UK Tax Rates
By Iain Yule
If you find yourself considered as UK resident for tax purposes, it is as well to know what rates of tax you will be required to pay (and which you may be able to avoid if you successfully achieve UK non-resident status):
In the 2013-14 tax year in the UK (running from 6 April 2013 to 5 April 2014) your taxable income (beyond an annual £9,440 personal allowance) attracts income tax at 20% on earnings up to £32,010 (basic rate); and at 40% between £32,011 and £150,000 (higher rate). An additional rate of 45% applies to income over £150,000. Annual personal allowance is reduced by £1 of every £2 of income above a limit of £100,000.
Savings interest and dividends from investments also attract income tax. Any interest a UK resident receives is taxed at 10% starting rate (up to £2,790), 20% basic, 40% higher rate and 45% additional rate. Dividends are taxed at 10% starting and basic rate, 32.5% higher rate, and 37.5% additional rate.
Capital Gains Tax
In the UK, if you make a profit on the sale of an asset such as property or shares, you are liable to pay capital gains tax (CGT). This applies on asset sales you make before you become non-resident or within five years of leaving the UK. The tax is calculated as a percentage of the profit you make on selling an asset, the difference between what you paid for it and what it sold for.
For individuals, the rate of CGT remains at 18% where their net taxable gains and taxable income are less than the income tax basic rate limit, £32,010. The 28% rate applies to gains or parts of gains that exceed that limit. The annual exempt amount before CGT is charged is £10,900.
If you are selling your main home, no CGT is payable on any profit you make as long as the property is sold within three years of you becoming non-resident.
Expats who have achieved UK non-resident status may believe they are not subject to UK inheritance tax (IHT), just as they are usually able to avoid UK income and gains taxes. But IHT is levied on those who are UK-domiciled, whether resident or not, and very few expats manage to achieve non-domiciled status.
So, when you die, whether while UK resident or not, the UK taxman will charge IHT at 40% of the value of your estate above £325,000. Your estate comprises property (including your home) and other assets held in the UK and abroad.
Since October 2007, married couples and registered civil partners have been able to increase the threshold on their estate when the second partner dies - to as much as £650,000. Their executors or personal representatives must transfer the first spouse or civil partner’s unused inheritance tax threshold or ‘nil rate band’ to the second spouse or civil partner when they die.
Various financial planning measures can be put in place to reduce your potential IHT liability. But you will need the help of an experienced UK-regulated tax adviser to do this properly.