Leaving the UK – Our top 7 key tax & social security considerations

1. Plan & Prepare

We still come across situations where individuals have sought our advice after having left the UK and in some cases have retained their UK tax residence and thus subject to UK income taxes.  We recently had a case where an individual moved to Spain to start full-time work overseas but continued to spend significant amounts of time in the UK post departure.  This individual as a result did not break UK tax residence and was subject to tax at their marginal tax rate of 45% on their foreign income compared to 24% in Spain under the expatriate tax regime.  This resulted in additional UK taxes being payable of in excess of £20k.

Therefore, it’s always best to obtain advice prior to moving to ensure any arrangements are effectively structured to minimise your tax liability whilst also ensuring you are fully compliant with the relevant tax legislation both in the UK and overseas.

2. Tax Residence Assessment

Where will I be tax resident?

A common question we receive is on tax residence.  This is a key consideration when you are moving overseas and broadly,

• If you are moving overseas for 6 months or less then you will remain UK tax resident.
• If you are moving overseas for at least 2 years which covers a complete UK tax year then you will break UK tax residence provided you are able to limit the time you are spending back in the UK;
• If you are moving overseas for a period of between 6 to 24 months then get advice as your tax residence status is more complicated and a number of factors need to be taken into account such as the reason why you are moving, your ties to the UK and how many days you will be spending back in the UK;

Why Does my Tax Residence matter?

Your tax residence status is the key factor in determining whether you will continue paying UK tax.  If you break UK tax residence then you will not be taxable in the UK except on income that’s sourced/earned in the UK (see point 3 below).  If, however, you remain UK tax resident, then you will continue to be taxable in the UK but with the potential added complexity of having to pay taxes both in the UK and overseas.  In this case a review of the relevant double tax treaty (if in force) will need to be undertaken to determine filing/reporting obligations in order to ensure you are not subject to double taxation (see point 4 below).

3. UK Sourced Income

The 2 most common types of UK sourced income are

• Employment income; and
• UK Property Rental Income;

In relation to your employment income, if you are spending some time on an ad hoc basis working back in the UK, then your earnings relating to your UK workdays may be taxable in the UK.  The relevant double tax treaty in place between the UK and the overseas country would need to be reviewed to determine if your income would be exempt from UK taxation. In relation to your UK property rental income, this will still be taxable in the UK even as a non-UK tax resident.  You will therefore need to file a tax return and report / declare your income on your tax return.  In addition, as a non-UK tax resident, you will need to register with HMRC under their non-UK resident landlord scheme.

4. Double Taxation

The UK has entered into double tax agreements with over 100 countries.  The primary objective of the double tax treaty is to eliminate double taxation and to confirm which country has taxing rights.  For example, if you are dual tax resident and retain your UK tax residence status whilst also becoming tax resident overseas.  Broadly, the terms of the double tax treaty will either determine which country/tax authority would give a credit for any taxes to eliminate double taxation or alternatively confirm if the income in question is exempt from taxation in one country.

5. Social Security

Social security is referred to as National Insurance in the UK.  If you are leaving UK to take up employment overseas, then you will stop contributing into the UK social security system and instead start paying overseas social security.  The only exception to this is for example if you are moving on assignment (aka secondment) and retain your employment in the UK.  In this case, if you are moving to an EU country or a country with which the UK has a reciprocal social security agreement (e.g. with Bermuda) then you would continue paying UK social security for normally up to 2 years. 

A key consideration when you stop paying UK social security is the impact this would have on your UK State Pension entitlement.  Based on current rules, you would be entitled to the minimum UK state pension if you have at least 10 qualifying years of service i.e. certain level of earnings.  Once you have 35 qualifying years, you would be entitled to the full UK state pension.

You can use HMRC’s service (https://www.gov.uk/check-national-insurance-record) to check your National Insurance record.  If you aren’t yet entitled to the full UK state pension, then you should consider making voluntary national insurance contributions to increase the number of qualifying years you have.  The type (Class 2 vs Class 3) and amount of voluntary national insurance are payable is dependent on the reason why you are moving overseas and your previous residence in the UK.

6. Trailing Income

What is trailing income? 

Trailing income is income you receive over a longer duration of time such as bonuses, share options etc.  If you are an employee in the UK moving overseas on assignment / secondment, then you may receive trailing income. A proportion of such income may remain taxable in the UK and your employer will / should process part of the awards via the UK payroll.  Therefore, we would recommend filing a tax return for the year in which you receive your awards as you may be due a tax refund particularly if your employer has used a 0T tax code i.e. in calculating the tax withholding due via the payroll, your employer has not allocated a tax-free personal allowance to you which you may be entitled to even as a non-UK tax resident.

7. Overseas Beneficial Tax Regimes

A number of countries (particularly within the EU) are looking to attract new talent and have introduced beneficial tax regimes.  We have provided an overview of some of the key countries and the regimes introduced.  With all these regimes, a number of conditions need to be satisfied e.g. in relation to prior non-residence in the relevant country etc and therefore we would recommend obtaining the relevant advice prior to your move to ensure you qualify and meet the necessary conditions.

• Spain – Inpatriate tax regime also known as the Beckham tax regime. Under this scheme individuals are subject to a flat rate of taxation of 24% on income up to EUR 600,000
• France – Impatriate tax regime under which individuals can obtain up to 30% of their income tax free.
• Italy – Probably one of the most attractive regimes from a tax perspective as qualifying individuals can obtain 70% of their income tax free and in some cases this can be increased to 90% if you are moving to qualifying regions in the south of Italy!
• Denmark – Individuals can elect to be taxed at a flat rate of 27% on their income

Compared to the UK’s marginal tax rate of 45%, the above regimes offer the opportunity to significantly lower your tax liability.

Next Steps

If you are moving overseas and would like tailored tax and/or social security advice which is tailored to your circumstances, then please get in touch with us at contactus@e-taxconsulting.com or via the contact us form on the website.  Also check out our “Coming to the UK” article if at any point you do decide to return to the UK.