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UK tax advice for foreign nationals living in the UK

If you are a foreign national living in the UK, this guide will provide you with a detailed explanation of your UK tax requirements

Written on 17 August 2022

If you are a foreign national living in the UK, this guide will provide you with a detailed, but easy to understand explanation of your UK tax requirements.

Do I have to pay tax in the UK?

The biggest tax question for any foreign national living in the UK is whether they have to pay UK tax. If you live, or spend significant amounts of time in the UK, understanding your tax status is crucial to ensure you do not overpay or underpay tax.

Firstly, you need to establish your domicile, which is likely to be your place or birth (or your father's place of birth). Your domicile is not necessarily based on the length of time in a country, but your intentions to stay permanently - and be able to provide evidence as to your intentions.

Then you need to understand your tax residence status. In the UK, the Statutory Residence Test was introduced in April 2013 which uses a number of criteria and tests to establish whether you are a tax resident in the UK or not.

Understanding the difference between domicile and residence? 

Once your tax residence status is understood, you can begin to understand your UK tax requirements as an expat living in the UK.

Tax allowance for expats in the UK

If you are classed as a tax resident in the UK, whether you are domiciled or not, you will receive a tax allowance on your UK income of £12,570 for the tax year 2021/22. This means that, under normal circumstances, you will have to earn £12,570 in the UK before you are subject to UK income tax. This was increased from £12,500 in 2020/21.

If you earn over £100,000, your personal allowance will be reduced by £1 for every £2 earned over £100,000. This means that if you earn £125,000 plus, in a tax year, you will not benefit from the annual tax-free allowance.

Tax regime for non-domiciled UK residents

If you are a UK resident but non-UK domiciled taxpayer you may elect to be taxed on the remittance basis.

If so, you would be taxed only on your income and capital gains sourced in the UK (for example, income received from working in the UK, or from the sale of a UK based asset) and only on those foreign income and gains remitted to the UK.

Otherwise known as the remittance basis of taxation, it is available to non-UK domiciled taxpayers for the first 7 years of residence in the UK at the loss only of the annual tax-free allowance. After the first 7 years of residence, if you wish to continue to use the remittance basis you would be subject to a charge of £30,000 annually, increasing to £60,000 after 12 years.

As an example, if an individual comes to the UK in 2016/17, they can benefit from the remittance basis without incurring the £30,000 charge from 2016/17 plus the following 6 years i.e. until 2022/23.

However, if you were to elect to use the remittance basis you would lose your entitlement to your personal allowances, as indicated above. This means that in order to benefit from the remittance basis, the tax on your foreign income would need to be greater than the loss of your personal allowance to make this a viable option.

The key advantage of the remittance basis is that any foreign income or gains arising in a year in which you are a UK resident will only be subject to UK tax if you brought it back to the UK. Thus, any foreign investment income or capital gains will not be taxable in the UK, provided they are kept outside the UK.

It is also important to note that even though you will not be taxed in the UK under this scheme, you will still taxed according to the local tax laws where the income was earned.

Example of how the remittance basis works

A Spanish person living in the UK and classified as a UK tax resident elected to be taxed on a remittance basis then earned £30,000 through some consultancy work in Spain. They would not be taxed under the scheme. However, if that person brought £15,000 of the earnings into the UK, they would be taxed on the £15,000 only.

They would be taxed in Spain on the full £30,000 as that was earned in Spain.

Tax planning

For individuals moving to the UK, or non-UK domiciled individuals already living in the UK, there are tax planning strategies which can significantly reduce their liability to UK tax.

You should always seek advice from a tax adviser if you live in the UK but are not of UK domicile to ensure your financial affairs are structured to minimise your UK tax liability.

To request assistance, simply enter your details via the form and we will arrange for a tax adviser to contact you directly. They will then conduct an initial consultation for free to understand more about your situation and offer some initial advice. They will then explain the options available to you in full and how they can help you. You will not be under any obligation to proceed with their advice at any stage.

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