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Filling in a self-assessment return can be taxing, but here are some tips on avoiding the top five pitfalls for expats.
Christmas and New Year may be the time to be merry, but it’s also the season to complete annual tax returns for HM Revenue & Customs.
It’s essential to get the details right and to pay the correct amount of tax; otherwise, HMRC can unleash a volley of expensive fines and penalties.
Tax is complicated. Too many expats wrongly believe that because they live overseas, they are exempt from UK taxes.
Surprisingly, expats are penalised for filing late returns even if they do not owe any tax.
Table of contents
Residence is the first issue to sort out. Being an expat is not a residence status, and declaring yourself non-resident because you have been away from the UK for a year or more won’t cut it with HMRC.
A set of rules technically determines where you live and pay tax, not you.
For the UK, these rules are contained in the Statutory Residence Test. The test removes the argument that an expat is a non-resident if spending less than 183 days or visiting for fewer than 91 days in the UK during a tax year.
The rules also determine if an expat still has connections with the UK even though they live overseas.
These connections cover a range of factors linking them with the UK, like if the expat has a home, keeps a bank account, has close family ties with a spouse or children or regularly visits for business.
Establishing where an expat is a resident decides which country has the first call on any tax due and if a UK self-assessment return needs to be completed.
If you are a non-resident and want to tell HMRC, you can’t file a self-assessment return as the online software glitches.
HMRC software has no SA109 supplementary pages for expats, so printing and filing a hard copy of the section is essential to confirm your residence status.
If you don’t file these pages separately, HMRC will not know you are non-resident and will tax you accordingly on your worldwide income and gains.
CGT Away Days Don’t Count
A common error for expats is to leave the UK for a while to avoid capital gains tax and not declare any gains or tax due.
Tax law says expats must stay away from the UK for at least five complete tax years before they can call on this exemption. Other rules, from 2015, net temporary non-residents selling homes.
HMRC will only consider someone temporarily non-resident if they:
- Lived in the UK for four out of the seven tax years before leaving
- Have a permanent home overseas
- Returned to the UK less than five years after their official date of departure
This allows HMRC to charge expats CGT in the tax year when they return to the UK.
Not Declaring A UK Pension In Another Country
Many expats believe they need to declare their UK pension in the country where they live if they pay tax on their payments in the UK.
However, if the UK has a tax treaty with the country where you live, that country has first rights over any tax due – which means declaring any pension income.
Some countries may not accept the tax-free status of pension savings in the UK. This makes investigating non-residence and pension tax rules necessary before moving home. The USA, France and Spain impose rules like this, and withdrawing cash from a QROPS offshore pension complicates matters even more.
I Don’t Live In The UK, So IHT Rules Don’t Apply
Wrong! Inheritance Tax (IHT) applies to expats unless they have cut their links with the UK and have chosen a domicile elsewhere.
Domicile is a complex tax feature based on where you or your father were born. For instance, if an expat was born in the UK to a British father, the expat’s domicile is the UK, and their estate is subject to British IHT rules.
Taking Professional Tax Advice As An Expat
Expat tax is a potential minefield. Making innocent mistakes in completing and filing a tax return can cost thousands in fines and penalties.
Self-assessment returns covering the 2022-23 tax year must be filed online by midnight on January 31, 2024, with any tax due paid in full.
Always discuss non-residence issues with a professional tax adviser in the country where you want to live. If expats have assets, such as property or investments, in more than one country, they should file a tax return in each.
Expat Self-Assessment FAQ
Confused about expat tax returns? Our FAQ section clarifies self-assessment, deadlines, residence status, and more.
A self-assessment tax return is the main form for individuals to complete. The return lists someone’s worldwide income, tax reliefs and allowances.
If expats collect any income from the UK, they should consider filing a tax return with HMRC and the tax authority where they live. Not all expats complete a return, but many with UK rental income, pensions or investments may need to.
The Sa109 is a supplementary form filed with the self-assessment tax return. The form contains information that helps HMRC decide if an expat is a non-resident in the UK.
Download a copy of the SA109 here
The self-assessment return for the previous tax year should be filed by midnight on January 31, with any tax due paid in full. So, the self-assessment data for the April 6 2022, until April 5, 2023, tax year must be filed with any tax paid by midnight on January 31, 2024. Filing the return even a minute late triggers a £100 penalty even if you have no tax to pay or are due a refund.
HMRC has a short online guide for expats filing tax returns from overseas.
Below is a list of related articles you may find of interest.
- HM Revenue & Customs (HMRC): The official UK government portal for tax information and resources.
- Statutory Residence Test: Details about the Statutory Residence Test, which determines the residence status of individuals for tax purposes.
- Inheritance Tax: Information about Inheritance Tax in the UK.
- Capital Gains Tax: Information about Capital Gains Tax, including rules for expatriates.