Living and working outside of your home country? Not sure what income tax you’ll have to pay? Taxes for expats isn’t always straightforward, so we are here to help by answering questions about taxes for expats. Find the answers to the most commonly asked questions that we’ve received in the 29 years we’ve been protecting expats in our handy guide.
Do expats have to pay taxes?
If you’re living and working outside of your home country, you should understand the basics of tax. Whether you need to pay tax depends on if you’re classed as ‘resident’ for tax. In most cases, if you’re not a resident, you will not have to pay tax on your foreign income. If you’re a resident, you’ll normally pay tax on your foreign income. But you may not have to if your permanent home (‘domicile’) is abroad.
When do I become a tax resident?
Countries have different rules about when you become a resident for tax purposes. In Spain for example, you’ll be a tax resident if you spend more than 183 days in the country in a calendar year. In the UK, there’s a Statutory Residence Test for working out your residence status for a tax year. In the USA, you’ll be considered a US resident for tax purposes under conditions set out in a ‘substantial presence test’, which looks at how many days you’re physically present in the country.
Tax regimes vary tremendously. Some locations, including the UAE and Kuwait, don’t charge individuals – resident or non-resident – any income tax at all. Some locations, such as Hong Kong, have a system of territorial taxation, where you only pay taxes on income earned in that location. Income from outside the location is exempt from tax.
What are my tax return filing requirements?
You may have to fill in a tax return for your country of citizenship even if you’re not resident there. For example, UK expats may have to complete a UK tax return if they carry out work in the UK, or get rental income from UK properties. If you’re a US citizen, you’ll need to file taxes if your gross income is over the filing threshold set by the IRS.
What if I don’t earn an income?
It may not be compulsory to complete a tax return if you’ve earned under a certain amount, your income is taxed at source or you have no income. However, you might choose to do so to see if you’re eligible for a tax return or to claim other tax reliefs.
Taxes for expats in the UK
What about expat tax in the UK?
If you’re a UK citizen who is resident abroad, you won’t have to pay UK tax on your foreign income. But if you’re resident in the UK, you’ll pay tax on all your income regardless of whether its source is in the UK or abroad.
This could lead to a situation where you’re taxed twice – once in the country where the income is from and once in your country of residence. There are mechanisms in the UK to claim back the foreign tax if this happens. There are also countries with which the UK has double taxation agreements, which decide which country the income is taxed in.
The UK also has a category of non-domiciled residents who might not have to pay UK tax on foreign income if their permanent home is outside the UK.
Do expats get the Personal Tax allowance in the UK?
You can get a Personal Allowance of tax-free UK income if:
- You hold a British passport
- You’re a citizen of an EEA country
- You’ve worked for the UK government during that tax year.
People resident outside the UK need to claim the Personal Allowance at the end of the tax year in which they received the UK income.
The standard Personal Allowance is £12,570.
Do I need to tell HMRC when I leave the UK to work abroad?
You’ll need to tell HMRC if you’re:
- Leaving the UK permanently
- Going to work abroad full-time for at least one tax year
You can inform HMRC online.
Can I rent out my property in the country as an expat?
Many expats decide to rent out their UK home while they’re living and working abroad. This has tax implications as you’ll need to pay UK Income Tax on rent if it takes you over your Personal Allowance.
US expat taxes
The USA is one of the countries – along with Hungary, Myanmar and Eritrea – where tax is based on citizenship . This means that the income of non-resident citizens is subject to US income tax, although there’s an exclusion for foreign-earned income of $108,700 per person. But citizens earning under this amount will still need to file a US tax return.
Do I pay US expat taxes as a UK resident?
It depends on your financial situation. Currently, up to $108,700 per person of foreign-earned income is excluded from US tax. But you still need to file a US tax return even if you don’t end up having to pay any tax.
What are the Capital Gains Tax rules for British expats and non-UK residents with a UK property?
You may have to pay Capital Gains Tax if you’ve sold a UK property or land and you’re not resident in the UK. You need to report the sale to HMRC. You can report your sale and pay your non-resident Capital Gains Tax online. There are also calculators you can use to see whether you have to pay tax and how much.
What are the UK tax requirements of American expats?
The income tax you pay as a US expat in the UK will depend on your residence status. If you’re a non-resident, you’ll only pay tax on your UK income.
But if you’re a UK resident, you’ll pay UK tax on all your income, whether its source is the UK or abroad. The exception to this is if you’re a UK resident whose domicile – permanent home – is abroad.
What is the US/UK double tax treaty?
This agreement is designed to avoid US citizens who are tax resident in the UK from being taxed twice on their UK income.
Do expats get stimulus checks?
Stimulus checks are part of the economic stimulus package aimed at boosting the US economy in the wake of the COVID-19 pandemic. The money is given directly to US citizens. US expats are eligible provided they fall within the income threshold, have filed a tax return and have a social security number.
Do expats qualify for the third stimulus check?
Yes, expats qualify for the third stimulus check. You qualify if you fall within the income threshold, have a social security number, and file taxes — even if you live overseas.
|Expat Group||Third Stimulus Eligibility|
|Families with NRA spouses or mixed US citizenship||Yes, so long as family members fall within the income threshold and have a social security number, but the NRA spouse does not qualify|
|US citizens living abroad||Yes, if you fall within the income threshold and have a social security number|
|US expat retirees, SSDI and other expat nonfilers||Yes, but if you did not file 2019 or 2020 taxes you may need to take action|
|Non-US citizens||Non-US citizens residing within the US are not included|
|Expat dependents||Expat dependents with SSNs qualify for stimulus payments if their caretakers qualify under the income limits and at least one caretaker has an SSN|
Can I give up my US citizenship to avoid US tax?
About 9 million US citizens are living abroad, the US Department of State estimates. Nearly 1 in 4 American expatriates say they are “seriously considering” or “planning” to ditch their US citizenship because of taxes.
More than 4 in 10 who would renounce citizenship say it’s due to the burden of filing US taxes. However, even if you renounce your US citizenship you may have to pay an Exit Tax if:
- Your income tax liability is over a certain threshold
- The net value of your worldwide assets is over a certain amount
- You’ve failed to meet your US tax obligations for the last five years.
Taxation can be complex for expats and you may want to seek help from a specialist adviser to give you peace of mind that all your affairs are in order.