International Students Face Extra Tax If Not Careful, Experts Warn

Complex international tax rules mean international students coming to study in the UK could be caught out, experts say.

In 2019/20 there were 538,600 overseas students studying at UK universities (up from 485,645 the previous year); 22% of the total student population. China currently sends the most students to the UK; almost 102,000 international students in 2019/20 were Chinese.

These numbers are set to increase, with the Government recently reaffirming its intention to recruit 600,000 international higher education students annually by 2030.

International tax specialists at Irwin Mitchell warn that students need to be aware of their UK tax residence status, which largely depends on the number of days they spend in the UK.

Full-time UK students will invariably become UK tax resident, even if they don’t realise it, which means their worldwide income and capital gains can be subject to UK tax.

“Domicile” status will also affect taxation of international students. It is assessed on a number of factors, including family background, but is also linked to the number of years that a student has already been resident in the UK.  University students who have already attended school in the UK could be caught by this.

To add to the confusion, different countries have different tax treaties with the UK designed to prevent double taxation from happening.

All of these factors present a potential tax headache for international students, who need to be aware of the risks before they arrive in the UK.

Expert Opinion

“Whether or not international students get taxed on worldwide income and gains depends on a number of things, including their UK tax residence status, domicile status and international tax treaties.

“If you spend more than 182 days in the UK in a tax year you’ll be a UK tax resident; this means most international students fall into this category. If you spend fewer than half the year in the UK, you may still be UK resident under the ‘sufficient ties test’: very simply, the more ‘ties’ you have to the UK, the fewer days you can spend before becoming resident.

“If you are non-UK domiciled you may be able to shield your foreign income and gains from UK tax by using the ‘remittance basis’ depending on how long you have been resident for. If there’s a treaty in place between the UK and your home country, this may affect the way the usual UK tax rules apply and you may need to account for your expenses (including course fees and living costs).

“However, none of this should put you off from studying where you want to – if you need advice on the matter speak to a qualified professional with UK and international tax experience.” Josh Fowler - Solicitor

Those relying on being sent money from loved ones to fund their studies aren’t as affected, though should be careful of the amounts being sent and the risk of inheritance tax being collected.

Josh added: “You may be sent money from your parents to help fund your UK studies or living expenses. Gifts like this aren’t subject to UK tax immediately; however, if these gifts are substantial, your parents may wish to consider how these gifts are transferred to you to minimise any risk of taxation in the future.

“While going to university likely means thinking about your tax situation isn’t at the top of your list of priorities, it’s worth thinking about now so you don’t get caught out by the tax rules here in the UK.

“If you’re planning to stay in the UK after graduation, it’s sensible to review both your tax residence and domicile position as your student years in the UK may affect how you are taxed here in the future.”