UK - Income Tax

UK - Income Tax

Taxation of international executives

Related content

Tax returns and compliance
Tax rates
Residence rules
Termination of residence
Economic employer approach
Types of taxable compensation
Tax-exempt income
Expatriate concessions
Salary earned from working abroad
Taxation of investment income and capital gains
Additional capital gains tax (CGT) issues and exceptions
General deductions from income
Tax reimbursement methods
Calculation of estimates/prepayments/withholding
Relief for foreign taxes
General tax credits
Sample tax calculation

All income tax information is summarized by KPMG LLP, the U.K. member firm of KPMG International, based for the most part on Income and Corporation Taxes Act 1988; Income Tax (Earnings and Pensions) Act 2003; Income Tax (Trading and Other Income) Act 2005; Income Tax Act 2007; Taxation of Chargeable Gains Act 1992; Taxes Management Act 1970;; Her Majesty’s Revenue & Customs (“HMRC”) booklets “Guidance Note: Statutory Residence Test (SRT), RDR3” published December 2013; “Guidance Note: Overseas Workday Relief (OWR), RDR4” published May 2013; Social Security Contributions and Benefits Act 1992; Social Security (Contributions) Regulations 2001; and Inheritance Tax Act 1984 (all as amended by subsequent legislation).

Tax returns and compliance

When are tax returns due? That is, what is the tax return due date?

If an individual meets the requirements to report his/her income to HMRC, they are required to notify HMRC of this by 5 October following the relevant tax year end. The deadlines for tax returns to be submitted to HMRC are as follows:

  • 31 October, if a paper return is filed (whether or not the taxpayer wishes HMRC to calculate the liability)
  • 31 January, if the return is filed online (the liability is then calculated automatically). To enable an individual to file a return online, he/she must be in possession of a UTR (Unique Taxpayer Reference), which is issued by HMRC when they know a tax return may be required from the individual.

What is the tax year-end?

5 April.

What are the compliance requirements for tax returns in the United Kingdom?


Just after the end of the tax year, a tax return or notice to file should be received from HMRC. The return must be completed and filed with HMRC. The return requires a statement of income and capital gains for the tax year that has just ended.

Where substantial additional tax is payable by 31 January, for the next year, an individual will be required to make prepayments of tax (based, broadly, on the previous year’s underpayment) on 31 January in the tax year and on the following 31 July. Any final, balancing payment subsequently found to be due must be made by the following 31 January. For example, a tax return has been filed for 2015/16 which shows a significant underpayment. This underpayment will be payable by 31 January 2017. HMRC will also advise that a prepayment of tax (known as payments on account (“POA”)) for 2017/18 will be required on 31 January 2017 and 31 July 2017. Each of the two POAs will usually be based on half of the 2015/16 underpayment. Once the final 2016/17 liability is then calculated, and a deduction made for the two POAs made, if there is still an underpayment for 2016/17, then the balance must be paid by 31 January 2018. The POAs for 2017/18 are then based on the 2016/17 liability before deducting the POAs made.

If payments are not made on time, interest is charged. Additionally, if the tax is paid more than 30 days late, a penalty of 5 percent of the tax unpaid is charged. Another 5 percent is charged if the delay exceeds 6 months, and again another 5 percent penalty is charged if the delay exceeds 12 months.

A late filing penalty of GBP100 applies if a return is not delivered by the filing date.

If the filing failure continues for more than 3 months after the penalty date, and HMRC decide that a penalty is due and give written notice of the date from which the penalty is due, a daily penalty of GBP10 may be charged. This penalty may run for a maximum of 90 days from any date specified in the notice that is later than 3 months after the penalty date (the date of the notification itself is irrelevant). The daily penalty ceases to accrue if the failure is remedied before the expiry of the 90 day period. If the failure continues for more than 6 months after the penalty date (i.e. a further 3 months after daily penalties become payable, there is a further fixed penalty of either GBP300 or 5 percent of the tax liability that would have been shown on the return (whichever is the greater).

If the failure continues for 12 months a further penalty is imposed. For a non-deliberate failure to file a return the penalty is the greater of GBP300 or 5 percent of the tax liability.

For example, HMRC issued a notice to file to Mr Smith for the 2014/15 tax year on 6 April 2015. Mr Smith was waiting for some of his financial information for the year to arrive and so put the notice to one side and subsequently forgot about it. He then failed to submit his tax return by the 31 January 2016 deadline. As he was very busy with work, he failed to notice the reminders from HMRC and notices of the penalties accruing and did not submit his tax return until 15 February 2017. His tax return showed a liability for the year of GBP15,800. His penalties are as follows:

Penalty accrual date Amount (GBP £)
Late: 15 February 2017
3 months late: 1 May 2016 – 29 July 2016 (90 days x GBP10 per day)
6 months late: 1 August 2016 (the larger of GBP300 or 5% x GBP15,800)
12 months late: 1 February 2017 (the larger of GBP300 or 5% x GBP15,800)



Tax-based penalties apply also to returns that are incorrect due to negligence or fraud.

Married persons are treated separately for tax purposes, and spouses are individually responsible for completing his/her own tax return. Their tax liabilities are calculated separately.


If a non-U.K. resident has U.K. taxable income or gains, the remarks above concerning U.K. residents apply equally to him/her.

Tax rates

What are the current income tax rates for residents and non-residents in the United Kingdom?


Income tax is calculated by applying a progressive tax rate schedule to taxable income.

Income tax table for 2016/17

Taxable income bracket Total tax on income below bracket Tax rate on income in bracket
From GBP To GBP GBP Percent
0 32,000
0 20 (basic rate)
150,000 6,400
40 (higher rate)
150,000 Over 53,600
45 (additional rate)

There is a 10 percent starting rate (starting rate band (“SRB”)) which applies only to savings income, with a limit of GBP5,000 in 2016/17. If an individual has taxable non-savings income, this reduces the available SRB accordingly, and so if the individual’s non-savings income is above this limit, the entire SRB is not applicable. From 6 April 2016 a Personal Savings Allowance will apply to exempt up to GBP1,000 from income tax. Higher rate taxpayers will have an allowance of GBP500.  There is also a separate Dividend allowance of £5,000 which will exempt the first £5,000 of dividend income from tax.

The remittance basis of taxationNon-U.K. income and gains of non U.K Domiciled but U.K resident individuals may be taxed, if the individual wishes, on the remittance basis of taxation rather than on the arising basis. That is to say, such amounts are not taxed as they arise but only if and when they are remitted (taken into) to the United Kingdom.

As a consequence of changes in legislation which took effect on 6 April 2008, this is now a highly complex subject. It is beyond the scope of this publication to go into much detail about this, as to do so could prove misleading; specialist advice should be taken on any particular situation. However, the following should be noted.

  • Eligible individuals are those who are (a) resident in the United Kingdom and (b) not domiciled in the United Kingdom.
  • Most assignees will need to submit a claim to be taxed on the remittance basis. However, an eligible individual whose unremitted non-U.K. income and gains for a U.K. tax year total less than GBP2,000 will be granted the remittance basis automatically, and will not need to claim it.
  • Individuals should decide, based on their particular circumstances for each separate year, whether or not to claim the remittance basis.
  • Individuals who need to submit a claim in order to use the remittance basis may suffer a tax cost in so doing. The main costs are the loss of the annual personal allowance (effectively, income taxed at zero rate) and the annual capital gains tax exemption. However, for all taxpayers, the personal allowance (GBP11,000 for 2016/17) is phased out for individuals with income above GBP100,000 by GBP1 for every GBP2 of income above the GBP100,000 limit. Consequently not everyone may suffer a tax cost by electing for the remittance basis.
  • Additionally, individuals who have been resident in the United Kingdom for seven or more out of the previous nine tax years and claim the remittance basis of taxation will have to pay a fixed tax charge of GBP30,000 on unremitted non-U.K. income and/or gains - an amount which might or might not be creditable against a tax liability in the country where those income and/or gains arise, depending on the circumstances. A GBP60,000 tax charge applies to individuals who have been resident for 12 of the 14 prior years.  A new charge of £90,000 has also been imposed on those who have been UK resident for 17 of the last 20 years. It is also worth noting that with effect from 6 April 2017, new rules will be introduced so that in most cases, individuals who have been resident in the UK for 15 out of the previous 20 tax years will be deemed to be UK domiciled.  As such the remittance basis of taxation will no longer be available to them. Individuals can choose to pay the charge on an annual basis.
  • Therefore, the cost of the remittance basis charge have to be weighed against the U.K. tax saving which would result from not remitting relevant amounts to the United Kingdom to determine whether it is more cost efficient to be taxed on the arising or remittance basis. There are stringent anti-avoidance rules such that amounts are regarded as remitted to the United Kingdom if taken into the United Kingdom indirectly as well as directly.
  • The assignee will also need to consider what income or gains they may need to remit to the UK during a tax year. There are very specific and complex rules regarding identifying the type of income and / or gains the individual has brought into the UK when remitting amounts to the United Kingdom from an account which contains funds from more than one source, or for more than one tax year. This can give rise to considerable difficulties and create significant unintended tax implications for the individual. It is therefore imperative that any individuals either currently or who have previously been taxed on the remittance basis seek advice before remitting any funds / assets to the UK from abroad. This applies even where the original source of the funds was UK taxed income and/or gains.
  • An individual (who has not been resident in the United Kingdom in seven or more of the previous nine tax years) with no U.K. income or gains in a tax year (except for up to GBP100 of U.K. taxed investment income) is able to use the remittance basis without needing to make a claim for it, provided no foreign income or gains are remitted to the United Kingdom in that year. (This is often referred to as the spouse exemption).


Non-residents are taxed at the same rates as residents, however, they may not be entitled to any UK personal allowances. Their entitlement will depend on their nationality and/or country of residence.

Residence rules

For the purposes of taxation, how is an individual defined as a resident of the United Kingdom?

An individual’s tax liability can be affected not just by his/her residence status but also by his/her domicile status.


Prior to 6 April 2013, an individual’s UK residence status was determined according to case law and guidance issued by HMRC (latterly known as “HMRC6”). However, due to these existing “uncertain and complicated residence rules” (the UK government’s own wording in the consultation document it issued in June 2011 titled “Statutory definition of tax residence: a consultation”) the government introduced a statutory residence test (SRT) which applies from 6 April 2013.

Statutory residence test

Broadly, the SRT, which applies from 6 April 2013, is made up as follows:

  1. Automatic overseas tests
  2. Automatic UK tests
  3. A sufficient ties test

Automatic overseas tests

An individual will be classed as non-UK resident if one of the following three automatic overseas tests applies (there are a further two automatic overseas tests which are only applicable when the individual dies during the relevant tax year):

  • The individual has not been resident in the U.K. throughout the previous three tax years and will spend less than 46 days in the U.K. in the relevant tax year.
  • The individual has been resident in the UK for one or more of the previous three tax years and will spend less than 16 days in the U.K. in the relevant tax year.
  • The individual is in full time work abroad (as defined in the legislation) in the relevant tax year, spends less than 91 days in that U.K. in the tax year and no more than 31 days are spent working in the U.K.. For these purposes a workday is where more than three hours of work is performed and may include travel time.

If any one of the automatic overseas tests is met, the individual is classed as non-UK resident for the tax year and does not need to consider the SRT any further. Otherwise, if none of the automatic overseas tests are met the automatic UK residence tests have to be considered.

Automatic UK residence tests

An individual will be classed as UK resident for the relevant tax year if they have not met any of the automatic overseas tests and they meet any one of the following three automatic U.K. residence tests (there is a further test applicable only if the individual dies during the relevant tax year):

  • The individual spends 183 days or more in the U.K. in the current tax year.
  • The individual has a UK home for at least 91 consecutive days, at least 30 days of which are in the tax year.  In addition, he/she must be  present in that home in the relevant tax year for at least 30 days (whether consecutively or otherwise).  If the individual also owns a home overseas during that 91 day period, they must  not be present in that home for more than 30 days in the tax year.
  • The individual works full-time (as defined in the legislation) in the United Kingdom.

If the individual has met none of the automatic overseas tests and then none of the UK tests, they must then consider the sufficient ties test to determine their UK residence status.

Part C – Sufficient ties test

To determine whether an individual meets the sufficient ties test to be regarded as a U.K. resident for the relevant tax year, a number of factors are considered in association with the number of days an individual spends in the United Kingdom. These factors or ‘ties’ relate to location of family, availability of UK accommodation,  extent of U.K. work, U.K. presence in earlier tax years and/or, where an individual is leaving the U.K., whether they spend more time in the U.K. than any other country.

For the sufficient ties test a distinction is drawn between “arrivers” (i.e. individuals who have been not U.K. resident throughout the previous three tax years) and “leavers” (individuals who have been U.K. resident in one or more of the previous three tax years).


Where the individual has been regarded as not resident in the U.K. throughout all of the three previous U.K. tax years, the four ‘UK ties' to be considered are:

  • a U.K. resident family tie;
  • an accommodation tie;
  • a work tie; and
  • a 90-day tie.

The combination of the number of ties the individual has with the U.K. during the relevant tax year and the number of days the individual is in the U.K. determine whether the individual has become U.K. resident for that tax year. The criteria are as follows:

Days spent in the U.K. Number of U.K. Ties
Fewer than 46 days Always non resident
46 – 90 days Resident if has 4 U.K. Ties
91 – 120 days Resident if has 3 U.K. Ties
121 – 182 days Resident if has 2 U.K. Ties
183 days or more Always resident


Where an individual has been regarded as resident in the U.K. in at least one of the three previous U.K. tax years, the five ‘U.K. ties' to be considered are:

  • a U.K. resident family tie;
  • an accommodation tie;
  • a work tie;
  • a 90-day tie; and
  • a country tie.

The combination of the number of ties the individual has with the U.K. and the number of days the individual is in the U.K. during the relevant tax year determine whether the individual has become U.K. resident for that tax year. The criteria are as follows:

Days spent in the U.K. Number of U.K. Ties
Fewer than 16 days Always non resident
16 – 45 days Resident if has 4 U.K. Ties
46 – 90 days Resident if has 3 U.K. Ties
91 – 120 days Resident if has 2 U.K. Ties
121 – 182 days Resident if has 1 U.K. Tie
183 days or more Always resident

UK Ties

Family Tie

  • The individual has a U.K. resident spouse / civil partner or living together as such (spouses or civil partners who have separated are not considered for this test); or
  • The individual has a U.K. resident child under 18
  • The individual will not have a family tie with a child who is under the age of 18 and resident in the UK if they see the  child in person in the UK on fewer than 61 days (in total) in the tax year concerned. The individual will also not have a family tie if their child is under 18 and in full-time education in the UK.  This will be the case provided the child would not be regarded as UK resident if the time they spend in full-time education in the UK were disregarded and provided that the child spends less than 21 days in the UK outside term-time.  

Accommodation Tie

  • The individual has an available place to live in the U.K. for at least 91 continuous days during the tax year and actually spends at least one night there during the tax year.
  • Legal interest in the property not necessary to satisfy the test.
  • Breaks of less than 16 days between periods of availability will be ignored and treated as if the property was continuously available. So, for instance, if the same hotel room is booked every other Friday for over three months, this may constitute an accommodation tie.
  • Stays with a close relative (i.e. parent / grandparent / sibling / child or grandchild 18 or over – all either by blood, half-blood or marriage/civil partnership) of less than 16 nights in the tax year will not constitute an accommodation tie.

Work Tie

  • The individual works more than 3 hours per day in the U.K. (including business travel within the U.K. – i.e. to and from U.K. destinations) for a total of at least 40 days in the tax year.
  • If the individual has a ‘relevant job on board a vehicle, aircraft or ship’ then cross-border travel to the U.K. is treated as over 3 hours UK work for the Work Tie test, and cross-border travel from the U.K. is treated as less than 3 hours U.K. work for the test.

90-day Tie

  • The individual spentds more than 90 days in the U.K. in one of or in each of the prior tax year and the year before that.

Country Tie

  • The individual is present at midnight in the UK on equal or more days than in any other single country.


A person’s domicile is, broadly, his/her permanent homeland. The majority of foreign nationals employed by foreign employers who are working on secondment to the U.K. will not be regarded as domiciled in the United Kingdom.

An individual who is UK resident but non-UK domiciled and who chooses to be taxed on the remittance basis is liable to UK tax on his/her UK source income as normal. Overseas investment income and capital gains are only subject to UK tax to the extent that these funds are taken into, or remitted to, the United Kingdom, whether in that same tax year or later.

Where a resident but non-UK domiciled individual has earnings arising on U.K. and non-U.K. duties, these are fully taxable in the U.K. whether or not the funds are remitted to the U.K. However, please see below regarding overseas workday relief which may, subject to the individual satisfying the relevant tests, relieve from U.K. taxation any earnings attributable to non-UK duties that are not remitted top the U.K.

Ordinary Residence

Under the pre-6 April 2013 rules, UK tax law included the concept of “ordinary residence”. This was broadly for individuals whose intention was to remain in the UK for a significant period of time or otherwise met one of the relevant tests. Where an individual was classed as not ordinarily resident, particularly relevant for extended business travellers coming to the UK for less than three years, they could obtain certain U.K. tax advantages such as overseas workday relief (“OWR”).

As part of the introduction of the SRT, the U.K. government abolished apart from for a few limited circumstances the concept of ordinary residence for income and capital gains tax purposes from 6 April 2013. The concept remains for U.K. social security (National Insurance) Contribution purposes. Consequently the OWR rules have been amended so they no longer depend on someone’s ordinary residence status part apart from employees who were resident and not ordinarily resident at 5 April 2013 and may continue to qualify under the old rules under transitional provisions.

Taxation of short-term business visitors (“STBVs”)

If an employee works in the United Kingdom for a period of less than a year in total, and spends less than 183 days in the United Kingdom in any one U.K. tax year, the employee will be treated for tax purposes as a STBV. Such an employee is liable to U.K. tax on his/her remuneration attributable to duties performed in the United Kingdom, even if the employer is overseas. Such an employee is likely to be non resident and consequently not taxable on remuneration relating to non-U.K. duties. If the employee was resident under the SRT rules outlined above then OWR and the remittance basis would need to be considered.

If the STBV remains a resident of his/her home country and there is a double taxation agreement between the United Kingdom and that country, the agreement may exempt the employee from U.K. tax on all his/her remuneration provided the following.

  • The employee is not present in the United Kingdom for more than 183 days during a rolling 12-month period (or during the U.K. tax year (in some agreements);
  • The remuneration is paid by, or on behalf of, a non-U.K. employer; and
  • The remuneration is not borne by a permanent establishment of that employer in the United Kingdom.

Certain UK treaties have other conditions that need to be met so the particular treaty needs to be considered.

For the purpose of counting days for the 183-day test in a treaty, any day on which an individual is present in the United Kingdom will count as a day.

It is the stated intention of HMRC to deny treaty relief in cases where a U.K. entity is viewed as the economic employer.

Is there a de minimis number of days rule when it comes to residency start and end date? For example, a taxpayer can’t come back to the host country for more than 10 days after their assignment is over and they repatriate.

Under the automatic overseas tests in the SRT, an individual will always be not-UK resident if they do not spend 16 or more days in the UK during a UK tax year, whether or not they have previously been UK resident.

For the purpose of counting days for this test a day is when the individual is in the UK at midnight, except in some limited circumstances, such as where the individual is in transit in the UK or for exceptional circumstances (e.g. war, natural disaster, civil unrest) which prevent the individual from leaving the UK (it is not enough that they are prevented from entering another country).

What if the assignee enters the country before his/her assignment begins?

Depending on the circumstances, it is possible that residency could commence from the first day in the tax year, or the date the assignment begins, or from the date of an earlier entry to the United Kingdom.

Even if not resident in the United Kingdom until the commencement of the assignment, business trips before that date could give rise to a U.K. tax liability.

Termination of residence

Are there any tax compliance requirements when leaving the United Kingdom?

HMRC should be notified of an individual’s departure, and provided with details to determine his/her residence status in advance of the annual tax return. This will then allow exemption from withholding taxes to be claimed if appropriate.

What if the assignee comes back for a trip after residency has terminated?

This depends on the precise circumstances. It could prolong the period of U.K. residence. Even if it does not, if the trip relates to business, the associated earnings could give rise to a U.K. tax liability.

Communication between immigration and taxation authorities

Do the immigration authorities in the United Kingdom provide information to the local taxation authorities regarding when a person enters or leaves the United Kingdom?

No, not as a matter of routine.

Filing requirements

Will an assignee have a filing requirement in the United Kingdom after he/she leaves the country and repatriates?

If there is a liability to U.K. tax, there is likely to be a filing requirement. Strictly speaking, if HMRC have issued a tax return to an individual to complete, even if the individual has left the U.K. and there is no further U.K. tax liability, the tax return is still required to be submitted unless HMRC withdraw the notification to file. Therefore, when assignees leave the U.K. and are aware there is no further liability to U.K. tax, they should ensure that they contact HMRC to advise them of their departure and to request that no further tax returns after the year of departure are issued to them.

Economic employer approach

Do the taxation authorities in the U.K. adopt the economic employer approach1 to interpreting Article 15 of the OECD treaty? If no, are the taxation authorities in the U.K. considering the adoption of this interpretation of economic employer in the future?

Yes, the economic employer approach has already been adopted.

De minimis number of days

Is there a de minimis number of days2 before the local taxation authority will apply the economic employer approach? If yes, what is the de minimis number of days?

60 days (generally).

Types of taxable compensation

What categories are subject to income tax in general situations?

The following categories of income are subject to income tax:

  • earned income
  • income from self-employment
  • trade or business/partnership income
  • dividends
  • interest
  • rental income
  • trust income
  • certain gains from offshore funds which do not report any arising income (i.e. it is all rolled up within the fund and reflected in an increased unit value) are also subject to income tax

Other types of income and capital receipts may also be subject to UK income taxes but are outside the scope of this document.

Employment income is taxable when received, or when the employee is entitled to receive it, if earlier. Employment income is subject to U.K. tax to the extent it was earned during a period of U.K. residence or, in the case of income earned while non-resident, to the extent it was earned in respect of duties performed in the U.K. (subject to treaty relief).

Generally speaking, all types of remuneration and benefits received by an employee for services rendered constitute taxable income, regardless of where paid (but if the amount relates to work performed outside the U.K., in certain circumstances, the amount which is taxed might be based on the amount remitted to the U.K.). Typical items of an expatriate compensation package set out below are, in most circumstances, fully taxable unless otherwise indicated.

  • Reimbursements of foreign and/or home country taxes. In most cases where the U.K. taxes are, by reason of tax equalization, the employer’s responsibility, the compensation should be grossed-up for the tax liability.
  • School tuition reimbursements.
  • Home leave reimbursements for the employee are usually not taxable if the payment is for the travel costs of a trip to the individual’s home country during the first five years in the United Kingdom. Similar tax-free treatment applies to family home leave trips provided certain conditions are met.
  • Cost-of-living allowances.
  • Expatriation premiums for working in the United Kingdom.
  • Housing allowances, and the imputed value of housing provided directly by the employer, are normally fully taxable. The imputed value of accommodation rented by the employer is the rent borne by the employer. In the case of accommodation owned by the employer, the imputed value is the annual value as determined for the purpose of domestic rates – a now, largely defunct property tax – plus an additional charge, ascertained by applying an interest rate, determined by HMRC, to the cost (in certain circumstances, market value) of the property in excess of GBP75,000. Any utility costs borne by the employer are taxable. If the employee is seconded to the United Kingdom for a temporary period of no more than 24 months, relief may be available on these costs.
  • Benefits-in-kind generally form part of taxable compensation. Where a company car is provided wholly or partly for personal use, an imputed value is included in taxable compensation.
  • Medical insurance premiums paid by an employer, unless the insurance relates to treatment while the employee is abroad for the purpose of performing employment duties.
  • Business expenses reimbursed by an employer or paid by the employer directly to third parties unless wholly, exclusively and necessarily expended in the course of the employment duties.
  • Provided certain conditions are met, the employer’s contributions to a foreign pension plan are not taxable. In certain circumstances, there could be U.K. taxation on the benefits subsequently received from the plan. There may also be additional charges on irregular employer and employee contributions.
  • Deferred compensation, although reduced U.K. tax may result if the deferred payment is made in a year subsequent to that of departure from the United Kingdom, since lower tax rates might apply. If the deferred compensation is contingent, the U.K. tax treatment will depend on the nature of the contingency.

Tax-exempt income

Are there any areas of income that are exempt from taxation in the United Kingdom? If so, please provide a general definition of these areas.

The costs of transporting an employee and close family to the U.K. at the beginning and end of U.K. assignments are not taxable in most circumstances. Certain other moving expenses may also be non-taxable up to a maximum of GBP8,000.

The exercise of most foreign share incentives gives rise to taxable income from employment.

The categories of income that are exempt from income tax include the following.

Gaming winnings

Winnings from betting (including pool betting, or lotteries, or games with prizes) are not chargeable gains, and rights to winnings obtained by participating in any pool betting, or lottery, or game with prizes are not chargeable assets. Strictly, where the prize takes the form of an asset, it should be regarded as having been acquired by the winner at its market value at the time of acquisition.

Long service awards (within certain limitations)

Long service awards are fully tax-exempt if made in the following circumstances.

  • The award is not in cash.
  • The award is made to an employee to mark long service with an employer.
  • The award marks at least 20 years service.
  • No other long service award has been made to the employee within the previous 10 years.
  • The award is worth no more than GBP50 for each year of service.

Individual savings accounts (ISAs) for U.K. resident individuals

From April 6, 2015, the annual ISA investment allowance is GBP15,240. If they wish, ISA savers are permitted to invest in two separate ISA investments each tax year - a cash ISA and the other a stocks and shares ISA.

If they wish, ISA savers are permitted to invest in two separate ISA investments each tax year - a cash ISA and the other a stocks and shares ISA.

Any income arising from funds invested in such accounts, such as interest or dividends, are exempt from UK tax.

Certain pensions

Some pensions and allowances paid to war widows and dependents are exempt from tax, as well as similar pensions or allowances payable under the laws of a foreign country.

Certain social security and state benefits

These include (note that the list is far from exhaustive) the following:

  • child tax credit
  • housing benefit
  • maternity allowance (but statutory maternity pay is taxable)
  • employment and support allowance (for the first 28 weeks of entitlement)
  • attendance allowance.

Expatriate concessions

Are there any concessions made for expatriates in the United Kingdom?

There are no special tax concessions for expatriates other than the treatment of home leave reimbursements outlined above. However, assuming the foreign national is not a U.K. domiciliary and chooses to be taxed on the remittance basis (see earlier - The Remittance Basis of Taxation), non-U.K.-source investment income and gains are potentially exempt from tax as they would be liable to tax only if remitted to the United Kingdom.

Furthermore, the introduction of a statutory Overseas Workday Relief from 6 April 2013 allows  certain non U.K. domiciled employees to exempt from UK tax such of their unremitted employment income as is attributable to non-UK duties for the year of arrival and the next 2 years.

Certain expenses such as travelling, housing, and subsistence may be deductible when associated with a short-term assignment of up to 24 months in which the employee is required temporarily to work away from his/her normal or permanent workplace.

Salary earned from working abroad

Is salary earned from working abroad taxed in the United Kingdom? If so, how?

Yes, unless the employee is taxed on the remittance basis - in which case the following comments apply.

Taxable compensation of individuals who, though resident, meet the conditions as laid out in the new Overseas Workday Relief statutory rules can be reduced by allocating (usually on a time-spent basis) income to foreign business trips, provided an amount of compensation (at least) equal to that allocated to the business trips is paid and retained outside the United Kingdom.

If a non-domiciled U.K. resident is employed by a non-U.K. resident employer and performs all of his/her duties outside the United Kingdom, the compensation arising is taxable only to the extent it is received in, or remitted to, the United Kingdom. However, if the non-domiciled UK resident individual also has an employment for duties performed in the United Kingdom, for the income arising from the other contract to be taxable on the remittance basis, the two employments must be quite separate and, assuming the employers are associated, the compensation for the overseas employment should be reasonable in relation to the time spent working abroad.

New legislation was introduced from 6 April 2014 which  further limits the availability of the remittance basis to earnings from the offshore contract. Where the offshore contract is with an associated company the earnings may be taxable on the arising basis unless certain conditions are met. 

Taxation of investment income and capital gains

Are investment income and capital gains arising to a U.K. resident individual taxed in the United Kingdom? If so, how?

Yes, unless the employee is taxed on the remittance basis - in which case the following comments apply - but only in relation to non-U.K. income/gains.

  • Income: Non-U.K. source investment income receivable by a non-U.K. domiciled individual, is taxed only if remitted to the United Kingdom.
  • Capital gains: An individual who is not U.K. domiciled is liable to capital gains tax (CGT) on gains arising outside the United Kingdom only to the extent that those gains are remitted to the United Kingdom.

There is legislation aimed at preventing individuals avoiding capital gains tax by becoming temporarily non-U.K. resident.

From 6 April 2016 CGT is charged at 10 percent of the gain for basic rate taxpayers, to the extent that their total income plus gains less any allowances are within the basic rate tax band (i.e. less than GBP32,000). Any gains over GBP 32,000, and gains of higher and additional rate taxpayers are subjected to CGT at 20 percent. Gains made on residential property and carried interest are taxed at 18 percent for basic rate taxpayers and 28% for higher and additional rate taxpayers. There is an annual exemption available – that is, an amount which is exempt from tax – unless the individual has claimed to be taxed on the remittance basis (see earlier). CGT is based on the gain made, as adjusted for CGT purposes. Gains of up to GBP10 million that qualify under the conditions for Entrepreneurs’ Relief , broadly on disposals by an individual or individuals of trading businesses or business assets used in a trade held for a specified period, and in various other prescribed circumstances, are liable to CGT at 10 percent.

Dividends, interest, and rental income

These are regarded as investment income. See comments above.

Gains from stock option exercises

The rules have changed with effect from 6 April 2015. It is no longer possible to claim under U.K. domestic law that there is no U.K. tax on exercise when an award granted to a non-U.K. resident has  vested whilst the employee has been resident or performing duties in the UK. 

The new rules apply to existing options and other share incentives. The gain on exercise will be apportioned based on the time was performing duties in each country, and for the period when U.K. duties are performed income tax will arise. This taxable pay may then be relievable under a double tax treaty.

UK tax advantaged share incentive plans plans may also not be liable to U.K taxation.


In the United Kingdom, the legislation in this area is complex and, in some circumstances, its meaning disputed. Most non-U.K. plans are not U.K. tax advantaged plans and do not qualify for preferential tax treatment. 

Foreign exchange gains and losses

From April 6, 2012 foreign currency gains arising on withdrawals from foreign currency bank accounts are exempt from Capital Gains Tax.

A disposal of foreign currency in more complicated scenarios involving, for example, foreign currency options may still give rise to a taxable gain or allowable loss.

Principal residence gains and losses

In most circumstances, an individual’s only or main Principal Private Residence (PPR) is exempt from U.K. capital gains tax on sale. However, exemption may be only partial where the property has not been considered as the main residence for the entire period of ownership. The legislation acknowledges that the following periods of non-occupation may be regarded as deemed occupation and therefore exempt, provided that (a) both before and after those periods the property was the individual’s actual PPR and (b) during the period of absence there was no other property eligible for relief as a PPR.

  • A period of absence, for whatever reason, not exceeding three years (or periods of absence which together do not exceed three years).
  • Any period of absence throughout which the individual worked entirely outside the United Kingdom.
  • Any period of absence not exceeding four years (or, if separate, periods of absence totalling four years), throughout which the owner was obliged to reside elsewhere as a consequence of his/her employment.

The last 18 months of ownership are always treated as deemed occupation so long as the property was the individual’s main residence at some point prior to this.

An individual may have only one PPR for tax purposes at any time. Where the individual has more than one residence, he/she can nominate which property is to be considered as the main residence.

From 6 April 2015 non-residents who dispose of UK residential property have 30 days to report the disposal. Penalties apply for failure to report the disposal whether or not there is tax to pay. If the individual making the disposal has already received a notice to file a tax return for the year of disposal or the prior year tax need not be paid within the 30 day reporting deadline but with the Self-Assessment Tax Return.

Capital losses

Capital losses are usually claimed on the tax return for the tax year in which the loss arose. The time limit for claiming capital losses is 4 years from the end of the tax year in which the loss arose. There is no time limit for claiming losses for 1995-96 and earlier years which can be carried forward indefinitely until there are gains against which they can be set.

Personal use items

Chattels disposed of for less than GBP6,000 do not give rise to a chargeable gain. If the disposal proceeds exceed that amount, the chargeable gain is restricted to five-thirds of the excess proceeds.


A gift can constitute a disposal which may be subject to capital gains tax.

Additional capital gains tax (CGT) issues and exceptions

Are there additional capital gains tax (CGT) issues in the United Kingdom? If so, please discuss?

Unless taxed on the remittance basis, an individual is entitled to an exempt amount of capital gains each year. For 20116/17, the amount is GBP11,100.

Are there capital gains tax exceptions in the United Kingdom? If so, please discuss?

The following disposals, amongst others, not mentioned above, will usually not give rise to capital gains tax:

  • assets transferred between husband and wife (or civil partners) who are living together
  • household goods and personal effects worth less than GBP6,000
  • private cars
  • gaming winnings
  • savings certificates, premium bonds
  • stocks and shares held within an ISA
  • U.K. government stocks (gilts).

Pre-CGT assets

Capital gains tax was first introduced on 6 April 1965. There are special rules for the computations of gains on assets acquired before that date.

Deemed disposal and acquisition

A capital sum may arise as a result of a deemed, rather than actual, disposal. The main circumstances in which this would apply include the following:

  • compensation received for damage, loss, destruction, or depreciation of assets owned
  • capital sums received under insurance policies
  • bargains not at arm’s length, and transfers of assets to employees such as a gift of an asset for no consideration or at less than market value
  • receipt of a capital distribution on shares such as, a share buyback by a company which is not treated as an income distribution.

General deductions from income

What are the general deductions from income allowed in the United Kingdom?

Annual subscriptions to certain approved professional bodies or learned societies, where the body’s activities are relevant to the duties of the employment.

Higher rate taxpayers will be able to claim tax relief for payments made to U.K. charities, if the payment is made under Gift Aid arrangements or other approved arrangements. Payments made to a charity using a payroll giving scheme will receive tax relief at source.

A deduction is allowed for expenses incurred in performing the duties of an employment, such as business travel expenses. In certain circumstances, it may be difficult to obtain a deduction for business entertaining expenses.

Deductions are also allowed for employee contributions to a registered pension plan, or to a foreign pension plan that satisfies certain criteria.  There are both annual and lifetime contribution limits which apply to such contributions.  An additional tax charge will arise if the contribution limits are exceeded.

The personal allowance (effectively, income taxed at zero percent) for 2016/17 is GBP11,000. For 2016/17 the personal allowance reduces where the income is above GBP100,000 - by GBP1 for every GBP2 of income above the GBP100,000 limit. This reduction applies regardless of age.

A child tax credit has applied since 6 April 2003. This is a means-tested benefit paid directly (rather than through the tax system) to the individual mainly responsible for looking after the child or children. There are no personal allowances in respect of children, although children themselves are entitled to the standard personal allowance if they have income in their own right.

Generally, no deduction is allowed for alimony and child support payments, and neither is the recipient taxable on the amount received.

No deduction is available for interest on a loan to purchase a main residence.

No deductions are allowed for investment expenses such as a safe deposit box, safekeeping fees, or investment management fees. However, it is possible to obtain tax relief for amounts invested in certain qualifying unquoted companies (30% relief on up to GBP1 million per year—the Enterprise Investment Scheme), in certain qualifying venture capital trusts (30% relief on up to GBP200,000 per year), in small early stage companies in the Seed Enterprise Investment Scheme (50% on up to GBP100,000 and in certain buildings on sites in designated enterprise zones). They cannot create an additional tax refund (other than tax already paid at source). Therefore, it is important that an individual obtains advice before making their investment to ensure they can utilise the available reliefs effectively.

Remittances to invest in certain commercial businesses can be made without incurring a tax charge.

To curtail what the Government views as excessive use of tax reliefs, it has introduced a limit on all uncapped income tax reliefs from 6 April  2013. For anyone seeking to claim more than GBP50,000 of reliefs, a cap is set of 25 percent of income (or GBP50,000, whichever is greater) applies. Again, any individual wanting to obtain tax reliefs in excess of these sums should seek advice first.

Tax reimbursement methods

What are the tax reimbursement methods generally used by employers in the United Kingdom?

The most common form of tax reimbursement is current year gross-up. This enables the tax payable by the employer and the income to which it relates to be dealt with together in the same year’s tax calculation. 

Calculation of estimates/prepayments/withholding

How are estimates/prepayments/withholding of tax handled in the United Kingdom? For example, Pay-As-You-Earn (PAYE), Pay-As-You-Go (PAYG), and so on.

Employers in the United Kingdom are required to withhold tax from cash payments made to employees. The system by which the tax is withheld is known as Pay-As-You-Earn (PAYE). Employers must inform HMRC of payments made to employees on or before the day on which the payments are made to the employee. Employers must also pay over to HMRC the amounts withheld on a monthly basis by the 19th of the following month (22nd if payment is made electronically). The tax month runs from the 6th of one month to the 5th of the next month. Broadly, PAYE should be applied to all cash payments made to employees. In addition to cash payments, PAYE should be operated on a number of additional items such as readily convertible assets (that is, assets which can easily be converted into cash, such as shares in a listed company).

PAYE must also be accounted for in respect of individuals who are employees of non-U.K. resident employers but who are working for entities in the United Kingdom. If the PAYE is not paid by the overseas employer, the entity for which the employee is working is treated as the employer for the purpose of withholdings.

As well as salary, an employee will often be provided with benefits-in-kind. These benefits are reported on forms P11D. Forms P11D must be provided to employees and HMRC by 6 July following the end of the tax year.

In recognition of the complexity of operating PAYE with regard to expatriates assigned to the United Kingdom and who are taxes equalized, HMRC may allow, upon request, the employer to operate a Modified PAYE arrangement. Under the arrangement, the employer can prepare a best estimate of all earnings, (including cash allowances and non-cash benefits), for the year at the beginning of each year, grossed-up for tax purposes, and calculate the PAYE tax due and make the appropriate payments. The employer is required to undertake an in-year review during the period December to April to take account of any material changes such as calendar or tax year-end bonuses and taxable awards of securities and options.

In broad terms, if the tax paid through PAYE is less than 80 percent of the final total tax liability and the employee is not dealt with under Modified PAYE, the employee is required to make payments on account in respect of the subsequent tax year’s liability (on 31 January in that year, and on 31 July following the year-end – see above under Tax Returns and Compliance).

Nearly all employers who withhold tax under PAYE are required to report details of earnings and deductions to Her Majesty’s Revenue and Customs electronically on or before the time of payment of the earnings to the employee.

Pay-as-you-go (PAYG) withholding

See previous discussion.

PAYG instalments

When are estimates/prepayments/withholding of tax due in the United Kingdom? For example: monthly, annually, both, and so on.

See previous discussion.

Relief for foreign taxes

Is there any Relief for Foreign Taxes in the United Kingdom? For example, a foreign tax credit (FTC) system, double taxation treaties, and so on?

The United Kingdom has a broad network of double taxation treaties. Usually, for dual resident individuals, an exemption from, or a reduced rate of, U.K. tax will apply where the individual is determined to be ‘treaty resident’ for treaty purposes in the other state.

If the individual is a resident of the United Kingdom for treaty purposes, relief in respect of income taxable in the other state is generally given by means of a foreign tax credit rather than by exemption.

The U.K. domestic tax legislation provides, in cases where there is no applicable tax treaty, for relief to be given unilaterally by the United Kingdom for foreign tax suffered on foreign income and gains arising in the other state, which are also subject to U.K. tax.

General tax credits

What are the general tax credits that may be claimed in the United Kingdom? Please list below.

The U.K. tax system is such that, in various circumstances, deductions are permitted when arriving at the amounts of chargeable income or gains but credits against the tax liability are rare. Apart from tax deducted at source, the most common example is foreign tax permitted to be credited against the U.K. tax liability arising on the same income or gains.

Sample tax calculation

This calculation3 assumes a married taxpayer with two children whose assignment to the United Kingdom begins 17 August 2014 and ends 18 October 2016. The taxpayer’s base salary is USD100,000 and the calculation covers three U.K. tax years. 




Salary 100,000 100,000 100,000
Bonus 20,000 20,000 20,000
Cost-of-living allowance 10,000 10,000 10,000
Housing allowance 12,000 12,000 12,000
Company car See assumptions See assumptions See assumptions
Moving expense reimbursement 20,000 0 20,000
Home leave 0 5,000 0
Education allowance 3,000 3,000 3,000
Interest income from non-local sources 6,000 6,000 6,000

Exchange rate used for calculation: USD1.00 = GBP0.64529.

Other assumptions

  • All earned income during the assignment is attributable to duties performed in the United Kingdom.
  • Bonuses are paid out on a monthly basis - one-twelfth per month.
  • The interest income arises on a daily basis and it is the only source of non-U.K. income or gains. As it is more than GBP1,999, for 2013/14 onwards, the individual has to choose whether to be taxed on the arising basis or on the remittance basis. No account has been taken of double taxation relief for tax which might have been payable in the country of source.
  • The company car is used for business and private purposes and originally cost GBP25,000, has a petrol engine, and is used for both business and personal purposes. The employer does not bear the cost of fuel for private journeys. The carbon dioxide emission of the car is 205 g/km.
  • Home leave is for return to the employee’s home country.
  • The moving expense reimbursement paid when moving to the United Kingdom is made up of items qualifying for relief in the United Kingdom, subject to the maximum GBP8,000 claim.
  • The moving expense reimbursement paid when departing from the United Kingdom relates to the next work that the employee is to undertake: it does not relate to the U.K. assignment.
  • It is assumed that the individual meets one of the cases set out in the SRT so that split year treatment applies on arrival and departure from the United Kingdom.
  • Social security contributions are not required for the first 52 weeks of the assignment of a non-UK ordinarily resident individual seconded to the UK, as the employee's home country has no social security agreement with the U.K. (the concept of ordinary residence remains for National Insurance Contributions purposes).
  • Tax treaties and totalization agreements are ignored for the purpose of these calculations.
  • The individual has not spent at least seven out of the previous nine tax years as a UK tax resident.

Calculation of taxable income

Year 2014/15
Days in the United Kingdom during year 232 365 196
Earned income subject to income tax      
Salary 41,016 64,529 34,651
Bonus 8,203 12,906 6,930
Cost-of-living allowance 4,102 6,453 3,465
Housing allowance 4,922 7,743 4,158
Company car 5,403 9,000 4,967
Moving expense reimbursement 4,906 0 0
Home leave 0 0 0
Education allowance 1,230 1,936 1,040
Other income (overseas) 2,461 3,872 2,079
Total income 72,242 106,439 57,290
Personal allowance 10,000 7,381 11,000
Personal savings allowance
0 0 500
Total taxable income 62,242 99,058 45,790

Tax liability

Year 2014/15
U.K. tax thereon 18,524 33,266 11,916

Social security liability

Year 2014/15
Employee 0 3,428.04
Employer 0 9436.16

In the above example, it is more beneficial for the individual to file on the arising basis for all three tax years (shown above). This is because his/her overseas income is below the level of the individual’s personal allowance and as his/her overall income is below GBP100,000 when filing on the arising basis the personal allowance is not fully phased out and can cover the overseas income for the tax years 2014/15 to 2016/17. If the individual were to file on the remittance basis he/she would have lost his/her entitlement to claim the personal allowance for those years which would have resulted in a higher tax liability.


1Certain tax authorities adopt an "economic employer" approach to interpreting Article 15 of the OECD model treaty which deals with the Dependent Services Article. In summary, this means that, if an employee is assigned to work for an entity in the host country for a period of less than 183 days in the fiscal year (or, a calendar year of a 12-month period) and the employee remains employed by the home country employer but the employee’s salary and costs are recharged to the host entity, then the host country tax authority will treat the host entity as being the "economic employer" and therefore the employer for the purposes of interpreting Article 15. In this case, Article 15 relief would be denied and the employee would be subject to tax in the host country.

2For example, an employee can be physically present in the country for up to 60 days before the tax authorities will apply the ‘economic employer’ approach.

3Sample calculation generated by KPMG LLP, the U.K. member firm of KPMG International, based for the most part on Income and Corporation Taxes Act 1988; Income Tax (Earnings and Pensions) Act 2003; Income Tax (Trading and Other Income) Act 2005; Income Tax Act 2007; Taxation of Chargeable Gains Act 1992; Taxes Management Act 1970; Finance Act 2013; Her Majesty’s Revenue & Customs (“HMRC”) booklet “Guidance Note: Statutory Residence Test (SRT), RDR3” published in December 2013. Liability to tax in the United Kingdom’; Social Security Contributions and Benefits Act 1992; Social Security (Contributions) Regulations 2001; and Inheritance Tax Act 1984 (all as amended by subsequent legislation).

© 2016 KPMG LLP, a United Kingdom legal liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

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