Most members of the armed forces will spend time working overseas during their service career. Depending on where you are posted you may or may not be accompanied by your family. The time you spend working abroad will also vary. How you will be taxed might depend on both these facts. Here we look at the main tax considerations if you usually live and work in the UK but spend time working overseas.
How will my armed forces’ salary be taxed?
Here we look at the main tax considerations if you usually live and work in the UK but spend time working overseas.
However, the taxation of any other income you receive is dependent upon your residence status. There is more information on residence for tax purposes in the ‘going abroad’ section of our specialist student website (please note that although this information is aimed at students who go abroad to study/work, it is relevant more widely).
You can find a brief guide to the taxation of crown servant’s abroad on GOV.UK.
The one exception to the above rule is if you were recruited overseas to the armed forces and are not resident in the UK, providing that the maximum rate of pay for your grade is less than that of an executive officer in the UK civil service working in Inner London. Note carefully that this exception does not include, after 12 June 2006, any Queen’s Gurkha Officers or members of the Brigade of Gurkhas who were recruited in Nepal. If this exception applies, your earnings will outside of scope of tax provided they relate to non-UK duties performed while non-resident in the UK.
Will I still be liable to National Insurance?
Most people who work in the UK pay National Insurance contributions (NIC) in addition to paying tax. If you leave the UK to work abroad for the armed forces, you are likely to continue paying UK NIC because of who you work for.
Going to an EEA country or Switzerland
If you go to work for the armed forces in another EEA country or Switzerland you will probably be covered by EU social security rules. The general rule is that people who go to work in an EEA country or Switzerland are subject to the social security legislation of the country in which they are working and will pay contributions there. However, as a member of the armed forces (including reservists) you fall into one of the following categories, so you will be an exception to the general rule and you have to continue paying UK NIC:
- you are a member of the armed forces; or
- you are a civilian who works for the armed forces in Germany, or for an organisation like NAAFI which serves the armed forces.
Going to work in a country with which the UK has a Bilateral Social Security Agreement
The general rule is that you will be subject to the social security legislation of the country in which you work. However, each agreement contains exceptions to this general rule; if you fall into one of the exceptions, you have to continue paying UK NIC. The exceptions usually include where you are a member of the armed forces.
If you are covered by an exception then you (or your employer) should apply to HMRC NIC&EO International Caseworker for a certificate to confirm that UK NIC continue to be paid while you are working in the other country. This certificate ensures that you are also not required to contribute to the other country’s social security scheme.
Going to a country which is outside the EEA or Switzerland and not covered by a Bilateral Social Security Agreement
If you are going to work in a country which is outside the EEA and Switzerland, and is not covered by a Bilateral Social Security Agreement, then whether you have to pay social security there will depend on the domestic rules in that country. The general rule is that you will have to pay social security contributions there.
However, as a member of the armed forces, you will probably have to continue paying UK NIC also. No certificate is required to confirm that you continue to pay UK NIC.
You can find more information on National Insurance if you go abroad, including for members of the armed forces, on GOV.UK.
Your social security position may be more complicated if you were recruited overseas and/or have never set foot in the UK – you may need to seek professional advice.
I have other income. Will that also be taxed in the UK?
This depends on where the income arises and your UK tax residence position. From 6 April 2013, the UK introduced a Statutory Residence Test (SRT) and this test determines whether or not you are tax resident in the UK during your overseas posting.
There is more information on how to work out if you are resident in the UK for tax purposes in the ‘going abroad’ section of our specialist student website (please note that although this information is aimed at students who go abroad to study/work, it is relevant more widely). HMRC publish a booklet ‘Guidance note for Statutory Residence Test: RDR3’ which gives more information. RDR3 is available on the GOV.UK website.
If you remain tax resident in the UK then you are normally liable to tax here on all your income, wherever it arises in the world.
If you become non-resident in the UK for tax purposes whilst you are posted abroad, then any income that arises outside the UK will not be taxed here. However, if you have any UK-sourced income, for example you receive rental income because you rent out the house you normally live in in the UK whilst you are working abroad, then this income will remain taxable in the UK. You will normally have to compete a UK Self Assessment tax return in order to tell HMRC about the income and pay any tax on the income.
If you do need to complete a tax return as a non-resident, you cannot use HMRC’s online Self Assessment services to do this. Instead, you need to send a paper tax return by post, use software or get help from a tax adviser. You can find a Chartered Tax Adviser on the Chartered Institute of Taxation website.
You can download the paper forms from GOV.UK.
It is important to note that the deadline for submitting paper Self Assessment tax returns is 31 October following the end of the tax year.
What if I have UK rental income?
If you have UK rental income as a non-resident landlord, normally, a letting agent or tenant deducts basic rate income tax when paying rent to a UK landlord who usually lives outside the UK. A letting agent should allow for any expenses they have paid when working out how much tax to deduct.
You may apply to use the Non-Resident Landlord Scheme however, under which you can receive your rental income with no tax deducted. To join the scheme you need to make an application to HMRC on form NRL1, which is available to complete online on GOV.UK. If the property is jointly owned, each owner must complete a separate form.
Will I get a personal allowance?
As a member of the armed forces you will continue to receive your tax-free personal allowance to set against any income that is taxable in the UK, irrespective of whether you are resident or non-resident.
You may still be able to claim marriage allowance if you are posted abroad, provided you get a personal allowance.
You can normally claim married couple’s allowance (MCA), provided you meet the conditions, if you are unable to live with your spouse or civil partner because of an armed forces posting.
Will I have any tax liability in the country I am working in?
This will depend upon the tax rules of the country you are working in. Generally, we would expect that you might have a tax liability or reporting requirement if you have income that arises in the country where you are working and that income does not relate to your armed forces service.
If there is a Double Taxation Agreement (DTA) between the UK and the country you are working in, it will normally specifically exempt your employment income from the armed forces from tax in the country you are working in (under the Government Service article). However, all DTAs are different and this exemption may not apply in certain circumstances, for example if you are also a national of the country you are working in.
It is beyond the scope of this guidance to give specific information relating to the tax systems of countries other than the UK. However, to the extent that find yourself taxable on the same income in another country as well as the UK at the same time, you can read more about the different methods of dealing with ‘double taxation’ in the ‘going abroad’ section of our specialist student website.
You can find double taxation agreements between the UK and other countries on GOV.UK.
My spouse or civil partner is accompanying me. What is their tax position?
Each individual’s tax residence position is determined separately. Your spouse or civil partner will need to establish what their own tax position is in accordance with the general principles set out above.
For instance, it is probable that your spouse or civil partner will remain tax resident, even if you are considered non-resident, if he or she does not accompany you on your overseas posting.
However there is an exception – if you are considered non-resident and your non-working spouse or civil partner accompanies you on your overseas posting then he or she will generally (although not in all cases) be treated as having broken tax residence also.
Of note is the fact that if your spouse or civil partner works abroad then we would expect their earnings from their work to be taxable in the country they are working in. In addition, they may also need to pay social security contributions in that country.
What is my spouse or civil partner’s UK social security position?
If your spouse or civil partner has accompanied you on your overseas posting, they can apply for Class 1 NIC credits. This means that they are treated as having paid UK social security contributions whilst they are abroad with you and there is no gap in their contribution history.
Certain UK state benefits are dependent upon the individual’s NIC record, for example the state pension, so it is important that your spouse or civil partner applies for these credits to ensure they have as few gaps in their contribution record as possible. They can apply for Class 1 NIC credits on using form MODCA1 which is available GOV.UK. The form must be completed and sent to HMRC before the end of the tax year following your return to the UK.
If they are too late to claim credits as above, or they accompanied you on an overseas posting before 6 April 2010, but after 5 April 1975, they can claim Class 3 NI credits by completing the application form that is also on GOV.UK.
What about the social security benefits that I/we currently receive. Will I/we continue to get these during my overseas posting?
As a member of the armed forces you (and your partner) can continue to claim certain state benefits, such as tax credits, during your overseas posting. There are certain conditions you have to fulfil and you can find out about these on GOV.UK. Generally, so long as you normally live in the UK and were living here before you were first posted abroad, then you will qualify. You can also find out more about claiming UK state benefits during your overseas posting on Moneyforce.
Similarly, you can get Child Benefit while you work abroad as a member of the armed forces provided that, just before you were posted abroad, you were either:
- living in the UK and it was your main home; or
- posted to the UK.
You can get Child Benefit while you work abroad as a member of the armed forces whether your child goes abroad with you or stays in the UK.
HMRC normally pay Child Benefit into a bank account in the UK.
You or your spouse or civil partner may also be entitled to benefits in the country you are posted to but this will depend upon the country. The most common example is “Kindergeld” – the equivalent of Child Benefit in Germany.
What about capital gains tax?
If you dispose of an asset whilst you are resident abroad, you may still have a liability to capital gains tax in the UK. Capital gains tax is a complicated subject and you can find a general introduction in the ‘other tax issues section’ of our armed forces guide.
You might also have a liability to capital gains tax in the country you are living in and, like income tax, there are provisions to mitigate any double taxation.
If you think you might dispose of an asset whilst you are living abroad, you should seek specialist advice on whether you will have to pay capital gains tax. You can find a tax adviser on the Chartered Institute of Taxation website.
Where can I get more help?
Members of the armed forces living overseas can contact HMRC on the Crown Servants Helpline to discuss income tax or capital gains tax queries.
You can contact HMRC on the National Insurance: non-UK residents Helpline to discuss NIC queries.
For more information on tax when leaving the UK, including whether you need to inform HMRC you are leaving the UK, go to GOV.UK.
Working or living abroad can cause complexities with your tax; you might need to seek advice from a professional tax adviser. You can find a tax adviser on the Chartered Institute of Taxation's website.