Non-residents (as opposed to domiciled non-residents, who are now subject to slightly different rules) are generally speaking only liable to UK income tax on income derived from:
- Property situated in the UK
- Any trade or profession carried on through a branch or agency in the UK
- Any employment the duties of which are performed in the UK
This rule has led to many UK nationals seeking to become non-resident by moving abroad. In the United States, by contrast, the mere fact of citizenship means that a US national living in a foreign country is still liable to pay income tax in America on his worldwide earnings with a credit being given for any taxes already paid or due in a foreign country.
UK non-residents do not pay tax on:
- Interest from certain UK Government securities
- Interest from UK-situate bank and building society deposits
However, it is no longer possible to avoid capital gains tax by arranging for a gain to crystallise during a short period of overseas absence: five years' of non-residence is required before a gain on an asset acquired during residence is exempt from UK capital gains tax. Updated rules for taper relief have made this provision almost irrelevant, in fact.
Non-resident entertainers and sports personalities were disappointed by a High Court ruling issued by Mr Justice Lightman in March, 2004, regarding a tax bill presented to tennis star Andre Agassi for earnings from sports companies, Nike and Head.
Mr Agassi had appealed against a decision by the Special Tax Commissioners in favour of the UK's Inland Revenue (now HMRC). The tax authority had argued that the fact that he was playing in the UK whilst endorsing products for Nike and Head represented a "relevant activity", and that he should therefore pay UK tax on the payments that he received from the companies.
Handing down his ruling, Justice Lightman explained that:
"It is common ground that section 556 of the 1988 [Income and Corporation Taxes] Act subjects non-residents to tax, if the payment is made by an English company or a foreign one with a tax presence here. The question raised is whether they are intended to be excused from liability if, instead, they are paid by a foreign company with no tax presence here."
He went on to observe that: "In my judgment it would be absurd to attribute to the legislature the intention that liability could in any and all cases be avoided by channelling the payment through a foreign company with no tax presence here. If this were the case, the tax would effectively become voluntary," and concluded that: "As it seems to me, the plain and obvious intention of the legislature was to impose an obligation on the person making the payment irrespective of his tax presence here."