Working abroad for a year.. tax advice?

tomS_4

Hi!

I'm going to go and work in japan for a year, starting the end of october. The job isn't tat well paid, but income tax over there is much lower than here so thats ok.

However i've just started looking into what i should do in terms of notifying the tax man and the worrying prospect of having to pay tax in BOTH countries has raised it's head.

As i understand it, if i go from 1st Nov 2006 to 1st Nov 2007, they may count me as resident in the UK until april 2007.. and maybe even the year after that.

Can anyone offer any advice on the best way to avoid paying lot of tax.. or simply any advice on any action i should take before i go or when i come back?

If i end up paying UK tax rates on a japanese salary then i'm gonna be stuffed..

Thanks, Tom

Cook_County

1. Are you staying with your current employer? If so there are plenty of deductions available.
2. Have you considered housing costs (which are much greater there)?
3. Can you negotiate higher pay to account for the extra tax?
4. Have you thought about reducing UK tax by pension contributions?

tomS_4

1. New employer. Teaching English.
2. Assuming i'm not paying tax at english rates the low salary was counteracted by the low tax, and the housing worked out fine.
3. Nope,
4. How would the pension thing work?

As things stand i wouldn't be paying ANY pension contributions in the UK as i'd have left my current pension when i leave that job.

I was thinking of looking into how i could continue to pay into a UK pension while i was abroad (stakeholder pension?), but haven't got that far yet.
I don't get how paying money into a pension in the Uk would affect tax on a job in japan.. but then again i don't get how the UK tax office can tax you for work in japan at all - so i probably just don't get any of it.

Its basically a job for the experience, rather than for the financial rewards.. and while it doesn't pay well, it pays enough to get by in japan.. and possibly send a little back home but not a lot.
However if i get hit by a giant tax bill when i get home then that will be NOT GOOD.

steventa

I worked abroad for A UK company 5 years a go and at the time I was exempt from tax, providing I was out of the country for at least nine months of the tax year. All I had to do was send a declaration to the tax office confirming I was out of the country. It may have changed now, probably best just to call your local tax office. I can't see how they can charge you tax when working for a Japanese company in Japan.

You may want to look into arranging to still pay NI, so it doesn't affect your state pension, but if your only away for a year then it shouldn't affect it too much, plus who knows if the state pension will still be around when we come to retire!!!!!!!

Cook_County

9 months absence was NEVER enough to cancel liability to UK tax. To break residence for UK tax purposes you would have to be absent from the UK in full time employment for a period including a complete UK tax year. Conseqently the Japanese income will all be taxable in the UK. You will be able to claim credit in the UK for the Japanese National income tax and inhabitants tax. The national income tax rates go up to 37% and the local municipal and prefectural tax can add up to 13% more. Of course your income may be taxable at lower rates (I have quoted the top rates which are greater than the UKs 40/41% tax band - and have also ignored credits). Nonetheless if you only thinking of the 20% withholding tax then you will not be looking at the correct figure.

You can pay up to 100% of your taxable employment income (UK or Japanese) into a UK personal pension if saving tax is your top aim.

tomS_4

I think i might get away wirh everything after April 2007 being untaxed in the UK.. as in theory I won't be in the UK for 183 days that tax year. I think. Its all very confusing.

So i might actually be better off to work there until after april 2008 (18 months) so that i get a full tax year out of the country?

If i set up a personal pension in the UK, and then pay money from my japanese salary into it then I won't have to pay tax (in th UK) on that part of the salary, is that what you are saying?

Hmm..
PS/ As i understand it the tax will be about 10% in japan.. though local taxes and other things make it hard to be sure exactly. That is from speaking to other teachers who are doing the same sort of thing.

Christal_2

Don't know if anyone can help on this one, what if I'm not UK citizen just worked in UK for couple of years and obtained a PR here, now going off to overseas again to work, will only come back in UK once a year for less than a month as holiday, will I still be liable for income tax for my earning abroad? I would think I shouldn't, but not sure.....anyone knows?

Cook_County

Christal - I cannot tell if you are either resident or ordinarily resident in the UK ( residence for immigration is not relevant for tax). But on the assumption you are resident you will stop being UK resident once you leave for full-time employment abroad.
You will the only be subject to foreign tax.

Christal_2

Well that certainly TAKE some load of my mind after reading the reply upstairs. To answer your question about the status, I'm here on a dependant visa only at the moment (hubby is on work permit visa and I'm his dependant), may get a PR (Permanent Resident Permit) in 2 years time, and hope that's different from become British Citizen and I will still be exemp for the earning abroad if I leave the county.

Another questions though, me and my hubby do own a property now in UK, so when we both leave the country we will rent it out to cover the morgage, so will we still be liable for the tax on the rental income even we are not british citizen and won't be a resident either by then? Also when the time come to sell, do we need to pay CGT?

rosysparkle

Christal wrote:

Another questions though, me and my hubby do own a property now in UK, so when we both leave the country we will rent it out to cover the morgage, so will we still be liable for the tax on the rental income even we are not british citizen and won't be a resident either by then? Also when the time come to sell, do we need to pay CGT?

You must still declare your rental income on your tax return, and you will still be liable for UK tax on the profit. If you intend to spend more than six months out of the UK, you should apply to the HMRC in order to have your rental income paid without deduction of tax at source (deducted by your tenant or letting agent). The form you need is NRL1. If you dont have a CNR number, your agent or tenant has to deduct tax at 22% before paying the rent to you.

HMRC have guidance notes on their website. http://www.hmrc.gov.uk/cnr/nr_landlords.htm

Viking_Man

tomS wrote:

I think i might get away wirh everything after April 2007 being untaxed in the UK.. as in theory I won't be in the UK for 183 days that tax year. I think. Its all very confusing.

So i might actually be better off to work there until after april 2008 (18 months) so that i get a full tax year out of the country?

If i set up a personal pension in the UK, and then pay money from my japanese salary into it then I won't have to pay tax (in th UK) on that part of the salary, is that what you are saying?

Tom,

Have a read of this section of HMRC leaflet IR20 http://www.hmrc.gov.uk/pdfs/ir20.htm#leaving which answers your questions.

You have to stay out of the UK for a full tax year to avoid UK income tax on foreign earnings. So you would have to stay out of the country and work until 6th April 2008, although you could have visits home during that time. Many British teachers of English in Japan try to stay in their job for a full UK tax year for this reason.