UK Tax Laws Clarified for British Expatriates

Tax calculations

A new tax law that will come into practice in 2012 should provide long awaited clarity for British expatriates who are working overseas.

Until recently, many UK expats have been confused as to whether or not they are required to pay tax in their home country while living and working abroad. In order to clarify the rules the British government has proposed a new law that will come into force in April 2012. Under the new legislation an individual will be exempt from paying tax in the United Kingdom if he or she spends less than 20 working days in the country per year and less than 90 days in the country.

The clarification of the tax requirements should come as welcome news for many British overseas workers, many of whom have struggled to understand their legal tax status in the past. However, there remains a number of anomalies surrounding some of the more ambiguous elements of the proposed laws that still require explanation. One such area concerns the “connection factors” that the British government has listed as constituting a key part of the residence test. These factors, which are relevant if they take place during the tax year, include the following:

  • Whether there is a UK resident family (broadly, spouse and minor children);
  • Whether the individual has substantive UK employment, including self-employment (i.e. 40 or more days working in the UK in a tax year);
  • Whether the individual has accessible accommodation in the UK (this does not include accommodation such as hotels or short-term accommodation provided by an employer which is also available to other employees);
  • Whether the individual spent 90 days or more in the UK in either of the previous two tax years;
  • Whether the individual has spent more days in the UK in the tax year than in any other single country (leavers only).

While those expatriates who are exempt from taxation because they meet the residency requirements may breath a sigh of relief for now, the threat of the government issuing a new expatriate tax similar to that in use by the US government remains. However, many critics of such a method argue that while such a law may increase tax payments into the UK, it will not resolve issues on a long-term basis and may lead to expatriates relinquishing their British citizenship. It also would not address the core issue, which is British talent leaving the UK as a result of better opportunities elsewhere in the world.