Do I have to pay UK taxes if I move abroad?

Perhaps you are currently working for a UK employer, but are thinking about becoming based overseas whilst you work?

Or, maybe you are living the life of a “digital nomad” – travelling around and working on your laptop for months at a time in each country you visit.

With all of these exciting prospects in front of you, it’s easy to forget and lose sight of your tax obligations. However, failing to handle your tax affairs properly could land you in big trouble with HMRC back home, with governing authorities overseas – or both.

In this article, we’re going to cover some of the important areas involved with the subject of taxes for British people working overseas.

Please note that this article is for information purposes only and does not constitute financial advice. For specific financial advice into your unique financial situation, please speak with a qualified and experienced financial adviser.

Residential status & tax

One of the most important things which determine your tax liability is your residential status.

By default, most British people are “resident” in the UK and so all of their income is subject to UK taxes. If you are classed by HMRC as “non-resident”, however, then you might not have to pay UK taxes on some (or even all) of your income emanating from outside the UK.

For instance, take the example of a British freelance digital marketer who is currently resident in Malaysia. Assuming they are resident in Malaysia, this person should not need to pay Malaysian taxes on any income generated from outside of Malaysia.

This is because the UK and Malaysia have a double-taxation treaty, which sets out that UK nationals resident in Malaysia do not have to pay Malaysian taxes on foreign income.

However, that does not necessarily mean that this person is completely free from any tax obligations! For instance, if some of their freelance work emanates from within the UK then this income might be subject to UK tax.

Other countries do not have a double-taxation treaty with the UK or the provisions are different from the UK-Malaysian treaty, so make sure you check online regarding the particular country (or countries) you are planning on working in.

The important thing is not to make any assumptions about your tax status if you are planning on working or freelancing overseas. If you are required to fill out a Self Assessment Tax Return then you will need to declare your foreign income, as well as income generated in the UK.

What if I leave the UK in the middle of the tax year?

The UK financial year is divided differently to many other countries across the world, from April until the following April. If you leave the UK and move to another country in the middle of this period, then it can make things confusing when you’re trying to work out your taxes.

Generally speaking, if you move abroad during the tax year then you might be able to claim back some of your tax money from HMRC – assuming you haven’t fully used up your Personal Allowance for that financial year. You can do this via self-assessment (if you usually fill one out), or you can do this by contacting HMRC directly leading up to the following April.

The above, of course, assumes that you will be based outside of the UK for less time than the current tax year. If you are planning on staying overseas for longer than one UK tax year, then you need to tell HMRC by filling out a P85 form.

This allows you to request that HMRC pays you a tax refund (if this is due), and to ask that your earnings are not subjected to UK taxes anymore (because you will, presumably, be earning an income overseas which will be taxed overseas).

National insurance

If you are currently employed and living in the UK then you should be making national insurance (NI) contributions automatically to HMRC via your payslip, through Pay As You Earn (PAYE).

When you become resident overseas, however, then you might not continue to automatically make these contributions. That might not sound like a big deal, but it could be problem down the line if you aren’t careful.

For instance, in 2019-20 you need to build up at least 35 years of qualifying NI contributions to receive the Full State Pension when you eventually retire. If you live and work abroad for a significant period of time, therefore, you could unwittingly end up with big gaps in your NI record. This, in turn, could then have a big impact on your retirement income and lifestyle in the future.

If you are planning on working abroad for more than a year, then it is worth considering whether you want to make voluntary NI contributions whilst you are overseas. This will allow you to keep building up your NI record, hopefully to the full 35 qualifying years.

Conclusion

We have only been able to touch lightly on the subject of taxes whilst working overseas, given the constraints of this article. However, hopefully it gives you a good basis on which to get you started in your thinking about your own plans regarding overseas work.

Naturally, we would recommend that you speak with a qualified, independent financial adviser about these matters – especially one experienced in helping British expats and overseas workers. Doing so will allow you to gain a more comprehensive “lay of the land” regarding this complicated topic, and ascertain the best options available so you can make informed decisions which meet your legal obligations and which are in your best interests.

If you would like to speak to a member of our team about the above, then get in touch to arrange a free, no-commitment financial consultation with one of our financial advisers.

The information is provided in good faith without any warranty and is intended for informational purposes only. It does not constitute investment advice, recommendation, or an offer of any services or products for sale and is not intended to provide a sufficient basis on which to make an investment decision. For further details see our Regulatory Statement.