Living abroad doesn’t necessarily mean leaving UK tax behind. Many expats are surprised to learn that even when they’re no longer based in the UK, HMRC may still expect a cut of certain types of income.
But it’s not always obvious what counts as UK income. Rental money from a flat you still own? Dividends from UK shares or an old workplace pension? What about income from freelance work for a UK client? It might depend on where you’re domiciled.
In this post, we break down what HMRC means by UK income, the common situations that catch expats out, and how to avoid paying the wrong amount of tax.
What Does HMRC Mean by UK Income?
When HMRC talks about UK income, they’re not looking at where you live, but where your income comes from.
The most important thing for expats to remember is that living abroad doesn’t automatically mean all your income stops being taxable in the UK. Some types of income stay firmly in HMRC’s sights because they’re considered UK-source, even if you haven’t set foot in the country for years.
Income is usually classed as UK income if it:
- Comes from UK-based assets (like property or investments)
- Is paid by a UK pension or relates to UK duties for an employment (even if your employer is overseas)
- Relates to work physically carried out in the UK
In simple terms, HMRC cares about where the income arises or where the work is physically done, not just where you happen to be living when you receive it. So even if you’re living your best life in Spain, Dubai, Australia, or the US, things like rent from a UK flat or funds in a UK pension can still be taxable in the UK.
The good news is, most of the time, you won’t be taxed twice (in the UK and the country you live). Tax treaties and foreign tax credits help, but to claim them correctly, you need to know what falls into the UK bucket and what doesn’t. We’ll talk about that more later in the guide.
For now, let’s look at the most common types of income that HMRC still treats as UK income, even when you’re living overseas.
Common Types of UK Income That Still Apply to Expats
Many types of income are still classed as UK income, even if you live elsewhere. Here are some of the most common ones that catch expats out:
UK Rental Income
If you own a property in the UK and rent it out, that income is almost always taxable in the UK – even if you live on the other side of the world. This applies to long-term rentals, short-term lets, and sometimes even spare-room income.
UK Pensions
Many UK pensions are taxable in the UK, including workplace and private pensions. The UK State Pension is usually taxable as well.
However, double tax treaties can sometimes change where the tax is paid – either shifting the taxing rights to the country you live in, or allowing the UK to give credit for tax paid overseas so you’re not taxed twice on the same income.
Dividends from UK Companies
If you own shares in UK companies, those dividends can still be treated as UK income – even if they land in a foreign bank account. However, if you’re non‑resident, the UK usually does not tax them. In most cases, any tax is instead due in the country where you live.
Interest from UK Bank Accounts
Interest earned on money held with UK banks or building societies is often considered UK-source income. Non‑residents are generally not charged UK tax on this interest nowadays. It will often be taxed instead in the country where you are tax resident.
UK Employment Income
If you carry out any work while physically in the UK – even for a short time – that portion of your salary may still be taxable in the UK. Tax treaties can sometimes limit how much of this the UK can tax, depending on your circumstances.
Income from Self-Employed or Freelance Work with a UK Link
This is a big grey area. The key question is where the work is physically carried out and whether you have a UK base or permanent establishment. If the work is done in the UK, some or all of that income may be treated as UK income, even if your clients are overseas.
Capital Gains on UK Property
If you sell UK property while living abroad, you may still owe UK Capital Gains Tax – and in most cases, this has to be reported within 60 days of completing the sale.
Note: Each of these income types comes with its own rules, thresholds, and reporting requirements. In many cases, you may also be able to claim tax relief or credits under a tax treaty if the same income is taxed in more than one country.
On top of that, tax treaties between the UK and your new country can sometimes change how (and where) the tax is paid.
This is why speaking one-on-one with a tax expert about your specific situation is always helpful. Remember, what applies to one expat doesn’t always apply to another.
Why Two Expats Can Pay Very Different UK Tax Bills
Once you know what counts as UK income, the next big question is: why do some expats pay UK tax on it, while others don’t? This often comes down to residency and domicile.
Many people assume that once they leave the UK, their tax obligations simply move along with them. But that’s not always the case – particularly if you’re still considered UK-domiciled.
Here’s the key difference:
If You’re a UK Resident
You’re usually taxed on most types of worldwide income (subject to treaties and special rules).
If You’re Non-Resident but Still UK-Domiciled
For day‑to‑day income and capital gains, the UK mainly taxes you on your UK‑source income and certain gains, just like other non‑residents. However, your UK domicile can still be very important for UK inheritance tax and some longer‑term planning rules (for example, how your estate, trusts and certain assets are treated).
If You’re Non-Resident and Not UK-Domiciled
Your UK tax exposure is often much more limited, usually focusing only on UK-source income (like rental income from a UK property).
This is why two expats living in the same country can end up with completely different UK tax bills.
How to Avoid Paying Tax Twice on the Same Income
One of the biggest worries expats have is being taxed twice – once by the UK and again by the country they live in. Thankfully, this isn’t meant to happen. In fact, tax systems have protection in place to avoid it. But there’s a catch: they don’t apply automatically.
Here’s what typically prevents double taxation:
UK Tax Treaties (Double Taxation Agreements)
The UK has tax treaties with many countries. These agreements decide:
- Which country gets first right to tax certain types of income
- Whether or not the income is taxed in one country only
- Whether relief is available if both countries tax it
For example, a treaty might say that your pension is only taxed where you live – or that rental income is always taxed in the UK first (with your new country potentially giving credit for UK tax already paid).
Foreign Tax Credits
If the UK taxes your income and your new country also taxes it, stay calm. You can often claim a credit for the tax already paid and hang onto more of your income.
What does this look like in practice? You do not pay the full amount of tax twice – you typically end up paying roughly the higher of the two countries’ tax rates on that income, rather than both in full. However, this depends on each country’s rules and the specific treaty. You’ll normally need to keep good records and provide proof of tax paid in one of the two countries in question.
Tax Exemptions
Some treaties completely exempt certain types of income from UK tax once you move abroad. This can apply to things like:
- Some pensions
- Certain government salaries
- Certain employment income
But you usually need to claim this relief – HMRC will not apply it automatically for you.
Book a Consult with Expat Taxes UK
We work with expats around the world to help them understand how UK tax system rules apply to their situation.
This includes everything from rental income, pensions, and dividends to freelance work, capital gains, and whether you still need to file a UK Self Assessment tax return.
If you’d like personalised guidance on your UK tax obligations, reporting requirements, or how to avoid double taxation, book a consultation with our UK expat tax specialists today.
By booking a consultation, you’ll receive a £100 credit that can be applied to any future services – including UK tax return preparation – so you can start saving straight away.
DISCLAIMER: The material in this article is for general information purposes only and does not constitute legal or taxation advice. Legal, financial, investment and taxation advice should be sought before acting or refraining from acting. All information and taxation rules are subject to change without notice. Expattaxes.co.uk Limited (hereafter ‘the parties’) accept no liability for any action taken based on the information in this article or any of the articles on this website.
