The number of digital nomads is projected to hit 60 million worldwide by 2030, up 20 million from figures in 2023.
“This boom in popularity and the rise of digital nomad visas makes it much easier for Brits to work abroad,” says Martin Clapson, the managing director of Price Bailey, a top accountancy and business advisory firm. “Working in a warm country through the winter months is now much more possible for UK residents, but before making the move, you need to make sure you won’t get caught out when paying your taxes.”
UK Tax Residency Rules
The core rule governing tax residency is the 183-day rule, which means that if you spend 183 or more days in the UK during a tax year (6 April to 5 April), you will typically be considered a UK tax resident. As a UK resident, your income from any country is subject to UK taxation, whereas non-residents only pay tax on income from the UK.
However, UK residency isn’t just determined by days spent in the UK. The Statutory Residence Test (SRT) considers other factors, such as your family, work ties, and homes you may own in the UK. “The UK’s government website has all the details on how to take the SRT and work out if you are a resident,” says Clapson.
Spending extended time abroad, such as working over the winter, may shift your status to non-resident, depending on how many days you spend in the UK and your ties to the country. Non-residency means you would no longer be liable to pay UK tax on your foreign earnings during your time abroad.
Additionally, the split-year treatment may apply, meaning your tax year could be divided into resident and non-resident portions if you meet specific criteria, such as starting or stopping full-time work abroad or if your spouse or partner moves abroad.
For example, if you start working abroad halfway through the tax year, the time spent working overseas may be treated as non-resident, while the time you spent in the UK before moving abroad may count as resident,” Clapson explains.
However, split-year treatment is not automatic and requires meeting the detailed conditions set out by HMRC.
Double Taxation Agreements (DTAs)
If you’re a British resident planning to work abroad during the winter months, Double Taxation Agreements (DTAs) can help you avoid being taxed twice on the same income by both the UK and the country you’re staying in. DTAs are treaties between two countries that determine how tax should be applied to income earned in one country but subject to tax in both.
First, check if the country where you plan to work has a DTA with the UK. You can find this information through HMRC or consult a tax professional. If a DTA exists, you can usually claim tax relief to avoid double taxation. If your foreign income has already been taxed abroad, you can claim Foreign Tax Credit Relief when filing your UK tax return. The amount of relief depends on the specific terms of the DTA.
If you want to apply for tax relief before being taxed on foreign income, you need to prove your UK residency by completing a form or providing a certificate of residence, which can be obtained from HMRC. Once confirmed, you can submit the form to the foreign tax authority to claim tax relief.
Local Tax Obligations Abroad
You may still need to pay local taxes in the country where you’re working, even if you continue to pay UK taxes. Many countries have their own tax systems, and working there could make you subject to local tax laws, which might apply even if you maintain tax residency in the UK.
For example, some countries may tax your income at source, meaning you must account for both UK and local tax obligations. A DTA can alleviate this, and you may still qualify for unilateral relief in the UK if there is no DTA.
To avoid any surprises, make sure you research the local tax requirements of your destination country. It’s often advisable to seek professional tax advice to ensure you understand your obligations both locally and in the UK.
National Insurance Contributions And Social Security
You may still need to pay National Insurance contributions (NICs) in the UK while abroad. This largely depends on the social security agreements between the UK and the country you’re working in.
If you’re working in a country that has a social security agreement with the UK, you’ll typically continue to pay NICs in the UK, which allows you to remain eligible for UK benefits such as the State Pension. In this case, you may need to apply for a certificate of exemption to avoid also paying social security contributions in your host country.
If there is no social security agreement, you might need to pay local social security contributions in your host country. It’s important to check the specific rules of the country you’re working in to avoid double contributions.
Additionally, you may be eligible to pay voluntary NICs while abroad, which helps protect your entitlement to UK benefits and your State Pension, whether you return to the UK or stay abroad long term. “Maintaining your national insurance contributions is ideal because it entitles you to claim benefits, use NHS services, and claim your State Pension without difficulties or interruptions,” says Clapson.
Martin Clapson, the managing director of Price Bailey, commented:
“To stay compliant with tax rules, start by keeping detailed records of the number of days you’ve spent in the UK and abroad, as your residency status often hinges on this. Make sure to log all sources of income and document any taxes paid in the UK and the country you’re working in. Maintaining clear financial records will make filing your taxes simpler and ensure you’re prepared in case of an audit.
“The rules can be complex, so you may want to consult with a tax professional with expertise in UK and international tax laws. A professional can guide you through the intricacies of each country’s tax regulations, help you claim any applicable tax relief, and establish whether you’re meeting all legal requirements. This step is vital in avoiding costly mistakes and ensuring full compliance with both UK and foreign tax obligations.”