Using a UK bank account when overseas

This is a short article but is certainly worthwhile covering as it seems to be a cause of concern for many.

In my professional career I've had many questions on the use of a UK bank account for an overseas resident individual or entity. There seems to be a misconception that if you are non UK resident but use a UK bank account to receive cash, any receipts into that account will be subject to UK income tax.

This is undoubtedly not the case. The charge to UK income tax for a non UK resident (individual or company) will depend on the source of the income.

Therefore a non UK resident trading abroad but receiving cash into a UK bank account would not be subject to income tax on the trading income, even though it is received in the UK. This is because the source of the income (the trade) is overseas.

By contrast if you were non UK resident but letting a UK property, the fact that the rental income went into an overseas bank account would again be irrelevant. The rental income would still be subject to UK income tax as the source of the income (property) is located in the UK.

The usual case where this is of concern is an overseas trader possibly incorporating an overseas company, but using a UK bank account. There should therefore be no UK income tax in this case. Another common example is where a non UK resident is receiving dividends from a UK company into a UK bank account. Again no UK income tax would be due provided the shareholder was non UK resident.

Note however that this covers the receipts into the account. Any interest that the account generates would initially be subject to UK income tax as the source of the income is in the UK. Basic rate tax would usually be deducted at source however in practice non UK ordinarily resident individuals can fill in a form at the bank and receive interest gross.

What about capital gains tax? If you sell a UK asset and receive the proceeds in a UK bank account you should still be exempt from UK CGT, provided you meet the general requirements for the CGT exemption.

The main case when a UK bank account could be an issue would be in terms of inheritance tax ('IHT').

A UK bank account is classed as a UK asset for IHT purposes. As a UK beneficiary is subject to UK IHT on his/her worldwide estate in any case, this would not be a big issue. However a non UK domiciliary is only taxed on his UK estate. Therefore keeping cash in an overseas bank account could well be advantageous to them as a means of avoiding UK IHT.

Aside from this though the general rule is that simply having a UK bank account wll not in itself lead to a UK tax charge. Instead you'll need to look at the source of the underlying income.