The United Kingdom has long been an outward-looking country and today its people make up a large portion of the nomadic community. In this article, I explain how the UK taxation system works, how UK nomads can ensure compliance and answer frequently asked questions.
The UK is one of the world’s most advanced nations. It leads in the field of banking and is a major player in most other fields. Tax-wise, the UK uses a rather unusual version of the residential model. Unusual in the sense that residents are only taxed on their worldwide income if they are considered domiciled in the UK. It is entirely possible to be a UK resident, spend most of your time in the UK but not be a tax resident. People claiming this status are often referred to as non-doms. Income tax rates are progressive and range from 20% on income up to ~ 32000 GBP to 45% on income above ~ 150000 GBP. The first ~ 11000 GBP is tax-free. The capital gains tax rate is determined by a taxpayer’s total income. If that total income is lower than ~ 32000 GBP (with the capital gains added), the rate will be 18%. If the total income is above ~ 32000 GBP, the rate will be 28%. The UK has no wealth tax and no capital duty. It has a stamp duty (0.5%), an estate tax (40% above 325000 GBP) and a social security tax (2% to 13.8%). Most UK councils also charge a council tax. The tax year starts on the 6th of April and ends on the 5th of April of the following year. If a tax return needs to be filed, it must be filed before the 31st of October.
The United Kingdom uses a special version of the residential model to determine the tax residency status of individuals. It relies heavily on the domicile rules and the number of days spent in the UK in a given tax year. Unlike most other systems, the UK’s is clear and easy to navigate. I have built a flowchart and embedded it below, it will help you determine your tax status.
Chances are, you fit in one of the categories listed in the flowchart. If not, your status will be determined by the number of ties you have in the UK and abroad. Such ties include family members, UK employment, housing, time spent in the UK and abroad, status in other countries etc.
Question 1: I qualify as non-resident for tax purposes in the UK. Do I need to file a tax return.
Answer 1: Only if you have UK-sourced income.
Question 2: Do I need to close all my bank accounts, credit cards etc in order to qualify as non-resident for taxation purposes?
Answer 2: No, you can continue using your accounts and credit cards while you live abroad. DO NOT change your address for one outside the UK, banks have been known to close the accounts of people who do that.
Question 3: Is there a way for a nomad who is a tax resident of the UK to tax-optimize?
Answer 3: Absolutely. Many tax credits, rebates and allowances exist. It is also possible to tax-optimize using a corporate structure, in the UK or abroad.
Question 4: As a non-tax resident, will I still have access to the NHS and social services?
Answer 4: No. You will need to purchase health insurance and pay your own way.
I have written articles covering nearly every aspects of the nomadic lifestyle. I strongly recommend that you read them all, especially the following ones: The best residency options, Where to register your business, Ultimate guide to nomad banking, The five flag theory, Ultimate guide to travel hacking, Health insurance, the guide, Dying abroad, the guide, Mailing addresses, the guide, CFC rules, the list, CRS, the end of banking secrecy and How to transfer money internationally.