Oliver Heslop, founder of Global Expatriate Tax Services (GETS) and Expatriate Tax Services London Ltd, is a highly experienced UK tax specialist dealing with expatriate cross border issues. He is also the official Expat Focus UK Taxation partner and is available to answer readers’ UK tax questions. In this article, Oliver lists 10 false assumptions American expats sometimes make about taxation in the UK.
10 false assumptions about taxes in the UK
This title is not intended to frighten anybody. My real message is that every expatriate who arrives in the UK will make common mistakes about the UK tax system. Totally natural. This article is simply designed to highlight some of the more obvious problems.
My teacher in high school would say to us about homework “if you are worried about it now, do not be, you are focused. However, if you are not worried, you should be and you should take steps …”
That statement is probably the best expression for managing UK taxes … you should only be worried if you are not doing anything.
1. “UK taxes are the same as US taxes”
This is the first common mistake that an American expat might make in the UK. The UK tax rates might seem to be close to the US ones, but that is where the similarity ends. There is no joint filing in the UK, there is no “AMT”, and there is no deduction of mortgage interest against income. The UK tax year ends on 5th April, and the filing deadline is 31st January. It is a very long list of differences that renders the systems quite different.
2. “I can get a filing extension in the UK if I need one”
No, you cannot, I am afraid. The UK filing deadline of 31st January cannot be moved or extended.
3. “I will wait until tax year end before taking any action”
This is another common mistake, and do not do this, please. There are quite a few UK expat tax reliefs that need to be arranged at the beginning, e.g. tax relief on overseas workdays, which is very lucrative. This MUST be set up at the start of the tax year to maximise tax rebates. This is a really common mistake that we must avoid.
4. “A pub crawl involves crawling ” (not a tax one!)
No, it doesn’t involve crawling. We organized a pub crawl for a great group of US expatriates living in London and repeated it in Manchester. They were worried that they would be crawling by the end of the night. None of this took place, but our group were a bit perturbed by the title “pub crawl”. A cultural misunderstanding.
It was misleading, and we realized that a “pub walk” is a far better tag.
5. The personal tax reliefs are the same as in the US”
This is not true in the UK, but we have some excellent different tax reliefs for expatriates coming to work here. We offer tax relief on income related to overseas work. Certain assignees can claim tax relief on housing and cost of living expenses. We have the generous split year relief that I will not detail the specifics of here (but this is a generous relief). There can be tax relief on costs of travel home, for you and the family. We can claim tax relief on payments into your 401K. There is a long list of UK specific benefits.
6. “I am just going to pay tax in the US. That will be enough”
Wrong. When you are living in the UK and/or carrying out work in the UK, then the UK has the right to tax your earnings first. An expatriate cannot elect which country he or she wishes to pay taxes to. Instead, the UK Government will apply tax to your earnings.
7. “The UK taxes lottery winnings or gambling winnings”
Mistake. The UK does not do this. No tax on lottery winnings. An example of how our tax systems can be quite different.
8. “The UK will tax Americans living in the UK on their global income”
No, the UK will not do this, or should I say, the UK taxation system is generous but far more complicated. Normally, when an American expatriate arrives in the UK, she will be allowed to access UK non-domiciled status and can apply to exclude from UK tax foreign investment income and gains. This “non-dom” tax relief is very different to the US system, and there are several levels and conditions to this. However, it is important to factor non-dom taxation when examining any American expat in the UK.
9. “The UK US tax treaty means that I don’t have to pay UK tax”
Unfortunately, this is a mistake. Instead, the rule of thumb is that the tax treaty stops expats from being doubly taxed (in two places). So, when both the UK and US believe they have the right collect taxes (on say earnings, or dividends, or pensions) the treaty can deal with this. Typically, the treaty will instruct one country to step back and the other to apply tax. Or the treaty may resolve the problem by allowing one country to claim tax credits.
10. “If I don’t pay National Insurance, I can’t use the NHS”
This is a mistake, but the answer is good news. You may be exempt as an expat from paying UK National Insurance (e.g. assigned to UK short-term), but you are still permitted to use the NHS. The only thing to watch for are the rules that impose charges on expats for certain treatments.
Readers who would like to contact Oliver may do so through the enquiry form here.