As a digital nomad, you may come across taxation challenges, depending on where you're from and where you're moving to. This is especially true when it comes to taxes in the UK. To avoid any issues, you must understand how digital nomad taxes in the UK work.
Do Digital Nomads Have to Pay Taxes in the UK?
Yes, digital nomads are subject to UK taxes. Generally, anyone who is a UK resident is subject to tax on their worldwide income. In the UK, taxes are based on an individual's residency status. If you are a resident in the UK for tax purposes, you must pay taxes on income received from anywhere in the world. However, if you are a non-resident of the UK, you will only be taxed on income received from the UK.
The UK has a Statutory Residency Test which determines an individual's residency status. The test consists of three parts: automatic residence, automatic non-residence, and the sufficient ties test. If you pass the automatic residence test, you will be considered a resident and must pay taxes on your worldwide income. If you pass the automatic non-residence test, you will not be considered a resident and will only pay taxes on income received from the UK.
What Types of Taxes Do Digital Nomads Have to Pay in the UK?
Digital nomads who are considered UK residents must pay both income tax and national insurance. Income tax is applied to all income received from employment, self-employment, pensions, investments, and rental income. National insurance is a form of social security and is applied to income received from employment and self-employment.
In addition to income tax and national insurance, digital nomads may also be subject to capital gains tax and inheritance tax. Capital gains tax is applied to any gains made from the sale of assets such as property and investments. Inheritance tax is applied to any assets inherited from someone who has passed away.
What Are the Tax Rates for Digital Nomads in the UK?
Income tax in the UK is charged at progressive rates. This means that the more you earn, the higher your tax rate. The current income tax rates for 2020/21 are as follows:
- 0% on the first £12,500 of taxable income
- 20% on taxable income between £12,501 and £50,000
- 40% on taxable income between £50,001 and £150,000
- 45% on taxable income over £150,000
National insurance contributions are also charged at progressive rates. The current rates for 2020/21 are as follows:
- 0% on the first £9,500 of earnings
- 12% on earnings between £9,501 and £50,000
- 2% on earnings over £50,000
Capital gains tax is charged at either 10% or 20%, depending on the type of asset and the individual's income. Inheritance tax is charged at 40% of the value of any assets inherited.
Conclusion
As a digital nomad, it is important to understand how taxes work in the UK. Digital nomads who are considered UK residents must pay both income tax and national insurance, as well as capital gains tax and inheritance tax if applicable. The rates for these taxes vary, depending on the individual's income and the type of asset being sold or inherited.
