lost sometimes. The UK tax incentives for new tax residents are abundant.
The UK are now more specific regarding the skills required here, but foreign nationals are still greatly welcomed by UK employers.
Which skill shortages in UK ?
Both employed and self-employed people are very much encouraged to move here. For example, in spring 2021, these UK sectors have staff shortages and look abroad for staff : health, finance, engineering, transport, logistics. This situation will evolve of course as the global pandemic situation changes during 2021 and later.
UK tax incentives – new arrivals
Let’s look at a sample of UK tax reliefs for expatriates arriving here. Each tax break is determined by a number of different legal conditions. So, you may be entitled to one relief only, or several different tax benefits. More details on UK Residence Tax are here.
Overseas workday relief
An individual comes to the UK to work here for up to 3 years. She meets the UK tax residence test upon arrival. She still carries out her duties here, and in the EU eg France and Spain for 25% of her work. She could be entitled to UK tax relief on income related to non-UK workdays for the first 2 or 3 tax years. This is a major tax relief eg 25% of income is £20,000 for example. This becomes tax-free saving £8,000 per year because her marginal tax rate is 40%.
We cannot cover this fully because it is a major topic of its own. And this statement is a great summary “A UK non-domicile in the first 7 tax years can choose not to report or tax any overseas income or gains here”.
UK split year treatment
An individual arrives to work in the UK for an intended 2 to 3 years. She arrives part way through this tax year in October 2021, and she meets the UK residence test. Using this tax incentive, she should be able to claim split year relief. This allows her to be taxed in the UK from date of arrival ie not the whole tax year. Tax rules on this subject are complex – please seek tax advice on split year eg when filing tax returns in UK.
Detached duty relief
An individual is posted to the UK by his foreign employer for two years. He fulfills the UK tax residence rules. He is eligible potentially to claim 100% tax relief on UK accommodation provided. Daily living allowances may also be included. Major tax savings here of £5 – 20,000 approximately in the two years. It is a massive tax relief.
A new arrival to the UK can typically claim certain relocation costs OR detached duty relief. She cannot normally claim both tax reliefs. For example, a senior executive moves from Berlin with her family to work in London. She should be entitled to claim up to £8,000 of tax-free moving expenses if she meets the qualifying conditions.
A foreign national from, any part of the world, comes to work in the UK for a 5 year posting. She meets the criteria for UK non-domicile tax treatment. Every year, she and her spouse and three children return to the home country for 2 weeks. Estimated cost of flights is £4,200 per trip. All of these costs should be tax deductible under the home leave rules.
….It’s just a blog ….
When blogging, we do not bombard you with every part of every UK tax law. That would be a long technical guide, which does not belong here. Please remember that, if you believe you may be able to claim relief, you should ask Oliver for a specific tax review. Every expatriates’s tax circumstances are different.
Some other great reliefs
Let’s mention briefly some other tax incentives available.
- An expatriate who pays foreign taxes on investments can seek to claim foreign tax credits in the UK.
- An individual who uses their own car for business travel – UK tax relief available.
- An expatriate whose time in the UK is low and infrequent may be deemed UK tax non-resident. This is very often a most beneficial UK status.
- Non-UK pensions – we claim decent UK tax deductions for certain foreign schemes.