Paying tax can be tricky if you’re a UK resident who lives, works, or earns an income outside of the UK, or vice versa. You might find that you’re taxed twice, both in the UK and in the country where you’re resident, unless the other country has a double taxation agreement (DTA) with the UK.
If you live, work, or earn an income in more than one country, then you might be taxed twice. For example, people can end up paying tax twice if they:
Work permanently in one country and live in another
Live in one country and get a pension from another
Have investments or property in one country and live in another
Have been posted to another country temporarily
Fortunately, lots of governments recognise that paying tax twice on the same money is likely to put people off the idea of moving around, so they often set up double taxation agreements to minimise this.
What is a double taxation agreement (DTA)?
A double taxation agreement is a treaty set up between two countries to ensure people don’t end up paying tax twice on the same money.
These agreements aim to make sure someone contributes to the place they work (or where the money is generated), and can’t avoid tax by opting to be taxed in another country.
Which countries does the UK have a double taxation agreement with?
International taxation often depends on what your tax residency status is (or where you’re ‘domiciled’), and always depends upon the countries involved.
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What is my tax residency status?
Whilst you may work in one country, it’s entirely possible that you might be ‘domiciled’ in another for tax purposes. Tax residency is important because it governs where you pay tax, and how much it will be.
Your tax residency status can change from one tax year to the next.
Working out your UK tax residency status
To work out your tax residency status for a particular tax year, you’ll need to work out how many days you were ‘resident’ in the UK during the year. A UK tax year starts on 6th April, and ends 5th April.
You’re automatically a UK tax resident if…
You’re automatically non-resident if either…
You spent 183 days or more in the UK during the tax year
You spent fewer than 16 days in the UK (or 46 days if you have not been classed as a UK resident for the previous 3 tax years)
Your only home was in the UK, which you owned, rented, or lived in for at least 91 days in total, and you spent at least 30 days there in the tax year.
You work abroad full-time (averaging at least 35 hours a week) and spent fewer than 91 days in the UK, of which no more than 30 were spent working.
What happens if there is a double tax treaty in place?
This depends on what the two countries agreed when the tax treaty was put in place, but they normally mean that you can either:
Apply for tax relief before you’re taxed (the agreement will explain how much relief is available)
Request a refund after you’ve been taxed
What happens if the tax rate in one country is higher?
In most cases you’ll normally need to pay the higher rate of tax, although it’s always worth checking out the details. It’s also important to check the tax year dates for each country – the UK tax year starts 6th April, and ends 5th April.
Will I get the personal allowance on overseas income?
The tax-free personal allowance means you can earn £12,570 in a tax year before you start to pay tax on it. You’ll get the allowance automatically if you’re a British citizen, a citizen of the European Economic Area (EEA), or if you worked for the UK government during the tax year.
You might also be entitled to the allowance if the country you live in has a double taxation agreement with the UK which includes it.
Examples of how double taxation can work
The approach you take to double taxation is based on a number of things. To start with, the rules vary depending on the country you’re in, and whether you’re a private individual, a company, a partnership, or a charity.
They also depend on what your income is from, such as employment, dividends, or royalties. To really complicate things, even your occupation can change the rules. For instance, if you are an entertainer, sportsperson, or student, then the tax rules may be different.
We have to be careful here, as the rules are different depending on the country you work in, and (often) the tax status of the company you’re working for. In general, workers who carry out their job overseas for periods of less than 60 days are taxed in their country of origin.
This makes sense, especially if you’re only going overseas to carry out a one-off job for a few days. Imagine setting up a tax account in each country in those circumstances!
The permanent cross border worker
Typically, a person working in a different tax jurisdiction will pay tax according to the rules where they work. For example, a UK worker who travels to Ireland to work, and does so for more than 60 days, will pay tax and Pay Related Social Insurance (PRSI) in Ireland.
In the normal course of things, they would then have to pay UK income tax on the money they bring back into the country. But, because there is a double taxation agreement, they will receive a credit for any tax that has already been paid. This depends upon them being domiciled in the UK for tax purposes.
This means that if someone works in an area where tax is lower than the UK, they will pay part of their tax in the country of work (at the tax rate in that country), and then the rest in the UK.
The non-resident director of an Irish incorporated company
This person lives and works in the UK, but is a director of a limited or public company in Ireland. They get paid a director’s fee for holding the office.
They will have to pay tax and PRSI on the income in Ireland, even if they never actually visit. But again, they will be able to obtain a credit against their UK tax bill.
The person who lives in the UK but is non-domiciled for tax purposes
The domicile of a person can be decided by reference to the place that their father considered home when the person was born. If they choose to be a non-domiciled UK resident, then special tax rules will apply.
In this case, if you have foreign income you can choose to be taxed using the remittance basis. In other words, only when the money comes into the country.
This may mean that tax will have to be paid in the country of origin depending upon their tax laws. It’s also important to note that they have to pay a remittance charge, so it can be costly.
Alternatively, they could choose to be taxed on the arising basis. This is where tax is paid in the UK as the income is earned, wherever it is earned.
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About The Author
I'm an AAT and ACA qualified Chartered Accountant with over 13 years experience working with businesses, contractors and sole traders. I also love watching live music, and quizzes!
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