In recent years, a noticeable trend has emerged in the football world as players seek opportunities in countries like Saudi Arabia. While such a move can offer lucrative contracts and new experiences, it's crucial to understand the conditions required to avoid unexpected tax liabilities in the UK on overseas income – this applies to all professions, not just footballers. Below we will delve into a few factors you need to consider before making the move to work overseas.
UK residents by default are taxed on their worldwide income and gains as it arises. Whereas non-residents are only taxable in the UK on UK source income, and gains relating to UK property.
Residency in the UK is determined by the Statutory Residence Test, which is made up of three sub-tests:
Within the automatic overseas test is the “full-time working abroad test”, which is relevant to all UK residents who move overseas for full-time employment, and we will focus on the conditions within this test below.
To satisfy the full-time working abroad criteria you must:
It should be noted that if the criteria for any of the above are not met then all is not necessarily lost as you could be non-resident under a different automatic overseas test or the sufficient ties test.
When leaving the UK to commence full time work overseas, you can split your tax residency part way through the year. The effect of split year treatment is that you are taxed as a non-resident during the overseas part of the year, excluding the overseas income from taxation in the UK.
To qualify for split year treatment when leaving the UK, you must be resident in the UK in tax year prior to your departure and remain non-resident for the entire tax year after your departure. So for a player moving in August 2023, it is likely they will need to remain non-resident until at least 6 April 2025.
Split year treatment can also apply on your return to the UK in more than one scenario. It can be split when ceasing full time work overseas on the condition that:
If these conditions aren’t met, split year treatment is available providing you were not resident in the previous year, and on your return to the UK, your only home is situated in the UK.
Split year treatment will also apply to the accompanying spouse both leaving and returning to the UK providing the conditions for the working partner are met.
It is crucial to note that the UK day count and the UK workdays limit in relation to the full-time working abroad test is reduced proportionately in the split year period. Care should be taken to ensure the limits are not breached.
If the overseas employment ends too soon, or you breach any of the non-resident criteria generally, then all overseas income could be subject to tax in the UK. Prior planning is crucial to ensure that the departure and return is timed accordingly to meet the relevant conditions and that any return visits to the UK do not breach the thresholds.
The temporary non-resident rules apply to individuals who leave the UK, having been resident in the UK for 4 out of the 7 previous tax years. The rules are an anti-avoidance provision put in place primarily to stop individuals leaving the UK to gain non-residence status, realising large gains or income receipts which are exempt from taxation in the UK, and then returning to the UK soon afterwards.
Temporary non-residence is defined as a period of less than 5 years. the temporary period of non-residence may start or end within a tax year due to the ‘split year’ treatment. If capital gains are realised during the non-residence period on assets held prior to the non-residence period, the gains will fall back in to charge in the UK in the tax year of arrival if that is within 5 years of the departure. Gains on assets purchased and sold within the non-resident period are exempt from taxation in the UK, even if the non-residence period is less than 5 years.
These rules do not apply to overseas employment income if the overseas residency rules are met, but other income such as withdrawals from pension funds, certain dividends, life insurance gains and offshore income gains are caught by the rules.
Advice should be taken in advance to understand the tax implications before disposing of any assets or creating income during the non-resident period.
One of the major attractions for individuals moving to Saudi Arabia is the absence of personal income tax. This can substantially increase the take-home pay for players and make the move financially appealing. However, while there is no individual income tax, employees may contribute to social security funds based on their basic salary. This should be factored into financial planning.
Footballers and other professionals relocating to Saudi Arabia should consider consulting with tax experts in both the UK and Saudi Arabia to ensure a clear understanding of their tax obligations in both jurisdictions.
Relocating to Saudi Arabia for full time employment brings exciting opportunities and financial benefits, but the intricate web of tax regulations requires careful consideration.
We would recommend professional advice is taken as early as possible to ensure that the desired outcome is achieved. If you're looking to discuss any of the topics mentioned above, then please get in touch with our Tax Director, David Portman, (firstname.lastname@example.org) or your usual Lubbock Fine contact.