Paying income tax in the UK
Dear Mr Bassie,
I am a Jamaican-born British citizen. I am thinking about returning home to live, but I am not sure if I would pay income tax in Jamaica on income coming from the United Kingdom and whether I would have to pay income tax to the United Kingdom, on income earned here.
I would appreciate any assistance.
Persons may need to pay United Kingdom income tax on their foreign income, such as: wages, if they have worked abroad; foreign investments and savings interest; rental income on overseas property; income from pensions held overseas.
Please note that income earned from outside England, Scotland, Wales, Northern Ireland, the Channel Islands and the Isle of Man are classified as foreign. Whether persons need to pay depends on if they are classified as 'resident' in the United Kingdom for tax purposes.
If persons are not United Kingdom residents, they will not have to pay United Kingdom tax on their foreign income. However, if they are United Kingdom residents, they will normally pay tax on their foreign income, but they may not have to if their permanent home 'domicile' is abroad.
If persons need to pay tax, they will usually report their foreign income in a 'self-sssessment' tax return, but there are some foreign income that is taxed differently.
If persons' income is taxed in more than one country, they may be able to claim tax relief. If they have not yet paid tax on the foreign income, they may need to apply for a certificate of residence to prove that they are eligible for relief.
Persons United Kingdom residences' status affects whether they need to pay tax in the United Kingdom on their foreign income. Non-residents only pay tax on their United Kingdom income and they do not pay United Kingdom tax on their foreign income.
Residents normally pay United Kingdom tax on all their income, whether it is from the United Kingdom or abroad. However, there are special rules for United Kingdom residents whose permanent home 'domicile' is abroad.
Whether persons are United Kingdom residents will usually depend on how many days they spend in the United Kingdom in the tax year, that is, April 6 to April 5 of the following year.
Persons are automatically resident if either: they spent 183 or more days in the United Kingdom in the tax year; their only home was in the United Kingdom and they must have owned, rented, or lived in it for at least 91 days in total and spent at least 30 days there in the tax year.
Persons are automatically non-resident if either: they spent fewer than 16 days in the United Kingdom or 46 days if persons have not been classed as United Kingdom residents for the three previous tax years; they work abroad full-time, averaging at least 35 hours a week, and spent fewer than 91 days in the United Kingdom, of which no more than 30 were spent working.
When persons migrate in or out of the United Kingdom, the tax year is usually split into two parts and that is a non-resident part and a resident part. This means persons only pay United Kingdom tax on foreign income based on the time they were living over there. This is called 'split-year treatment'.
It should be noted that persons do not need to claim split-year treatment as it is applied automatically. Persons will not get it if they live abroad for less than a full tax year before returning to the United Kingdom. Those persons will also need to meet other conditions to find out if they qualify: they can read chapter five of HMRC's guidance note on the Statutory Residence Test online and/or contact HMRC.
Further, persons should be aware that their status can change from one tax year to the next. Persons should check their status to see if their situation has changed, for example, they spend time in the United Kingdom; they buy or sell homes in the United Kingdom; they change their jobs; their family moves in or out of the United Kingdom, or they get married, separate, or have children.
United Kingdom residents must pay tax on their United Kingdom income and foreign gains. Non-residents have to pay tax on income, but only pay capital gains tax either on United Kingdom residential property or foreign property if they return to the United Kingdom.
Please be aware that there were different rules for working out a person's residence status before April 6, 2013.
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 (UK). Email: firstname.lastname@example.org