The opportunity to relocate and work in another country is an exciting opportunity for many UK nationals and their families. Whilst the move may be temporary, the tax implications can be long-lasting and potentially costly if not managed properly.
For those employed by a UK company and expect to work overseas for a short period of time, the tax position is straightforward. Income tax and national insurance contributions (NICs) will continue to be paid in the normal way, and your tax status is unlikely to change.
It becomes a little more complicated when working overseas for much longer periods of time and if paid by a local subsidiary or company.
The UK uses the Statutory Residence Test (SRT) to determine an individual’s tax residency in each tax year.
Remaining UK tax resident means being liable to UK income tax on worldwide income and gains. This can leave individuals facing paying income tax twice – both in the country where they now live and work and in the UK. Governments around the world recognise this is unfair, with the UK having double taxation agreements with many countries.
Individuals need to keep in mind the 183-day figure in determining their tax residency status. In short, if you spend more than 183 days outside of the UK, your tax residency status may change.
Where an individual becomes non-resident partway through a tax year, they may be eligible for split year treatment, allowing them to be taxed as a UK resident only for part of the year. This is common where individuals move abroad for full-time work or to join a partner. However, strict conditions apply, and many short-term moves will not qualify.
UK income remains taxable
Even if an individual does achieve non-resident status for tax purposes during a temporary move, UK income remains taxable.
For example, you may choose to rent out the UK family home. Rental income from that home would be liable for tax, as would any bank interest and income from any investments.
UK tax compliance, including self-assessment obligations, often continues throughout a temporary stay abroad.
The temporary non-residence trap
Where someone becomes non-resident and then returns to the UK within five years, special rules can apply. Under the temporary non-residence rules, certain capital gains and income (for example, from offshore funds or pensions) realised during the non-resident period may become taxable on their return to the UK.
This is particularly relevant for individuals who dispose of overseas assets or withdraw from non-UK pension schemes during their time abroad.
Taxation in the host country
The destination country will often tax UK nationals based on their presence and local residence rules. For temporary assignments, this can create dual tax residency. In these cases:
- Double taxation agreements are key in determining where tax is due.
- Foreign tax credits may be available to offset UK tax paid.
- Local taxes, such as income tax, social security contributions, or even wealth taxes, may apply.
A short-term move can create complex cross-border tax issues. Before relocating, individuals should seek advice on:
- Maintaining or breaking UK tax residency.
- Reporting and relief obligations in both countries.
- Timing income, capital gains and pension withdrawals strategically.
- Complying with local registration or filing rules overseas.
Temporary doesn’t mean simple. Without proactive planning, a brief move abroad can trigger permanent tax headaches. It is essential to take early and expert advice.
While this article focuses on income and capital gains tax implications, individuals relocating overseas should also be aware of potential Inheritance Tax (IHT) considerations—particularly in relation to domicile status and the location of assets. These complex issues are not covered here, but we would would be pleased to provide tailored advice on managing your IHT position when moving abroad. Contact our expert below for further insights.
