Limit on non-resident’s UK income tax liability

Special rule limiting non UK resident’s tax liability.

A non-resident income tax liability is limited1 :

1. To sum of A and B below:

A means tax deducted at source in respect of Disregarded Income.2

B means amount of tax which would otherwise be chargeable on non-disregarded income.

or

2. Tax liability computed under normal rules.

Final tax liability is lower of 1 or 2.

Example – Rash Bose is a non-resident. He has net UK rental income of £2,150 and un-taxed interest income of £20,000.

Computation of income for the tax year ended April 2022.

Rental Income [non-disregarded income]£2,150
Interest Income [disregarded income]£20,000
Total£22,150
Less Personal Allowance (no personal allowance for non-resident)Nil
Taxable Income£22,150
Tax Calculation 
Starting Savings Rate£2,8500%£0
Personal savings allowance£1,0000%£0
Basic rate£18,30020%£3,230
Tax as per usual rates  (1)£3,230
Limit to liability calculation
Tax on non-disregarded income (Rental Income)£2,15020%£430 (2)
Income tax liability limited to lower of (1) or (2) £430

Conclusion – in the above example, tax payer pays tax only on their UK rental income.

Bonus

  1. Further, above treatment is not available in case individual is treated as non-resident for only part of the year i.e. in case of split year treatment.
  2. Where a non-resident receives dividend from a UK company he is treated as that he has already paid tax @ dividend ordinary rate.4 But this credit is not repayable.



Notes:

  1. ITA 2007 Sec 811
  2. Disregarded income includes interest, dividends from UK companies, state pensions etc. [section 813 ITA 2007]
  3. Non-disregarded income includes rental income.
  4. ITTOIA 2005 Sec 399