Immigration Corner: Do I have to pay taxes outside the UK?
Dear Mr Bassie,
With respect to paying taxes, how is a United Kingdom resident considered to be ‘domicile’ outside of the United Kingdom and not have to pay tax on any foreign income earned?
A United Kingdom resident who has his or her permanent home, that is ‘domicile’, outside the United Kingdom may not have to pay United Kingdom tax on foreign income. It should also be noted that the same rules apply if a person makes any foreign capital gains for example a person sell shares or a second home.
When a person is considering his or her domicile, that person domicile is usually the country where his/her father considered his permanent home when he/she was born. However, this may have changed if he/she has moved abroad and that person does not intend to return.
If a person needs assistance in working out which country he/she is domiciled in, then that person ought to read chapter 5 of HM Revenue and Customs’ (HMRC) guidance on ‘Residence, Domicile and the Remittance Basis’ or get professional tax help, for example, from a tax adviser. In addition, there are additional rules for domicile and Inheritance Tax.
With respect to tax if a person is non-domiciled, he/she would not need to pay United
Kingdom tax on his/her foreign income or gains if both are less than £2,000 in the tax year and if that person does not bring any of it into the United Kingdom, for example, transfer them to a United Kingdom bank account. If this scenario applies to a person in the United then he/she would also not need to pay anything.
For further information a person can read Chapter 9 in HMRC’s guidance on ‘Residence, Domicile and the Remittance Basis’ which explains the rules for taking income or gains to the United Kingdom.
If a person’s foreign income is £2,000 or more, he/she must report this foreign income or gains of £2,000 or more, or any money that he/she might bring to the United Kingdom, in a Self-Assessment tax return. That person can either pay the United Kingdom tax on foreign income or gains or he/she may be able to claim it back or claim the ‘remittance basis’
Claiming the remittance basis means a person only pays United Kingdom tax on the income or gains he/she brings to the United Kingdom, but that person will lose tax-free allowances for Income Tax and Capital Gains Tax, although some ‘dual residents’ may keep them, that is pay an annual charge of £30,000 if that person has been resident of the United Kingdom for at least 7 of the previous 9 tax years; this rises to £50,000 once that person has been there for 12 of the previous 14 years.
Persons should be aware that claiming the remittance basis is complicated; they should always contact HMRC or get professional tax help from a tax adviser.
There are special rules if a person works both in the United Kingdom and abroad. A person will not have to pay tax on foreign income or gains, even those that are brought into the United Kingdom, if that person gets the ‘foreign workers’ exemption’.
A person will qualify for the ‘foreign workers’ exemption’ if his/her income from his/her overseas job is less than £10,000; if other foreign income (eg bank interest) is less than £100; if all that person’s foreign income has been subject to foreign tax, even if he/she does not have to pay, for example, because of a tax-free allowance; a person’s combined United Kingdom and foreign income is within the band for basic rate Income Tax; or a person does not need to fill in a tax return for any other reason.
If a person qualifies, he/she does not need to do anything to claim.
Just for completeness, a person may be able to claim Overseas Workday Relief if his/her employer sends him/her to work in the United Kingdom on secondment. If a person qualifies then he/she will have to pay United Kingdom tax on United Kingdom employment income based on the number of days that he/she has worked there.
John S. Bassie is a barrister/attorney-at-law who practises law in Jamaica. He is a justice of the peace, a Supreme Court-appointed mediator, a fellow of the Chartered Institute of Arbitrators, a chartered arbitrator and a member of the Immigration Law Practitioners Association (U.K.). Email:firstname.lastname@example.org