Living and working outside of your home country? When do you become a tax resident? Not sure what income tax you’ll have to pay when you move abroad? Expat tax affairs can be complicated.
We’ve created this guide to help you understand your tax requirements as an expat in the UK and USA. Here we cover answers to the most popular tax questions, such as what are the UK tax requirements for American expats, and what if you are a resident in more than one country. But first, a quick note to say that we are an expat health insurance company and we don’t actually help expats with taxes. We update this article regularly to keep it as useful as possible for you, but if you want to know more, please seek independent advice.
This article covers
- General taxes for expats questions and answers
- Taxes for expats in the UK
- Taxes for expats in the USA
Taxes for expats: what you should know when moving abroad
Taxes for expats isn’t always straightforward, so we are here to help by answering questions about taxes for expats.
If you’re living and working outside of your home country, you should understand the basics of taxes for expats.
Do expats have to pay taxes?
Tax regimes vary tremendously. Some locations don’t charge individuals – resident or non-resident – any income tax at all. Some locations 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.
However, the majority of countries base taxation on residence. The detail of how this works varies from country to country, but it very broadly means that if you’re resident of a country, you have to pay tax on income earned both inside and outside that country.
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.
For more information on calculating the foreign-earned income exclusion, see the IRS.
When do I become a tax resident?
Countries have different rules about when you become a resident for tax purposes. In some countries, you become a tax resident from day one of setting your permanent home there. 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.
What if I am resident in more than one country?
It’s possible to be a dual resident for tax purposes. If this is the case, you’ll need to make sure you understand both countries’ residency rules, when their tax years begin and end, and any double taxation agreements.
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
Residence and domicile
An individual’s liability to personal taxation in the UK depends largely on that person’s tax residence and domicile status, and on other factors such as the situs of assets (the place where they are located for tax purposes) and the source of income and capital gains.
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 (however, please check with a tax specialist because there might be a question of capital gains). 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. Find out more about tax on foreign income.
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. The rules around this are complex and you may need to take professional advice to find out if they apply to you – see tax and non-domiciled residents at GOV.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?
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.
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.
Taxes for expats in the USA
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 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 American 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.
Wherever you move, go with total peace of mind
At William Russell, we have nearly 30 years of helping expatriates finding best places in the world to move abroad and settle into their new lives overseas by providing world-class global health insurance. Plus, we produce lots of expert material to help you and your family adapt to life abroad.
Making the move to another country can be challenging. But no matter where you go, you can take one thing off your mind. William Russell offers international health insurance and income protection that covers you for everything from minor injuries to long hospital stays, and we can even offer medical evacuations to patients who require treatment in other countries.*