Regardless of your residency status, it's important to note that, based on your situation, you may be required to pay taxes in the UK on income and capital gains derived within the country. The average citizen in England pays between 20% and 40% income tax depending on their earnings - which is relatively low compared to other countries in northern Europe, such as France and Denmark. Overall, the British income tax system follows the PAYE system (Pay As You Earn), meaning employers deduct monthly income tax from wages or salaries. Every expat's situation is slightly different, but some general rules apply, which we delve into below.
UK residence status and tax
If you reside outside the UK, you will be subject to taxation solely on your income earned within the UK, while your foreign income remains exempt from taxation. UK-based income can include earnings from pensions, rental properties, savings interest or wages.
On the other hand, if you are a UK resident and your permanent home (a domicile) is also in the UK, you pay tax on all your income from the UK and abroad.
It is worth pointing out that if you are a UK resident, but your permanent home is outside the UK, you may not have to pay tax in the UK on income from abroad (e.g., income from selling shares, selling a second home, etc.).
Establishing yourself as a UK resident for tax purposes
An individual cannot have more than one domicile (a permanent home) simultaneously.
Usually, it is straightforward to establish whether you are a UK resident, depending on the number of days you spend in the country during the tax year, running from 6 April to 5 April the following year. For example, you are a UK resident if you spend 183 or more days in the UK in one tax year. However, you are not a UK resident if you work abroad full-time and spend fewer than 91 days in the UK.
Formally, your residence status will be determined by the Statutory Residence Test (SRT), which comprises three steps to cover even the most unique cases.
Lastly, one should look into double taxation relief to avoid being taxed on the same income or gains by two or more countries. Double taxation is most common among individuals who have dual residency. However, if the two countries have a double taxation treaty, this should be enough to prevent double taxation. Fortunately, most countries have a double taxation treaty with the UK, including but not limited to Australia, Brazil, China, Japan, Mauritius, Mexico, Nigeria, Singapore, South Africa, the UAE and the US.
Important:
You may be eligible for a split-year treatment if you move to or out of the UK before the end of the tax year. This means you will still pay tax in the UK, but only for income earned there.
Good to know:
International students do not usually pay UK tax on foreign income or gains as long as they are used for course fees or living costs. It is essential to check that your home country is listed on the double-taxation agreement.
Useful links:
Information about Statutory Residence Test
Income tax rates and tax returns
UK and non-UK residents are fully taxed on UK employment income regardless of whether their permanent home is within or outside the UK. Employment and investment income from abroad is only taxable for UK residents.
For the 2025 - 26 tax year (6 April 2025 to 5 April 2026), the income tax rates for England, Wales, and Northern Ireland are:
- Personal Allowance: £12,570 (no tax)
- Basic rate (20%): £12,571 to £50,270
- Higher rate (40%): £50,271 to £125,140
- Additional rate (45%): Over £125,140
Note that your personal allowance is reduced by £1 for every £2 you earn over £100,000, which means it disappears entirely once your income reaches £125,140.
Important:
Report your income to HMRC through an online or paper self-assessment tax return if you rent out property in the UK, are self-employed in the UK, were a UK resident but now earn a pension from abroad, or have untaxed income.
The deadline for tax returns is 31 January of the following year. For example, for the tax year 6 April 2022 to 5 April 2023, the tax return is due 31 January 2024.
Tax refunds
If you have reasons to believe that you have overpaid tax, you can apply for a refund. People usually overpay taxes when taxes are deducted automatically from their bank accounts and their income has been below their personal allowance. Non-UK residents can claim a tax repayment by filling out an R43 form. If HMRC approves your eligibility for a refund, it will send you a cheque or refund the money to your bank account, provided you have volunteered your bank account details (i.e. account number and sort code).
Important:
Always inform HMRC of any changes in your status or situation, such as a change of employer, marriage or divorce, moving abroad, property purchase or sale, etc. If you are leaving the UK, you should submit a P85 form to HMRC or file a UK tax return for the same year of your departure.
In conclusion, if you receive a tax return form (SA100) from HMRC, you should fill it out and return it to HMRC to avoid penalties. However, generally speaking, your tax is calculated based on the PAYE (Pay As You Earn) tax coding, meaning that you don't have to complete the tax return every year as long as your income circumstances don't change. However, an annual tax return may be required for people earning income under the threshold of £125,140 or more.Paying taxes as a resident in England
First, you must apply for the National Insurance (NI) number to be allowed to work, receive a pension, pay tax, or benefit from public health services in the United Kingdom.
Once you arrive in the UK, it is best to immediately apply for the NI number, which will be issued within a few weeks. Many employers in the UK will not allow you to start working unless you produce evidence that your NI number request is being processed.
Upon finding a job in the UK, your employer will have to apply for a unique tax code in accordance with your income level and situation at the HMRC. To do so, they must provide your personal details, including your NI number.
Your tax code in England
Each tax code contains a letter that defines your fiscal status, for example, “L” for those aged 65 and above, “NT” for non-taxable individuals, etc. The tax collected from your payroll includes social contributions such as national insurance.
Each deduction is stated clearly on your payslip. At the end of the fiscal year, your tax return file will be sent to the HMRC.
Make sure to have a residential address on standby when applying for the NI number.
Important:
If you are self-employed and earning either from a website or app or in other forms, you must fill in a self-assessment tax return online at the end of the fiscal year. All invoices and receipts must be kept to help carry out this assessment correctly and help reduce your yearly tax bills through business expenses that you can claim.
If you are unsure how to file your taxes, you should see an accountant who can assist you.
Attention:
When UK employers discuss salaries, they often talk about gross income, that is, income before tax deductions. Hence, it would be best to consider your monthly net salary before accepting a job offer to meet your living costs.
Useful links:
Apply for National Insurance number
How much will you receive monthly or yearly after-tax
National Insurance Contributions in England
National Insurance (NI) is a tax on your earnings that funds essential services like the NHS, state pensions, and unemployment benefits. Both you and your employer contribute to the system, but the rates differ depending on your employment status.
If you're employed, your employer automatically deducts National Insurance contributions from your wages. You pay:
- 8% on earnings between £12,571 and £50,270 per year.
- 2% on earnings above £50,270.
If you're self-employed, you pay National Insurance as part of your Self Assessment tax return. The rates are:
- 6% on profits between £12,570 and £50,270.
- 2% on profits above £50,270.
Additionally, if your profits are low, you can choose to pay Class 2 contributions voluntarily at a rate of £3.50 per week, which helps protect your State Pension.
Corporation tax in England
Corporation tax is what your company pays on its profits, essentially acting as income tax for businesses. The amount you owe depends on how much profit your company makes:
- 19% for profits up to £50,000.
- 25% for profits over £250,000.
- Companies making between £50,000 and £250,000 pay a gradually increasing rate.
Corporation Tax is due nine months and one day after the end of your accounting year. You'll need to file a Company Tax Return within 12 months.
To reduce your Corporation Tax, you can claim deductions for business expenses like equipment, office costs, and travel. If you're investing in innovation, you might also be eligible for Research and Development relief. Moreover, you can offset losses from previous years to reduce your current year's tax bill.
Capital Gains Tax in England
Capital Gains Tax is levied on the profit you make when you sell something that has increased in value. You only pay tax on the profit, not the total sale price.
- Everyone gets a £3,000 tax-free allowance each year.
- 18% tax rate for basic rate taxpayers.
- 24% tax rate for higher or additional rate taxpayers.
If you sell a business you've owned for at least two years, you may qualify for Business Asset Disposal Relief, reducing your tax to 14% on up to £1 million in gains. Note that from April 2026, this rate will rise to 18%.
Capital Gains Tax applies when you sell assets such as a second home, shares (except those in ISAs or pensions), business assets, or valuable personal items worth over £6,000 (excluding cars). However, you won't pay Capital Gains Tax on:
- Your main home (as long as you've lived in it).
- Your car.
- Gifts to your spouse or civil partner.
- Items sold for less than £6,000.
- Charitable donations.
Value Added Tax (VAT) in England
VAT is a tax businesses add to their prices. If you run a business and your turnover exceeds £90,000 in any 12-month period, you must register for VAT. Once registered, you charge VAT to customers and pay it to HMRC.
There are three VAT rates:
- 20% standard rate (most goods and services).
- 5% reduced rate (e.g., home energy, children's car seats).
- 0% zero rate (e.g., most food, children's clothes, books, newspapers).
If your turnover is under £90,000, you can voluntarily register for VAT. This might be useful if your customers are VAT-registered businesses, or if you purchase a lot of equipment and want to reclaim the VAT. However, if your customers are non-businesses, registering for VAT may add unnecessary paperwork.
Once registered, you add VAT to your prices and collect it from customers. You also pay VAT on your business purchases and send HMRC the difference every quarter. If you've paid more VAT than you've collected, HMRC will refund the difference.
If you don't register on time, HMRC will charge the VAT you should have collected, along with penalties and interest.
Inheritance tax in England
Inheritance tax is charged on the value of your estate, including your property, money, and belongings, when you die. However, most people won't pay this tax due to the generous tax-free allowances available.
- The first £325,000 of your estate is tax-free.
- If you're leaving your home to your children or grandchildren, you get an extra £175,000 allowance, making the total tax-free amount £500,000.
- Anything above this amount is taxed at 40%.
For married couples, when one partner dies, any estate left to the surviving spouse is tax-free. Plus, any unused allowance transfers to the surviving partner, meaning a couple could potentially pass on £1 million tax-free if leaving their home to descendants.
There's also a seven-year rule for gifts given while you're alive: if you give away money or assets and live for more than seven years, no tax is due. If you die within seven years, the gifts may be taxed, but the amount of tax reduces each year.
Self-Assessment tax returns in England
If you have income that hasn't been taxed already through PAYE, you'll need to complete a Self Assessment tax return. Not everyone needs to do this, but if you're self-employed, earn over £100,000, rent property, or have untaxed income (like investment earnings), you will need to file.
Deadlines are as follows:
- 31 October: For paper tax returns.
- 31 January: For online tax returns and paying any tax owed.
If your tax bill was over £1,000 in the previous year, you'll need to make advance payments toward next year's tax, due in two installments on 31 January and 31 July.
Late filing or payment can result in penalties, including a £100 fine for late submissions, plus additional penalties for prolonged delays. Keep all your records for at least five years after the filing deadline to ensure compliance.
Dealing with HMRC
HMRC (His Majesty's Revenue & Customs) is the UK's tax authority, and managing your taxes through them is essential. Most of your tax-related activities can be done online through your personal tax account at gov.uk. If you need help, there are specific helplines for different issues, including Self Assessment, income tax, and National Insurance.
If you disagree with any decisions made by HMRC, you can appeal by contacting them directly or requesting a review from a different officer. If this doesn't resolve the issue, you can take the matter to a Tax Tribunal.
Useful links:
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