Understanding how income tax and national insurance (commonly referred to as social charges) works in the UK is essential whether you’re a British expat returning home, a foreign national settling in the UK, or simply seeking UK-based financial advice. At Harrison Brook, we guide you through the financial planning implications of income tax — from how your residency status impacts liability, to how different income streams are treated. While we are not tax advisers, we work closely with professionals who are and can introduce you if required.
UK Income Tax: An Overview
Income tax in the UK is charged on:
- Employment income
- Self-employment or freelance income
- Pensions (UK and foreign)
- Rental income
- Some benefits and trusts
Your tax-free allowance is determined by your residency status and personal circumstances. In the 2025/26 tax year, the standard Personal Allowance remains £12,570. Income above this is taxed in bands:
- 20% basic rate
- 40% higher rate
- 45% additional rate (on income above £125,140)
We help clients understand where their total income falls and how to structure earnings — including pension withdrawals — to remain tax-efficient.
National Insurance Contributions (NICs)
NICs are the UK equivalent of social charges. These contributions go toward state benefits like the State Pension. Key classes include:
- Class 1 – Employees and employers
- Class 2 – Self-employed (flat rate)
- Class 4 – Self-employed (based on profits)
UK expats returning after a period abroad may have gaps in NIC contributions. We help you assess whether voluntary contributions are worthwhile, especially to maximise your State Pension entitlement.
Tax Residency and the Statutory Residence Test
Your liability for UK income tax depends on whether you’re a UK tax resident. This is assessed using the Statutory Residence Test (SRT), based on:
- Days spent in the UK
- Work ties
- Family and accommodation ties
- Previous residency history
We help you understand how your tax residency status impacts your income tax exposure and the potential to claim the remittance basis if eligible.
Returning Expats: What to Watch For
If you’re moving back to the UK after time abroad, consider:
- When to resume tax residency (timing is key)
- Pre-arrival asset restructuring
- Unwinding non-UK structures
- Reporting requirements for foreign income
We ensure your financial plan anticipates the transition and minimises tax shocks.
How We Help
As financial advisers, our role is to:
- Optimise investment and pension income within tax-efficient wrappers
- Time pension withdrawals to reduce income tax
- Coordinate with tax advisers to plan around residency and allowances
- Guide voluntary NIC top-ups for expats
FAQs
1. Do I pay UK tax if I live abroad?
Only if you’re a UK tax resident or have UK-source income. Your status is defined using the Statutory Residence Test.
2. What are the current UK income tax rates?
Basic rate: 20%, higher rate: 40%, and additional rate: 45%.
3. Are foreign pensions taxed in the UK?
Yes, for UK residents. But treatment can vary depending on tax treaties and the type of pension.
4. Should I make voluntary National Insurance contributions?
Possibly — especially if you want to qualify for the full UK State Pension. We can help assess this.
5. Can you help me time my return to the UK for tax efficiency?
Yes, we can work with you to structure your finances around your return date and refer you to a tax expert if needed.
