+44 330 165 5340
clientservices@lsrpartners.comThe UK Statutory Residence Test determines whether you are taxable in the UK on your worldwide income or only on UK sources. Get it wrong and the consequences can be significant. One client spent three days too many in the UK and faced a £20,000 tax bill.
Three days too many in the UK. A £20,000 tax bill. Nothing to appeal and nothing to unwind.
That is a real situation from a real client. And it is exactly the kind of outcome that proper advice beforehand would have prevented entirely.
The statutory residence test UK determines whether HMRC taxes you on your worldwide income and gains or only on your UK sources of income. Get it right and your tax position is clear. Get it wrong and the consequences are fixed the moment they happen.
Here is a plain English guide to how it works.
The difference between being UK tax resident and UK tax non-resident is significant.
UK tax resident means HMRC taxes your worldwide income and gains. Every source, wherever it arises, regardless of whether you have already paid tax on it somewhere else.
UK tax non-resident means HMRC taxes you only on UK sources of income and gains.
That distinction catches people out regularly. Someone arrives in the UK from Australia and continues paying tax on their Australian rental income in Australia. They assume that covers it. It does not. As a UK tax resident, that Australian rental income falls within the scope of UK tax and needs to be reported to HMRC, even if a foreign tax credit reduces the ultimate liability.
The statutory residence test was introduced in April 2013 to replace a system that was considerably less clear-cut. Its purpose is to provide a definitive, fact-based answer to the question of whether you are UK tax resident in any given tax year.
The first thing to establish under the statutory residence test is whether you are a leaver or an arriver.
If you have been UK tax resident in any of the previous three tax years, HMRC treats you as a leaver. If you have not been UK tax resident in any of the previous three tax years, you are an arriver.
The distinction matters because the tests that apply to each category are different. Arrivers get considerably more flexibility than leavers throughout the statutory residence test. The day count thresholds illustrate this clearly. Leavers can spend only 15 midnights in the UK before risking UK tax residency. Arrivers get 45.
Simon describes this as HMRC being in the market for making it hard to leave and easy to arrive. That directional imbalance runs through every layer of the test.
Before getting into the more detailed parts of the statutory residence test, two automatic overseas tests can settle your residency position outright.
Stay below 15 midnights in the UK as a leaver, or 45 midnights as an arriver, and you are automatically UK tax non-resident. No further analysis required.
Every midnight counts. The test is entirely fact-based. Once those days are spent, they cannot be changed.
Work full time outside the UK for the entire tax year and you qualify as automatically non-resident. Full time means an average of at least 35 hours per week, with no significant break from overseas work during the year.
For most people being relocated by an employer, this test is likely met. Someone working every hour available for an overseas employer across a full tax year will almost certainly satisfy the criteria. But the detail matters. The specific definitions of full-time work, significant breaks and how hours are calculated are worth understanding before you assume you qualify.
If you do not pass either automatic overseas test, the statutory residence test moves to three automatic UK tests. Any one of them can make you UK tax resident regardless of how little time you have spent here.
Spend 183 days or more in the UK in a tax year and you are automatically UK tax resident. Most people are familiar with this one because most countries operate a broadly similar six-month threshold.
In practice, this is the least commonly relevant automatic UK test for internationally mobile people. The other two catch far more people.
If your only home is in the UK, this test can make you UK tax resident after just 30 days in the tax year.
This test has become increasingly relevant with the rise of digital nomads and location-independent workers. Someone who keeps their UK property while travelling and working remotely, without establishing a genuine home base elsewhere, can find that this test keeps them UK tax resident regardless of how few days they spend here. The permanent holiday approach to breaking UK tax residence rarely works the way people hope.
This is the most striking of the three. One day of full-time work in the UK during the tax year can make you UK tax resident for the entire year.
This test is specifically designed to catch people who are in the process of arriving in the UK and begin working before they have properly established their position.
Anyone who does not fall into one of the automatic categories moves on to the sufficient ties test. This is where the analysis becomes more nuanced.
There are five potential ties to the UK: family, accommodation, work, the 90 day tie and the country tie. Arrivers lose the country tie from their analysis.
The more ties you have to the UK, the fewer days you can spend here before becoming UK tax resident. The relationship between ties and day counts works like this:
Four or five ties means you can spend only 15 midnights in the UK. Three ties allows up to 45 midnights. Two ties allows up to 90 midnights. One tie allows up to 120 midnights. No ties allows up to 282 days.
The country tie is particularly relevant for digital nomads and people who split their time across multiple locations without a clear base. If you spend as many days in the UK as anywhere else, or more, that counts as a tie.
Spending close to the upper day count limit in one year creates consequences for the following year. Spending more than 90 days in the UK creates the 90 day tie, which then reduces the days available in the following year. The sufficient ties test does not reset cleanly between years.
In theory, an arriver with just one tie to the UK can spend up to 182 days here without becoming UK tax resident.
In practice, spending 182 days in the UK without acquiring an accommodation tie is extremely difficult. An accommodation tie arises when you have a place available to you in the UK for 91 days or more in the tax year and spend at least one night there. Staying somewhere consistently for 182 days while avoiding that threshold requires moving between different hotels and short-term rentals constantly.
The statutory residence test is cleverly designed. It is harder to manipulate than people assume.
A common misconception is that being UK tax resident prevents you from being tax resident somewhere else at the same time. It does not.
You can be tax resident in multiple countries simultaneously. The UK adds a further layer of nuance that most countries do not have. You can be UK tax resident under the statutory residence test but treaty resident in another country under the relevant double tax treaty. Those two positions coexist.
Treaty residence is not a choice. It is determined entirely by the facts of the situation analysed against the relevant double tax treaty. Understanding how domestic residence and treaty residence interact is essential for anyone with a cross-border tax position.
Most countries operate a binary residency system. You are either resident or you are not.
The UK has split year treatment. This allows the tax year to be divided into a resident period and a non-resident period within the same tax year. For someone who leaves the UK in October, split year treatment means HMRC treats them as UK tax resident from April to October and as non-resident from October onwards, rather than treating them as fully UK tax resident for the entire year.
Leaving the UK and claiming split year treatment requires meeting one of three cases. Working full time overseas, being the partner of someone working full time overseas, or ceasing to have a home in the UK.
Arriving in the UK offers five routes. Starting full time work in the UK, ceasing full time work overseas, having your own home in the UK, or being the partner of someone in any of those situations.
More ways in. Fewer ways out. The same directional imbalance runs through every layer of the statutory residence test.
The statutory residence test is fact-based. If HMRC opens an enquiry, they will want evidence. Not a reconstruction of what you think you were doing. Contemporaneous records that demonstrate exactly where you were, what you were doing and when.
Keep a travel diary updated regularly. Use apps that track your location using GPS. Take photos with location data embedded. For people whose work pattern is difficult to evidence through standard employer records, such as self-employed individuals or those in creative professions, building a strong contemporaneous record is particularly important.
Having documented professional advice that you can demonstrate you followed is also valuable. A detailed written report from a specialist adviser explaining what you can and cannot do, combined with evidence that you followed it, is one of the most effective ways of closing down an HMRC enquiry before it gains momentum.
This is the single most important message when it comes to the statutory residence test.
If you are leaving the UK or arriving in the UK, speak to a specialist before you act. Not after.
The statutory residence test is unforgiving. Once the facts are set, they cannot be changed. Spending one day too many, missing a split year case, or acquiring an unexpected tie all have consequences that are fixed the moment they happen.
The clients who get the best outcomes are consistently the ones who had the conversation before they made any decisions. Those who come to LSR Partners after the fact often hear the same words: if you had only spoken to us six months ago, we could have told you not to do X, Y and Z. That conversation would have saved you a lot of tax.
LSR Partners do more residency work than probably any other area of their practice. Every situation is different and every analysis starts with the specific facts of that individual's position.
LSR Partners help you pay the right tax in the right place at the right time. Book a call with us at lsrpartners.com.
This article is for general information purposes only and does not constitute tax advice. The statutory residence test is highly fact-specific and your individual circumstances will determine how the rules apply to you. Please contact us to discuss your specific position.
You can listen to the full episode of the Tax Compass Podcast here.
Paying tax in two countries on the same income is not inevitable. Foreign tax credits exist to prevent exactly that. But they do not work in the way most people assume.
Surely the double tax treaty prevents this?
Not quite. Double tax treaties do not let you choose where to pay your tax. They provide a mechanism to make sure you do not pay full tax in both countries at the same time. That mechanism is the foreign tax credit, and understanding how it works is essential for anyone with cross-border income.
A foreign tax credit is a reduction in your UK tax liability that reflects tax you have already paid overseas on the same income.
The UK has double tax treaties with a large number of countries. Those treaties determine which country has the right to tax specific types of income, and to what extent. Where both countries have some taxing right, the foreign tax credit system steps in to prevent genuine double taxation.
You claim foreign tax credits through your UK self assessment tax return. The claim does not happen automatically. If you do not make it, HMRC will simply tax the income in full.
A practical example makes this much clearer.
You live and work in the UK. You also rent out a property in France. The rental profits are £10,000. France taxes those profits and charges you £1,500. When you complete your UK tax return, HMRC would normally charge you £2,000 on the same profits at the basic rate.
Without a foreign tax credit, you pay £3,500 in total. With the credit, you offset the £1,500 paid in France against your UK bill. You pay £500 in the UK and £1,500 in France, a total of £2,000. You end up paying the higher of the two rates, not both rates in full.
The credit works in one direction only. It reduces your UK liability. It never generates a refund.
Take the same example but reverse the numbers. France charges £2,500 on the same income and the UK would charge £2,000. The UK gives you a credit that reduces your liability to nil. You pay nothing in the UK. But the UK does not refund the £500 difference. Your total bill is £2,500, paid entirely in France.
This is one of the most common misunderstandings we encounter. The credit eliminates UK tax in this scenario, but it does not compensate you for the higher overseas rate.
Foreign tax credits are not available in every situation. The treaty between the UK and the relevant country governs whether a credit is available, and for some income types the rules are more restrictive than people expect.
Pensions are a common area where credits cause confusion. Many double tax treaties give one country exclusive taxing rights over pension income. Where the UK has exclusive taxing rights, no credit is available for tax paid overseas because the overseas country should not have taxed the income in the first place.
In that situation, the correct approach is to go back to the overseas country and claim a refund of the tax they withheld. This is often more complicated in practice than it sounds, but it is the right route.
Dividends create a different problem. Most double tax treaties allow the country where the dividend originates to tax it, but only up to a specified limit. Germany, for example, often withholds tax at 30% or more on dividends paid to UK residents. Under most treaties, the permitted withholding rate is only 15%.
In this situation, the UK gives you a credit only up to the treaty limit of 15%. The excess withholding, the amount above what the treaty permits, needs to be reclaimed directly from the German tax authorities. That process is separate from your UK tax return and requires a direct application to the overseas revenue authority.
Foreign tax credits sit at the intersection of UK domestic tax law and international treaty obligations. Get the claim right and you avoid genuine double taxation. Get it wrong and you either overpay tax in the UK, miss a reclaim you are entitled to overseas, or both.
The key points to remember are these. Always check what the relevant treaty says about the specific type of income before assuming a credit is available. Never assume that paying tax overseas removes your UK reporting obligation. And always make the claim through your tax return rather than assuming HMRC will apply it automatically.
If you have overseas income and you are not certain whether you are claiming the right credits in the right way, the consequences of getting it wrong compound over time. Overpaid tax that falls outside the four year window for amendments cannot be recovered.
At LSR Partners, we deal with foreign tax credit claims regularly across a wide range of income types and treaty relationships. We make sure you claim what you are entitled to and pay no more than the rules require.
LSR Partners help you pay the right tax in the right place at the right time. Book a call with us at lsrpartners.com to discuss your situation.
This article is for general information purposes only and does not constitute tax advice. Your individual circumstances will affect how foreign tax credits apply to you. Please contact us to discuss your specific position.
When someone tells you that you need to do an SA109, what they actually mean is that you need to do a full UK tax return.
Someone has told you that you need to do an SA109. Or an SA105. Or one of the other SA forms. And you have absolutely no idea what that means.
Here is the short answer: they mean you need to do a UK tax return.
The SA numbers refer to specific pages within a single document. Understanding how that document is structured makes the whole process far less confusing.
A UK tax return is a single document submitted to HMRC that reports your income, gains and tax position for a given tax year. The technical name for this process is self assessment.
Despite what the various page numbers might suggest, you do not submit multiple separate forms. Everything goes to HMRC in one submission.
HMRC strongly prefers online filing. Sending a tax return by post is possible but creates problems. HMRC does not confirm receipt until the return has been fully processed, which means you have no way of knowing whether it has arrived safely. Filing online removes that uncertainty entirely.
Every UK tax return starts with the SA100. This is the core document, eight pages long, that every taxpayer must complete regardless of their circumstances.
The SA100 covers your basic personal details, your income sources at a high level, and a series of questions that determine which supplementary pages you need to add. Think of it as the frame that holds everything else together.
Nobody submits just the SA100 and nothing else unless their tax affairs are very straightforward. For most people, the SA100 generates a list of additional pages that need completing based on their specific situation.
Supplementary pages are additional sections that attach to the SA100 based on your individual circumstances. You only complete the pages that are relevant to you.
The most common supplementary pages include the following. Employment income pages cover salary and benefits from your employer. Self employment pages cover income from running your own business. UK property pages cover rental income from UK property. The SA109 covers residence, remittance basis and other international tax matters.
Each supplementary page carries its own SA reference number, which is why people often refer to them by name. But it is important to understand that these pages do not stand alone. They always accompany the SA100 as part of a single complete tax return.
The SA109 is the supplementary page that deals with residence and domicile. Anyone whose UK tax position is affected by their residency status needs to complete it.
This includes people who are leaving the UK and claiming non-residency, people who are arriving in the UK and need to establish their residency position, people claiming split year treatment in the year they depart or arrive, and people making claims under the remittance basis or the new Foreign Income and Gains regime.
When an adviser tells you that you need an SA109, what they mean is that your tax return requires the residency supplementary pages in addition to the core SA100. It is not a separate filing. It is one page within one document.
Understanding how the tax return fits together matters for two reasons.
First, it helps you understand what your adviser is actually doing on your behalf. A request to complete an SA109 is not a small or simple task. It means preparing a full tax return, establishing your residency position under the Statutory Residence Test, and making the appropriate claims and elections within that return. The SA109 is often the most technically complex part of the whole document.
Second, it helps you gather the right information. Your adviser needs your full income picture for the year, not just the income that relates to the specific supplementary page in question. HMRC receives and assesses the return as a whole, so every element needs to be correct.
The UK tax year runs from 6 April to 5 April the following year. For online filing, the deadline is 31 January following the end of the tax year. For the 2024 to 2025 tax year, the online filing deadline is 31 January 2026.
Missing the deadline triggers an automatic penalty of £100, with further penalties applying if the return remains outstanding. Filing online before the deadline and on time avoids all of this.
If you have been told you need a specific supplementary page and you are not sure what that means for your overall tax position, the best thing to do is speak to someone who can assess your full situation rather than just one element of it.
At LSR Partners, we prepare UK tax returns for expats, non-residents and internationally mobile individuals. We handle everything from the SA100 through to the most complex supplementary pages, including the SA109 residency and remittance basis sections.
LSR Partners help you pay the right tax in the right place at the right time. Book a call with us at lsrpartners.com to discuss your situation.
This article is for general information purposes only and does not constitute tax advice. Your individual circumstances will affect your tax return requirements. Please contact us to discuss your specific position.
If you receive equity awards from your employer; RSUs, share options, or anything in between, understanding how they are taxed in the UK is not optional. Get it wrong and you could be overpaying tax, underpaying tax, or find yourself in a very difficult conversation with HMRC.
Your employer granted you equity awards a few years ago. The company has done well, and those awards are finally worth something. Before you decide what to do with the money, answer one question first: are you paying the right amount of UK tax on them?
Many people get caught out in this area. Not because they are trying to avoid anything, but because employment related equity is genuinely complicated. At LSR Partners, we help clients untangle situations where equity has been over-taxed or under-taxed, sometimes going back several years. Most company payrolls do not always get this right.
Here is what you need to understand.
Restricted Stock Units, known as RSUs, are not investments in HMRC's view. When they vest and you receive the shares, HMRC classes them as employment income. That puts them in the same category as your salary or bonus. You pay income tax and National Insurance on the market value of the shares on the vesting date.
Many people find this surprising. You receive shares rather than cash, so you might expect HMRC to treat them as a capital item. HMRC does not see it that way. You received the shares through your employment. That makes them remuneration, and remuneration is income.
For employees at large companies, payroll handles this through a sell to cover process. Your employer sells a portion of the vested shares to cover the income tax and National Insurance due. The shares that land in your brokerage account are already net of tax.
Once you hold the shares, the picture changes. Any gain you make after that point falls under capital gains tax, not income tax. Your base cost for capital gains purposes is the market value on the vesting date. That is the same figure your employer used to calculate the income tax.
Share options have a different tax treatment, and that difference matters.
With an RSU, the vesting date is the tax point. The shares become yours, they have a value, and HMRC taxes them as income at that moment.
With options, you have the right to buy shares at a set price at some future date. The options vest, but vesting does not trigger a tax charge on its own. Tax only arises when you exercise the option. That is when you pay the exercise price and receive the underlying shares.
HMRC takes this approach because you cannot convert an option to cash. Until you exercise it, you cannot sell it. You have not received anything of real value yet. Taxing you before you can raise the money to pay would be unreasonable.
The earnings period and the tax point can sit years apart. Your vesting period might run from 2021 to 2024. If you hold the options and exercise them in 2027, that is when you pay the tax. The award still counts as income. The vesting period still determines how much falls within the scope of UK tax. The actual payment, however, happens much later.
For anyone who spent time outside the UK during the vesting period, this creates both complexity and, in some cases, genuine planning opportunities.
This is where the stakes rise and where professional advice makes a real difference.
HMRC looks at where you were tax resident across the entire vesting period and taxes only the UK-resident portion. Take a four-year RSU grant where you spent the first two years in the US and the final two years in the UK. HMRC's starting position is that 50 per cent falls within the scope of UK income tax. The remaining 50 per cent was earned while you were non-resident and sits outside UK tax.
That sounds straightforward. In practice, it rarely is.
When you move countries, your company should adjust its payroll to reflect your new residence. In reality, there is often a lag. A three-month secondment turns into something longer and payroll never catches up. Your employer moves you onto the overseas payroll on a date that does not match when you actually broke UK tax residence. The figure reported to HMRC ends up wrong.
HMRC's default time apportionment approach is not the only way to calculate the UK portion. Other methods exist. Treaty considerations and OECD guidance can sometimes produce a more favourable outcome, particularly for options. We have argued for different apportionment calculations based on specific client circumstances and achieved meaningfully lower UK tax bills as a result.
Working for a US company with equity in dollars adds another layer. Foreign exchange calculations affect both the income tax charge at vesting and any capital gains on later disposals. Getting the FX figures wrong is easy, and the consequences are real.
Do not assume that because your employer runs payroll, your equity tax position is correct. Payroll departments make mistakes in this area, even at large companies. Some apportion based on when you moved onto the local payroll rather than when you actually became UK tax resident. Some miss overseas workdays. Others apply UK tax to the full award when part of it was earned during a period of non-residence.
Overpayments happen. Some clients have overpaid by tens of thousands of pounds. Underpayments happen too. Finding either one early and correcting it proactively is far better than waiting for HMRC to raise it with penalties attached.
Anyone with equity awards who has moved countries at any point in their career should treat their tax position as worth checking.
This is not financial advice, but it deserves a mention. Simon often tells the story of a former colleague whose brother worked at Lehman Brothers for 25 years and never sold a single share. His entire retirement fund sat in Lehman stock. When the firm collapsed in 2008, he lost everything and had to work for another decade.
Each time your shares vest, you face a decision. Hold on or diversify. Holding means making a concentrated bet on your employer. Your salary and career are already tied to the same company. For most people, selling at vest or shortly after is the rational move.
At LSR Partners, we are not financial advisers. We are not telling you what to do with your shares. We can make sure that whatever you decide, you pay the right tax on it.
Complexity creeps up on you with employment related equity. It starts simply: you get some shares, they vest, your employer handles the tax. Add an international move, a payroll gap, some unvested options and a mix of income tax and capital gains tax across several vesting dates, and the picture becomes complicated fast.
Anyone with equity awards and an international dimension to their tax affairs should speak to someone who understands both.
LSR Partners help you pay the right tax in the right place at the right time. Book a call with us at lsrpartners.com to discuss your situation.
This article is for general information purposes only and does not constitute tax advice. Your individual circumstances will affect the tax treatment of your equity awards. Please contact us to discuss your specific position.
You can listen to the full episode of the Tax Compass Podcast here.
Most people assume that if they have no income tax liability, their entire basic rate band is available for capital gains tax at 18%. That is not always correct.
That assumption is often wrong.
Capital gains tax for expats and non-residents is one of the areas where we see the most miscalculations. The rate you pay depends on more than just whether you have a tax bill. Your full UK income picture for the year determines the answer, including income that generates no tax liability at all.
Here is how the calculation actually works.
Capital gains tax is the tax you pay on the profit from selling or disposing of an asset. HMRC taxes the gain, not the total sale proceeds.
Every individual has a tax-free CGT allowance of £3,000 per tax year. Gains below this threshold attract no tax. Gains above it are taxable at either 18% or 24%, depending on where they sit relative to your basic rate band.
CGT applies to gains from the disposal of most personal possessions worth £6,000 or more (excluding your personal car), property that is not your main home, your main home if it has been let out or used for business, shares held outside an ISA or PEP, and business assets.
The rate you pay depends on a single calculation. Take your taxable income. Add your taxable gains. If the combined total falls within the basic rate band of £37,700, you pay 18% on the gains. For any amount above that threshold, you pay 24%.
The critical point is the word taxable. Your personal allowance reduces your taxable income before the calculation begins. Certain types of income interact with this in ways that most people do not expect.
Taxable income of £20,000 and total capital gains of £12,600. Deduct the £3,000 CGT allowance to reach taxable gains of £9,600. Adding that to taxable income gives £29,600. This falls within the basic rate band, so CGT is charged at 18% on the full £9,600, giving a total bill of £1,728.
Taxable income of £20,000 and total capital gains of £52,600. Deduct the £3,000 allowance to reach taxable gains of £49,600. Adding that to taxable income gives £69,600. After the £20,000 income, £17,700 of basic rate band remains. CGT at 18% applies to that £17,700, giving £3,186. The remaining £31,900 is taxed at 24%, giving £7,656. Total CGT bill: £10,842.
Please note that CGT rates differ for trustees, personal representatives and businesses.
This is the part of the calculation that catches people out most regularly.
A non-resident client came to us planning to sell a UK property. He had rental income of £16,000 and enough mortgage interest to cover his entire tax liability. He assumed his full £37,700 basic rate band was available for CGT at 18%.
He did not have it.
Mortgage interest relief on residential property is a tax credit, not a deductible expense. HMRC does not reduce your income figure by the mortgage interest you pay. Your rental income still counts in full against your basic rate band.
In this case, the client had £16,000 of rental income and a personal allowance of £12,570. That left £3,430 of his basic rate band already used before accounting for a single pound of capital gains. His available 18% band was £34,270, not £37,700.
For clients with larger rental incomes or smaller personal allowances, the impact compounds quickly. The difference in tax between 18% and 24% adds up fast across a larger gain.
Non-residents sometimes choose the disregarded income route for certain UK income sources. This removes the requirement to pay UK tax on that income and sounds attractive at first glance. However, it comes with a significant trade-off.
Choosing disregarded income means losing your personal allowance entirely for that tax year. Without a personal allowance, taxable income starts from zero rather than from £12,570. That eats into your basic rate band immediately, pushing more of your capital gain into the 24% bracket.
Take the client example above. Going down the disregarded income route with a £15,000 private loan would have removed his personal allowance entirely. The full £15,000 would have reduced his available 18% band to £22,700 rather than £37,700.
The right choice between these two routes depends entirely on your specific income mix and the size of your gain.
Many non-residents are surprised to learn that UK CGT applies to disposals of UK property and land. Non-residency does not remove this obligation.
Selling UK residential property as a non-resident means reporting the disposal to HMRC within 60 days of completion and paying any CGT due at the same time. Missing this deadline triggers automatic penalties.
UK tax residents who sell assets located overseas may also face a UK CGT liability. UK residents pay tax on worldwide gains. A double tax treaty with the country where the asset is located may provide relief, but it does not remove the UK reporting obligation.
The CGT rate you pay is not simply a matter of checking whether you have a tax liability. Rental income, the type of relief you claim, your personal allowance position and the size of your gain all interact in ways that affect the final bill.
Getting this wrong after a sale has completed is a much harder problem to fix than getting it right beforehand.
LSR Partners help you pay the right tax in the right place at the right time. Book a call with us at lsrpartners.com.
This article is for general information purposes only and does not constitute tax advice. Your individual circumstances will affect the tax treatment of any disposal. Please contact us to discuss your specific position.
Thinking of leaving the UK to work overseas? The Full-Time Work Overseas test is one of the most powerful, and misunderstood, parts of the UK’s Statutory Residence Test.
It is not quite that simple.
The full time work overseas test is one of the most technically demanding parts of the UK Statutory Residence Test. Meet every criterion and your foreign income falls outside UK tax entirely. Miss a single criterion and the test fails.
Here is exactly how it works.
The full time work overseas test sits within the UK Statutory Residence Test. It gives HMRC a framework to decide whether you qualify as non-resident for a given tax year based on your overseas work pattern.
Passing this test means UK tax does not apply to your foreign employment income. For anyone working abroad on a substantial salary, that is a significant financial benefit.
The test applies in two situations. First, where you work overseas for a complete tax year. Second, where you leave the UK part way through a tax year to start full time work overseas.
To pass the full time work overseas test for a complete tax year, you must satisfy all three of the following criteria. Missing any one of them means the test fails.
Full time means an average of at least 35 hours per week working overseas. Do not take a significant break from overseas work at any point during the year.
HMRC defines a significant break as 31 or more consecutive days where none count as an overseas workday. Annual leave, parenting leave and sick leave do not contribute to that 31 day total.
Every visit to the UK counts towards this limit. The reason for the visit makes no difference. Business trips, family visits and holidays all count equally.
A working day is any day on which you work for three or more hours in a 24 hour period. Keep careful records of every UK working day, however briefly the work crosses the three hour threshold.
This test does not cover international transportation workers with six or more work journeys starting or ending in the UK per year. Pilots, cabin crew and others in similar roles fall outside its scope entirely. They need to consider alternative routes to non-residency.
This is where the test becomes more complicated, and where most errors occur.
Starting work overseas part way through a tax year means you cannot simply claim non-residency from your departure date. Instead, you must meet the full time overseas criteria from your first overseas workday until the end of the following complete tax year.
Leaving part way through a year reduces the day count limits proportionally. Departing in October, roughly six months into the UK tax year, cuts your limits to approximately 15 working days and 45 midnights rather than the full 30 and 90.
Many people assume the full limits apply from departure. They do not. This is one of the most common mistakes we see.
Take this example. You start working overseas in October 2026. Compliance with the full time overseas criteria must continue until April 2028. That amounts to roughly 18 months of continuous compliance to secure non-residency from your departure date.
Leaving the UK part way through a year may allow you to apply split year treatment. Under this approach, HMRC treats you as UK tax resident from the previous April until your first overseas workday. From that workday until the end of the tax year, you count as non-resident.
Benefiting from non-residency in the following year still requires passing the full time overseas test for that entire year. Many people overlook this second hurdle entirely.
Relying on split year treatment in the year you leave, then failing the full time overseas test in the following year, causes your split year treatment to collapse retroactively.
Going back and revising your position as UK tax resident for the period you thought was covered carries significant tax consequences.
Two specific situations may offer alternative routes. Ceasing to have a UK home is one. Being the partner of someone working full time overseas is another. Both require careful analysis before you rely on them.
The full time work overseas test has more moving parts than most people expect. Day counts are strict. Pro-rata calculations require precision. Many people misunderstand the need to pass the test across two consecutive tax years.
Getting this wrong can unwind your entire non-residency position, not just the year you leave.
Speak to LSR Partners before you go. The earlier we talk, the more options you have.
LSR Partners help you pay the right tax in the right place at the right time. Book a call with us at lsrpartners.com.
This article is for general information purposes only and does not constitute tax advice. Your individual circumstances will affect how these rules apply to you. Please contact us to discuss your specific position.
We regularly see high earners accidentally triggering annual allowance charges, simply because they didn’t realise what counts, and recent proposed changes to salary sacrifice could significantly reduce employer contributions in the coming years.
Pensions are often seen as one of the most tax-efficient ways to save in the UK.
But for many high earners and internationally mobile professionals, the reality is far more complex.
In Episode 18 of the Tax Compass Podcast, we break down how UK pensions actually work, and where people often get caught out.
Because while pensions can be powerful, the rules around annual allowances, tapering, and recent Budget changes mean it’s easy to make costly mistakes.
As a starting point, most individuals can contribute up to £60,000 per tax year into their pension and receive tax relief.
However, this isn’t just your own contribution.
It includes:
This is one of the most common areas of confusion. Many people underestimate how quickly they can exceed the limit.
There are two main ways pension contributions are made:
Understanding the difference is critical, particularly as future changes may significantly reduce the benefits of salary sacrifice.
If your income falls between £100,000 and £125,140, you begin to lose your Personal Allowance.
This creates an effective 60% tax rate.
Pension contributions can help:
For many individuals, this is one of the most effective uses of pension planning.
For higher earners, the standard £60,000 allowance may be reduced.
If:
Your allowance is reduced by £1 for every £2 over the threshold.
This can reduce your allowance to as little as £10,000.
If you contribute more than your available allowance:
In effect, this removes the tax benefit entirely.
In many cases, individuals are:
This is where careful planning becomes essential.
You can carry forward unused allowances from the previous three tax years.
However:
This is particularly relevant for those with fluctuating income.
One of the most significant recent developments is the proposed £2,000 cap on salary sacrifice contributions.
While full contributions remain possible, the key change is:
👉 Employer National Insurance savings are restricted
This has a major implication:
In many cases, employer contributions are the key benefit.
For example:
Even if tax inefficiencies arise, employer funding can still make contributions worthwhile.
However, if employer contributions reduce, the equation changes significantly.
Pensions remain a valuable tool, but not always in the way people assume.
Consider:
This means pension planning must be strategic, not automatic.
You can listen to the full episode of the Tax Compass Podcast here.
Pensions are no longer a simple “set and forget” strategy.
With increasing complexity and ongoing policy changes, it’s essential to review your position regularly.
Contact LSR Partners today to speak with our expert team and pay the right tax, in the right place, at the right time.
How does HMRC tax your savings income in the 2025/26 tax year? If you’ve ever earned interest on a savings account and wondered how it’s taxed or whether you need to report it, this video clears it all up.
However, it is easy to forget that if the interest you earn from your savings exceeds a certain limit, then you will be required to pay tax on that interest.
Here’s some information about taxing interest on savings that it is important to be aware of.
Before any tax obligations come into effect everyone is entitled to a Personal Savings Allowance.
The Personal Savings Allowance (PSA) is a tax-free allowance which allows you to earn interest on savings up to a specific amount before you have to pay tax on it. The allowance amount is linked to your income tax rate. So, for example, if you are a basic rate taxpayer, you can earn up to £1000 in savings interest per year without having to pay tax on it. The PSA includes income earned from all savings accounts (except ISAs).
When your combined income and savings interest exceeds your Personal Savings Allowance, then you have to pay tax on it.
Income tax rates and PSA
The table below shows how much interest you can earn on your savings before paying tax (your PSA) depending on your income tax rate.
| Income tax rate | Personal savings allowance |
| Non-taxpayer (income is below £12,570) | You may be able to earn up to £18,750 savings interest tax free depending on what other income you have |
| Basic-rate taxpayer (20%) | £1000 |
| Higher-rate taxpayer (40%) | £500 |
| Additional-rate taxpayer (45%) | No allowance |
When do I have to inform HMRC?
Your bank or building society will pay all interest you earn from your savings accounts to you directly. However, while they will not deduct any tax from your savings interest, they are likely to inform HMRC of these payments they make to you.
There are a few different ways to inform HMRC of your savings interest:
Can I get back any tax overpayments on my savings interest?
If your tax code is changed to account for tax payments on savings interest and then your income from savings interest falls back below the PSA, you could find yourself overpaying tax as your adjusted tax code will remain in place until you inform HMRC otherwise.
However, if you realise that this has happened, it is still possible to reclaim any overpaid tax up to 4 years after the tax year in which the overpayments were made. You can either do this using your SATR or by contacting HMRC directly.
Starting rate for savings
Providing your other earned income does not exceed £17,570, you may also be eligible for a tax-free starting rate for savings which can be up to £5000 depending on the amount of income that you earn.
If you think that you might be eligible for this starting rate, then please get in touch and we can talk through your personal levels of income and advise how much of the starting rate you may be entitled to.
There is a lot to be aware of when it comes to paying tax on your savings interest and it could easily be something that you overlook if you are unaware of how your savings pot has built up over the years.
If you want further information or advice about your specific savings and personal tax obligations, then please get in touch. We are here to help you make the most of your savings while fulfilling tax requirements.
Contact LSR Partners today to speak with our expert team and pay the right tax, in the right place, at the right time.
Got a company car, private medical cover, or other perks at work? These are classed as non-cash Benefits in Kind, and yes, HMRC wants to tax them.
A non-cash benefit is a benefit received from an employer that is neither cash nor a cash equivalent.
Non-cash benefits in kind include, company car, medical benefits, dental benefits.
Benefits in kind are usually taxed in one of two ways, depending upon the size of your employer.
If your employer is a smaller company, most often, benefits in kind are processed at the end of the year using a P11D form. This form is submitted to HMRC by early July. Any tax liabilities or refunds are then communicated to you and need to be settled with HMRC.
If your employer is a large company, most often, benefits in kind are processed through payroll on a real time basis. You should see the benefit in kind included on your payslip each month as a cash equivalent which is taken out as a deduction as you do not physically receive the cash.
However, HMRC have announced plans to abolish the P11D process of declaring benefits in kind, by April 2026. This will mean that, by this time, all benefits in kind will need to be processed through the payroll as is the case for larger companies.
If you have any questions about benefits in kind, then please get in touch. We can provide tailored advice to make sure that your non-cash benefits in kind are being processed properly and that you are paying the right tax in the right way at the right time.
Contact LSR Partners today to speak with our expert team and pay the right tax, in the right place, at the right time.
What really happens if you leave the UK, and then come back?
In Episode 17 of the Tax Compass Podcast, we break down one of the most misunderstood areas of UK tax law: Temporary Non-Residence.
If you are considering relocating overseas, even for a few years, this is essential reading.
Under UK tax law, if you:
You may be treated as a temporary non-resident.
If that happens, certain income and gains realised while you were non-resident can be brought back into UK tax when you return.
This often comes as a surprise.
The rule was designed to prevent individuals from:
In other words, it is an anti-avoidance measure.
But it catches far more ordinary scenarios than many people expect.
In most cases, you must remain non-resident for at least five full tax years to avoid being classified as temporarily non-resident.
The clock usually starts:
The timing matters.
Getting this wrong can invalidate planning.
Temporary non-residence can apply to:
If you return to the UK within five years, these amounts can crystallise in the tax year of your return.
There is no top-slicing relief.
That means multiple years of gains or income could be taxed in one single year, potentially at higher rates.
Imagine you:
Those gains may fall back into UK tax in the year you return.
The same principle can apply to certain pension withdrawals or dividends extracted from a close company.
We are seeing an increasing number of individuals leaving the UK.
Historically, relocation was often driven by lifestyle or employment opportunities.
Today, tax is more frequently a primary factor.
However, leaving without understanding temporary non-residence rules can undo careful planning and create unexpected liabilities.
Split-year treatment can help you break UK tax residence in your year of departure.
But it does not override temporary non-residence rules.
Even if you validly become non-resident, returning within five tax years may still trigger these provisions.
There has been increasing political discussion around tightening non-resident rules.
While the UK does not currently operate a formal exit tax, changes to:
Suggest a clear direction of travel.
Planning early is essential.
Temporary non-residence is not niche.
It is highly relevant if you:
If you are leaving the UK, you must think beyond the first year.
The five-year horizon is critical.
Temporary non-residence rules are technical, but with the right planning, they are manageable.
You get:
If you are planning to leave, or planning to return, it is far better to structure things correctly from the outset than to unwind them later.
You can listen to the full episode of the Tax Compass Podcast here.
If you would like to discuss your position, contact LSR Partners.
You’ll get clarity and confidence, and a clear plan forward.
Contact LSR Partners today to speak with our expert team and pay the right tax, in the right place, at the right time.
