UK Taxation of Non-Residents: A Comprehensive Guide

Navigating the UK tax system as a non-resident can be challenging, especially with recent changes expanding the scope of UK taxation on overseas individuals. Whether you own property in the UK, receive rental income, draw a pension, or maintain investments, understanding your UK tax obligations is essential to avoid unexpected liabilities and ensure compliance. This guide provides a clear overview of how non-residents are taxed on UK income and gains, explains key reliefs and exemptions available, and highlights common pitfalls—helping you make informed financial decisions while living abroad.

Taxation of UK Property

Direct vs. Indirect Property Disposals

Non-UK residents are liable to UK Capital Gains Tax (CGT) on any disposals of UK land or property, whether residential or commercial, as well as certain “indirect” disposals. A direct disposal means selling or disposing of an interest in UK real property itself. An indirect disposal occurs when a non-resident sells an asset (such as shares in a company) that derives 75% or more of its value from UK land, provided the seller held at least a 25% interest in that asset. Both direct and indirect disposals by non-residents fall within the scope of UK CGT from 6 April 2019 onward. (Before that, only UK residential property gains were taxed from 2015, but the regime now covers all UK property.) Non-resident individuals must report any sale of UK property to HMRC within 60 days of completion and pay any CGT due by that deadline. Special rules allow “rebasing” of property values to April 2015 (for residential) or April 2019 (for non-residential) so that only gains accruing after those dates are taxed.

Rebasing Table

If the property was owned before these dates, non-residents may choose between one of the 3 methods (only first 2 for commercial properties):

1. Default rebasing: Only the gain since the rebasing date (e.g., 6 April 2015 or 2019) is taxed.
2. Time apportionment: The total gain/loss is split proportionately by time before/after the rebasing date.
3. Retrospective calculation: The gain is computed over the whole period of ownership with no rebasing. Useful if there has been a loss on the property, as it may enable the non-resident to access a better tax result.

It is usually a matter of calculation to see which option produces the lowest chargeable gain or the most advantageous loss position. Once the gain has been calculated the tax is calculated using the normal tax rates (currently 18% and 24% for basic rate band and higher rate band).

Note that if a non-resident later becomes UK-resident again within five years, additional CGT may apply on pre-departure gains under temporary non-residence rules (see the TNR section).

Non-Resident Landlord (NRL) Scheme

Non-residents earning UK rental income are subject to the NRL Scheme, a withholding tax system designed to collect tax on UK rents. The scheme applies to any landlord (individual, company, trustee, etc.) whose “usual place of abode” is outside the UK. In practice, HMRC considers an absence from the UK of more than 6 months as having a usual abode abroad (so even a UK tax resident could be in scope if away for >6 months, though typically it aligns with non-resident status). Under the NRL scheme, UK letting agents managing the property must deduct basic rate tax (20%) from the rent they collect (after allowable expenses they pay out) and remit it to HMRC quarterly. If there is no letting agent, the tenant must withhold 20% tax if the rent exceeds £100 per week. The withheld tax is effectively an advance payment towards the landlord’s UK income tax liability on the rental profits.

Non-resident landlords can register with HMRC for approval to receive rent gross (without withholding) by submitting form NRL1 (or NRL2/3 for companies/trustees). HMRC will grant approval for gross payment if the landlord’s UK tax affairs are up to date or if the landlord is not expected to be liable to UK tax in that year. When such approval is given, HMRC notifies the agent/tenant in writing not to deduct tax. 

Agents/tenants must register with HMRC’s NRL scheme, operate the withholding correctly, and file quarterly returns of tax deducted. They also must provide an annual certificate to the landlord showing the total rent and tax deducted for the year, and submit an annual report to HMRC. Non-resident landlords, whether receiving rents net or gross, are however still required to file an annual Self Assessment tax return to declare the rental income and calculate the true tax due (unless explicitly allowed by HMRC to not do so). They can then obtain a refund of any excess tax withheld (for example, due to personal allowances or deductible expenses not already accounted for by the agent) or pay any additional tax if the 20% withheld was insufficient.

Taxation of Other UK-Source Income

UK-Source Income Taxable for Non-Residents

If you are not UK-resident, you are still liable to UK Income Tax on income arising from UK sources (foreign income is generally outside UK scope for a non-resident). Common types of UK-source income that non-residents may receive include:

• UK property income (rents from UK real estate, covered by the NRL scheme as above)
• UK savings interest (interest paid by UK bank accounts or UK-domiciled investments)
• UK dividends (dividends from UK-resident companies)
• UK pensions (state pension or private pensions from the UK)
• UK earnings from work performed in the UK, even if paid by an overseas employer
• Profits of a UK trade or business carried on through a UK permanent establishment or agency

In short, a non-resident is taxed on most forms of income that arise in the UK. There are, however, special rules (“disregarded income”) that can provide additional relief in exchange for the loss of the personal allowance.

“Disregarded Income” and Section 811 ITA 2007

Under UK law, non-resident individuals benefit from a limit on their UK tax liability for certain types of income (ITA 2007, s.811). “Disregarded income” refers to specific UK-source income streams – mainly investment income – that are still taxable for a non-resident, but where the liability can be capped. Disregarded income includes UK savings and investment income such as interest, dividends from UK companies, annual payments (e.g. royalties), purchased life annuity payments, deeply discounted securities income, certain unauthorised unit trust distributions.

State pensions are also treated as “disregarded income” but private or occupational pensions are not disregarded income for the purposes of s.811. They are taxable as normal UK-source income. However, their UK tax treatment can be modified or eliminated under a Double Taxation Agreement (DTA) between the UK and the country of residence (see end of the article).

In contrast, UK government service pensions (e.g. paid from public funds such as the Civil Service or Armed Forces) are typically taxable only in the UK, unless the recipient is both resident and a national of the other state — a common DTA exception. And since they are not disregarded income those type of pensions are typically always taxed in the UK.

The presence of disregarded income triggers a special tax calculation. Essentially, a non-resident’s income tax liability is limited to two components:

1. Tax on the disregarded income, but only to the extent of UK tax that was withheld or treated as deducted at source from that income. For example, UK bank interest or dividends usually have no tax withheld at source (banks pay interest gross, and UK dividends are paid with no withholding tax for individuals). In such cases, the tax attributable to those types of income is considered to be zero. Essentially, the non-resident does not pay additional UK tax on those investment income streams beyond any tax that was already deducted at source (if any).
2. Tax on all other UK-source income, calculated ignoring any personal allowances or reliefs. This means income like UK property rental profits, UK employment income, UK business profits, etc., are taxed in the normal way but without the benefit of the personal allowance (unless the individual elects out of the s.811 treatment – see below).

After computing these two components, one can compute the total alternative UK tax liability as the sum of (1) and (2). The actual tax due will be the lowest of this amount and the one computed using the normal rules i.e. with the personal allowance deducted if the person is entitled to one but without the s.811 cap.

Impact on Personal Allowances and Example Calculations

The interaction of these rules with personal allowances can be significant. Non-residents who are entitled to the UK personal allowance (see later section) may find that under the normal calculation their allowance offsets some income, whereas under the s.811 limited calculation the personal allowance is effectively not used against disregarded income. Depending on the income mix, the s.811 calculation can yield a lower tax bill if much of the income is “disregarded” and had no tax withheld.

These examples illustrate that if a non-resident’s UK income is largely “disregarded” investment income and either they have no personal allowance or only a small amount of other income, the special calculation often reduces or eliminates their UK tax liability. If instead a non-resident has substantial UK-source earned income (like property or employment income) and only small amounts of interest/dividends, the normal calculation (using the personal allowance against total income) might yield a lower liability. Keep in mind that these rules do not apply to UK trading income of a non-resident carried on via a UK permanent establishment – such income is fully taxable with no s.811 cap. Also, double tax treaties can further limit or eliminate UK tax on certain types of income (see DTA section below), and those treaty provisions would take precedence.

Temporary Non-Residence (TNR) Anti-Avoidance Rules

What is Temporary Non-Residence? 

The UK has anti-avoidance rules to prevent people from escaping tax by leaving the UK for a short period. An individual is classified as a “temporary non-resident” if they:

1. were UK resident for at least 4 out of the 7 tax years immediately preceding their departure from the UK; and
2. upon leaving, remain non-resident for 5 years or less before becoming UK-resident again (actual years, not UK tax years).

The “five years” is measured by actual elapsed time — not tax years — starting from the date you become non-resident under the Statutory Residence Test (SRT) and ending when you again become UK-resident under that test. If your year of departure or return qualifies as a split year, only the non-UK part of each split year counts toward the five-year period.

What Income and Gains are Taxable Upon Return? 

If you are a temporary non-resident, then in the tax year you come back to the UK, you must declare and pay UK tax on certain income and capital gains that arose during your period of non-residence as if they had arisen in the year of your return. In other words, the clock is effectively rolled back – transactions you did while abroad (that wouldn’t have been taxed by the UK at the time because you were non-resident) are brought into the UK tax net retrospectively. This typically applies only to income/gains that originated from assets or arrangements you had before leaving the UK (or which are closely connected to your prior UK life). Broadly, if you acquired an asset after you left and sold it while non-resident, that gain is not taxed on return (with some exceptions), whereas gains on assets you already owned before departure are caught. The rationale is to tax those who left the UK primarily to realise built-up gains or income tax-free. Some key categories of income and gains that are taxed upon return under TNR rules include:

• Capital Gains on assets owned before departure: Any gains realised while away on assets you held while UK-resident (e.g. shares, securities, artwork, businesses) will be taxable in the year of return. No double tax arises on the same gain if it was already taxed abroad as you can usually claim foreign tax credit to offset UK tax in that case. Gains on UK property disposed of while you were non-resident might have been taxed at the time under the non-resident CGT regime – the TNR rules would typically only tax any portion of gain that escaped UK tax initially (for example, growth that accrued before 2015/2019 rebasing). Generally, assets acquired and disposed of entirely during the non-residence period are excluded from TNR, so genuine new investments made while abroad are not penalised.
• Certain UK income distributions received while away: The TNR rules target income that was paid during the non-residence period which would have been taxed had the person been UK-resident. A prime example is dividends from a company in which you’re a major shareholder (typically a close company). If, while non-resident, you receive distributions from a close company in which you are a participant (or from certain offshore closely-held entities), those distributions can be taxed in the year of return. Importantly, there is an exemption for dividends paid out of profits earned after you left the UK (so-called “post-departure trade profits”). This means HMRC mainly targets dividends that represent accumulated profits from before you emigrated. HMRC may inquire into the source of dividends if substantial pre-departure reserves were paid out while the individual was abroad. Important to note that routine dividends from publicly traded (“quoted”) companies are generally not within the TNR charge. Therefore, investment income like ordinary dividends from FTSE companies or open-market portfolio investments would not be retroactively taxed on return (they might have been “disregarded income” with no UK tax while non-resident, and remain outside TNR because they’re not caught by the close company rule).
• Pension withdrawals and lump sums: Withdrawals from UK pension schemes or employer-financed retirement schemes taken while non-resident can be taxed on return under the TNR rules — unless the total withdrawals made during the period of non-residence were £100,000 or less. In such cases, HMRC generally treats the withdrawals as exempt from the temporary non-residence charge. However, if the total withdrawals exceed £100,000, the entire amount (not just the excess) can be brought into charge when you return. Similarly, some lump-sum employment awards or disguised remuneration that were only non-taxable due to a treaty or because you were offshore temporarily may be taxed upon return.
• Other income caught: The rules also list items like: loans to close company participators that were forgiven while away (to prevent avoiding the tax charge on director’s loan write-off); certain life insurance policy gains (with a provision to time-apportion for the non-resident period); and certain offshore income gains (from non-reporting funds) unless both acquisition and disposal occurred in the non-res period. Additionally, if someone was using the remittance basis before leaving, any untaxed foreign income they remit to the UK during a temporary non-resident period is treated as remitted in the year of return.

In summary, the TNR rules will tax, in the year you return, those incomes and gains realised abroad that have a sufficient connection to your former UK residence period. The goal is to neutralise the benefit of short-term expatriation purely for tax avoidance.

UK Personal Allowance for Non-Residents

The personal allowance is the annual amount of income an individual can earn free of Income Tax. For UK residents, this is available by default. For non-residents, entitlement to the UK personal allowance is restricted to certain individuals, largely based on nationality or treaty agreements. You are entitled to the tax-free personal allowance (currently £12,570 per year) as a non-resident if any one of the following applies:

• You are a British citizen (holder of a British passport)
• You are a citizen of a country in the European Economic Area (EEA) – for example, an EU country citizen. 
• You have worked for the UK Government (Crown service) at any time during the tax year in question. For instance, if you are abroad working for HM Government in a diplomatic role, you keep your UK allowance.
• You are a national or resident of a country that has a double taxation agreement with the UK which specifically allows personal allowances for residents of that country. Many UK treaties (particularly with Commonwealth countries or countries that reciprocally grant equivalent allowances) include a clause granting nationals/residents the UK personal allowance.

If you do not fall into one of the above categories (for instance, you are a non-EEA foreign national with no qualifying treaty), then as a non-resident you cannot claim the UK personal allowance. This means your UK income would be taxable from the first pound. However, note that all individuals, resident or not, are still entitled to certain UK tax-free allowances like the Personal Savings Allowance (£1,000) on interest, the £1,000 trading income or property income allowances (if applicable), and the Dividend Allowance (£1,000 in 2023/24) – these apply irrespective of residence. Non-residents also benefit from starting rate bands for savings interest if their other income is low. These can eliminate tax on small amounts of interest or rental/trading income even if the personal allowance itself isn’t available.

Claiming the Personal Allowance: Being eligible for the personal allowance as a non-resident is not automatic in all cases – typically, you must claim it. If you file a UK Self Assessment tax return, you would indicate your non-resident status and your eligibility (for example, by nationality or treaty) to have the personal allowance. If you are not required to file a full tax return, you can claim the allowance (and any refund of excess tax paid) by submitting Form R43 to HMRC after the tax year-end.

When to Claim or Forego the Allowance: Some non-residents with only “disregarded income” (like UK dividends or interest) might find they owe no tax under the s.811 rules without even using the personal allowance (as seen in the example of Stuart above). In such cases, the personal allowance, while available, doesn’t reduce the liability further (because the liability is capped at zero anyway). However, if a non-resident has UK income that exceeds the sum of other reliefs, claiming the personal allowance can significantly reduce their UK tax.

Distinction Between Tax Residence and Treaty Residence

It’s important to distinguish between being a UK resident under domestic law and being a resident of the UK (or another country) under a Double Tax Agreement (DTA) – these can yield different outcomes. The UK’s Statutory Residence Test (SRT) determines your tax residency status for UK domestic tax purposes (this looks at days in the UK, ties, etc.). Separately, if there is a tax treaty between the UK and another country and you qualify as a resident of both countries under each country’s domestic rules, the treaty’s “tie-breaker” provisions will assign you to be treaty-resident in one country only for purposes of the treaty.

For example, you might meet the UK’s SRT and be considered UK-resident, and simultaneously be considered resident of another country under its rules. In such a case, the DTA will have tie-breaker tests (center of vital interests, permanent home, nationality, etc.) to decide a single country of residence for treaty purposes. It’s possible under these rules to be treated as non-resident in the UK for the purposes of the treaty, even though you are technically UK-resident by domestic law (this is often referred to as being a “treaty non-resident” of the UK).

Why this distinction matters: If you are a “treaty resident” of the other country and not of the UK, the treaty usually says you should be taxed as a resident of that other country and as a non-resident of the UK, for the incomes covered by the treaty. This can affect how UK taxes apply:

• As a dual-resident who claims treaty non-residence in the UK, you cannot simply assume you’ll be taxed like a normal UK non-resident in all respects without taking action. You generally must file a UK tax return and invoke the treaty to get the benefits. Each source of income needs to be examined under the treaty to see which country has taxing rights. For instance, you might be UK-resident by SRT, but treaty-resident in France. The treaty might say that your UK-source employment income (if you work in the UK) remains taxable in the UK, but your other worldwide income should be taxable only in France (because you are treated as a French resident by treaty). In practice, you would claim relief under the treaty on your UK return so that the UK doesn’t tax the income that the treaty allocates to France. Similarly, if the treaty says you are a resident of France, the UK would typically grant you personal allowances or other treaty-based reliefs only as permitted by the treaty (not by domestic law per se).
• If you are non-resident by SRT but somehow treaty-resident in the UK (a less common scenario), you could theoretically be treated as UK-resident for certain incomes by treaty. However, usually the issue is the former: being resident in both and thus having to choose one via treaty tie-breaker.
• The distinction is crucial for avoiding double taxation. Without invoking a treaty, a dual-resident might face taxation on the same income in both countries. By using the treaty’s definition of residence, one country relinquishes some taxing rights.

Note that claiming treaty non-residence in the UK usually requires filing a form (e.g. HMRC form DT/Individual) or making a claim in your tax return, and you may need to get a certificate of residency from the other country. Also, being treaty-non-resident might mean you lose certain UK allowances or reliefs unless the treaty preserves them. Always check the specific DTA – for instance, some treaties explicitly allow personal allowances for nationals, etc., while others don’t.

To illustrate the difference: imagine an EU national living in the UK who maintains a home in their home country. In a given year, they meet UK residency (say 200 days in UK) and also are considered resident back home. The tie-breaker might assign residency to the home country if their family and home ties are stronger there. If so, the individual can claim to be non-resident in the UK under the treaty, meaning the UK would tax them only in accordance with non-resident rules (for example, UK-source employment income might still be taxed if they worked in the UK, but their foreign income would be off-limits to the UK). This can drastically change the UK tax outcome compared to being treated as a UK resident without treaty relief. Thus, understanding this distinction ensures proper application of treaty benefits and prevents confusion about one’s tax obligations in the UK vs abroad.

Double Taxation Agreements (DTAs) and UK Taxation of Non-Residents

Role of DTAs: A Double Taxation Agreement is a treaty between two countries that allocates taxing rights and prevents the same income from being taxed twice. For non-residents with UK income, DTAs can significantly affect what the UK can tax, sometimes overriding domestic tax rules. After considering your basic UK allowances and the s.811 disregarded income rules, you should always check if a treaty limits the UK’s right to tax a particular source of income:

• Some treaties provide no reduction of UK taxing rights for certain income. For example, nearly all treaties allow the UK to fully tax income from UK immovable property (land or real estate). So if you have UK rental income, the treaty will typically state that the UK (the source country) can tax it without limit. In practice, this means your UK rental income remains taxable in the UK (and you might then claim a foreign tax credit in your home country for UK tax paid).
• Many treaties limit the amount of tax the UK can impose on passive income like interest or dividends paid to residents of the other country. For instance, under domestic law the UK could tax bank interest of a non-resident (though in practice the UK currently doesn’t levy withholding tax on bank deposit interest). A treaty might stipulate that interest arising in the UK and paid to a resident of the other state is either taxable only in that other state or taxable in the UK at a reduced rate (say 0% or 10%). If such a treaty clause exists, it overrides domestic law – meaning the non-resident can receive UK interest mostly or entirely tax-free in the UK. Similarly, for UK-source dividends, the UK often does not levy withholding tax by default; treaties sometimes formally cap it (commonly at 15% or 0%). Even though the UK dividend tax for individuals is collected via Self Assessment rather than withholding, a treaty can ensure the UK doesn’t impose more tax than, say, 15% on a dividend paid to a foreign resident.
• Some treaties allocate exclusive taxing rights to one country for certain incomes. A common example is the short-term employment income rule: if a non-resident works in the UK for a very limited period (usually <183 days in a year) for a non-UK employer and other conditions are met, the treaty often says that income is taxable only in the home country, not in the UK. So even though UK domestic law might consider that UK-source employment income (taxable because the work was done in the UK), the treaty overrides it and exempts it in the UK, provided the conditions are satisfied. Another example: many treaties state that pension income is only taxable in the country of residence (or in the source country, depending on the treaty) – thus a UK private pension received by someone treaty-resident in another country might become only taxable in that other country (the UK would then either not tax it at all or require a reclaim of any tax deducted, depending on the treaty terms).
• For capital gains, treaties typically allow the country where property is located to tax gains on immovable property. But for gains on moveable property (like shares), some treaties stipulate they’re taxable only in the state of the seller’s residence. The UK, in domestic law, already does not tax non-residents on sales of UK stocks (unless property-rich or via a UK trade) – but where the UK does tax (e.g. UK property or property-rich company shares), the treaty usually doesn’t stop the UK (source country) from taxing those. However, a treaty could ensure that if both countries tax a certain gain, one must credit the other’s tax.

In practical terms, if you’re a non-resident receiving UK-source income, you should examine the relevant DTA article for that income type. The treaty may say:

• The income is exempt in the UK (taxed only in your home country). In this case, you would claim treaty exemption so that the UK doesn’t tax it at all. For example, the UK-France treaty provides that certain pensions (other than government service pensions) are only taxable in the state of residence – so a French resident’s UK private pension would be taxable only in France, not in the UK, overriding the UK’s usual right to tax pension income. Another example: A US resident selling UK shares – the UK-US treaty would allocate that gain to the US only, thus the UK would not tax it (even if in theory UK law might tax certain gains, the treaty prevents it).
• The income is taxable in both countries but with a limit on the UK tax. For instance, a treaty might say UK interest can be taxed in the UK up to 10%. If UK domestic law had a 20% withholding, the treaty compels the UK to reduce it to 10% for a resident of the treaty partner. The individual then would pay 10% UK tax, and get credit in their country of residence for that 10%. (Today, UK gilts and bank interest generally have 0% withholding by law for non-residents, but this illustrates the principle.) For royalties, similarly, the UK often reduces or eliminates the default 20% withholding if a treaty applies (often to 0%). A tax professional dealing with a non-resident’s royalty or interest income will check the treaty and likely have to submit a treaty claim form (e.g. form DT-Individual or via the withholding agent) to have the reduced rate applied at source.
• The income remains taxable in both countries fully, but the residence country must give a foreign tax credit. This is often the case for property income: the UK taxes it fully as source country; your home country might also tax you on your worldwide income, but under the treaty you’d claim a credit for the UK tax paid so you don’t pay double. The same goes for, say, business profits attributable to a permanent establishment – source country taxes, residence country taxes the rest but credits the source tax.

Process: To apply a treaty benefit, non-residents often need to make a claim. This could mean filing a Self Assessment return and filling in the “Residence, remittance basis etc” supplemental page to claim treaty exemption/reduction for each income type, or submitting a NT (No Tax) code or a treaty claim form to, say, an employer or pension provider so that withholding is adjusted. For example, form DT-Individual is used to claim relief at source on UK interest, royalties, or pensions by non-residents under a treaty. Double tax agreements can be complex to interpret (each treaty is unique), so one must read the relevant articles carefully. In complex cases like pension income, specialised guidance may be needed.

Summary

The UK taxation framework for non-residents is complex and multifaceted, covering a wide range of income types and capital gains. Since 2019, non-residents have been liable to UK Capital Gains Tax (CGT) not only on direct disposals of UK land and property but also on indirect disposals, such as selling shares in companies deriving most of their value from UK real estate. Rebasing provisions allow gains to be measured from April 2015 or 2019, ensuring that only post-reform growth is taxed.

For landlords living abroad, the Non-Resident Landlord (NRL) Scheme ensures that UK rental income is subject to withholding at 20% by agents or tenants, unless HMRC approval for gross payment is obtained. Even with such approval, non-resident landlords must file UK Self Assessment tax returns to reconcile their actual tax liability.

Non-residents remain subject to UK tax on UK-source income, including rents, employment income, pensions, and business profits. However, the concept of “disregarded income” under Section 811 ITA 2007 limits the UK tax payable on investment income like dividends and bank interest—often reducing it to nil where no tax was withheld at source. This regime interacts with the availability of the UK personal allowance, which is reserved for British citizens, EEA nationals, and individuals covered by treaties that extend such reliefs.

The Temporary Non-Residence (TNR) rules act as an anti-avoidance measure, clawing back tax on certain income and gains realised while abroad if the individual returns to UK residence within five years. This can include pre-departure capital gains, company distributions, and large pension withdrawals.

Finally, Double Taxation Agreements (DTAs) play a vital role in determining where income is taxed and in preventing double taxation. While the UK typically retains taxing rights over property income, most treaties allocate taxing rights on pensions, interest, and dividends to the taxpayer’s country of residence. Understanding the interaction between UK domestic rules, treaty residence, and DTA reliefs is essential to avoid double taxation and optimise one’s UK tax position as a non-resident.