UK TAXATION Non-domiciled individuals are taxed either on their worldwide income and capital gains (i.e. the arising basis) or on their foreign source income and gains only to the extent that this income and gains are received in or remitted to the UK (see 'Remittance Basis' later). The UK tax year runs from the 6th April to the following 5th April and the filing deadline is 31st January of the following year (unless the tax return is filed on paper, where the deadline is 31st October). There is no concept of joint tax filing in the UK so each individual files their own tax return, under the system called 'Self-Assessment'. Not all taxpayers need to file an annual tax return, which is only required for those who have a tax return filing requirement. Employees have tax withheld with their monthly pay under PAYE (Pay As You Earn), and receive a P60 after the end of the tax year to report their cash earnings and a P11D which reports non-cash Benefits in Kind, if any.
INTRODUCTION The UK tax regime for expatriates coming to the UK can be complex, so this guide will be an overview of the considerations that recent arrivals can use to ensure they are being taxed efficiently and taking advantage of any incentives available to them. It will also address some of the specific issues that relate to US citizens and green card holders moving to the UK. THE SCOPE OF UK TAXATION The scope of UK income tax, capital gains tax, and inheritance tax is based on a person’s residence and domicile status, as well as on the source of income or capital gains, and for inheritance tax purposes the situs of assets. Residence under UK tax law is determined by reference to a complex set of criteria known as the Statutory Residence Test (or SRT). This determines whether a person is resident in the UK based on the extent of their connections to the UK and the amount of time that the person spends in the UK. Domicile is a concept of UK common law. A person’s domicile is generally the territory which that person considers to be their permanent home. Expatriates who have been in the UK for several years should also be aware of the concept of deemed domicile. In general, a non-UK domiciled person who has been resident in the UK at any point in fifteen out of the previous twenty tax years will be deemed UK domicile for all UK taxes. For an expatriate in the UK, understanding their residence and domicile status is important to ensure that they can comply with the tax obligations imposed on them, and to allow them to understand the opportunities that may be available. A person who is resident and domiciled in the UK is generally taxed in the UK on their worldwide income and capital gains, whereas someone who is not UK resident is usually only taxed on UK source income, or capital gains on the disposal of certain types of UK assets (e.g., real estate). Those who are resident but not domiciled, or deemed domiciled, in the UK can choose the basis under which they are taxed.
RESIDENCE The SRT can be complex to navigate but it is broken down into a series of automatic tests, followed by a days limit determined by the number of ties to the UK if none of the first tests are conclusive. If a person is a resident under one of the automatic or ties tests, they are resident for the entire tax year. The ties are related to the availability of UK accommodation, whether their immediate family is resident in the UK, the number of workdays spent in the UK, the number of days spent in the UK in prior tax years and whether more days were spent in the UK than any other single country. However, in a year of arrival of departure it is possible to ‘split’ the year into a resident period and a non-resident period. This means that non-UK sourced income earned in the non-resident period usually is not taxed by the UK. There are eight possible cases which allow a person to claim ‘split year treatment’ in a year of arrival or departure which determine the date on which their residence begins or ends. These are related to the availability of accommodation 43
