Non-resident tax calculation explained

The starting point: what non-residents are taxed on

A UK non-resident individual (determined under the Statutory Residence Test, FA 2013 Sch 45) is generally taxed only on UK-source income, not on their worldwide income. Common examples of UK-source income for a non-resident include:

• UK rental income

• UK employment income (for duties performed in the UK)

• UK pension income

• UK-source interest and dividends

• Trading income from a UK trade

Foreign income and gains are outside the scope of UK income tax for a non-resident, subject to specific anti-avoidance rules

How the Calculation Works

As required by HMRC, TaxCalc prepares and compares two alternative tax computations, automatically applying whichever results in the lower total tax liability:

• Normal Calculation: Standard UK tax calculation on all worldwide UK-source income, subtracting available personal allowances.

• Alternative ITA 2007 s811 Calculation: Personal allowances are denied entirely, and specific categories of "disregarded income" are left out of the taxable total

The S811 Cap Formula

Under the alternative limit, total liability cannot exceed the sum of:

• Amount 1: Income tax already deducted (or treated as deducted/paid) on your disregarded income.

• Amount 2: Tax due on any remaining non-disregarded income (such as UK property rental profits or UK employment earnings) calculated without giving a personal allowance.

Key Rules to Remember

• Full Tax Year Only: This relief only applies if you are non-resident for the entire tax year; it does not apply during split-year arrival or departure.

• Disregarded Income Types: Includes UK dividends, most bank/building society interest, and specific investments, but excludes trading income or UK property rental income.

• Automatic Application: HMRC systems require this to be computed via Self Assessment, restricting your liability to the lower option if beneficial.