Understanding Uk Taxes: International Students And Tax Residency

International students in the UK are subject to certain tax obligations, depending on their residency status and income levels. Generally, students in full-time education who are employed part-time during term time can expect income tax and National Insurance deductions to be automatically taken from their wages before receiving them. This is known as Pay As You Earn (PAYE) and streamlines the tax process by ensuring that employers handle these deductions. While council tax does not apply to students, international students with taxable income from overseas must determine their UK residence status under the statutory residence test (SRT) to know if they need to pay tax on that income in the UK.

Are international students tax residents in the UK?

International students and council tax

International students in the UK may or may not be considered tax residents, depending on several factors. These include the student's country of origin, their residence status, and whether their country has a double taxation agreement with the UK.

Now, regarding council tax, the rules vary depending on the student's living arrangements and their course load. If an international student lives in privately rented accommodation or owns their home, they are typically liable to pay council tax unless they are a full-time student. Full-time students are generally exempt from paying council tax, but they must provide evidence of their student status to the local council tax office. The course must also meet certain requirements, such as lasting at least one academic year, requiring a minimum of 24 weeks of attendance, and involving at least 21 hours of study per week.

Students living in student halls of residence are not required to pay council tax. However, if a full-time student lives with individuals who are not full-time students, the non-students will be expected to pay the council tax bill, although they may qualify for a discount. Additionally, if a full-time student shares a house with only one other person who is not a full-time student, the non-student will be liable to pay but will receive a 25% 'single person's discount'.

It is important to note that students registered for part-time courses are not exempt from council tax and are responsible for paying it. Furthermore, if an international student interrupts their studies, they should still be considered a student for council tax purposes as long as they remain registered with the intention to return. However, if a student completes one course and plans to start another in the following academic year, they may be required to pay council tax during that interim period.

Tax residency requirements

The tax residency requirements for international students in the UK can be complex and vary depending on several factors, including the student's country of origin, income sources, and residency status. Here is an overview of the key considerations:

Residence Status:

The residence position of international students in the UK is determined by the statutory residence test (SRT), which assesses factors such as the length of stay, accommodation arrangements, and work status. Students on a Tier 4 visa are generally not considered UK residents for tax purposes, unless they have lived in the country for more than three years. However, if an international student lives in the UK for longer than six months, they may be considered a tax resident.

Income Sources:

International students' tax obligations depend on their income sources. Income from overseas is subject to UK income tax only if certain conditions are met. Students with taxable income from overseas need to determine their residence position under the SRT to know if they need to pay tax on that income in the UK. Certain types of income, such as scholarships or grants, may be exempt from UK tax. Additionally, students with income from employment or investments may be subject to tax, with deductions for income tax and National Insurance taken directly from their wages through the Pay As You Earn (PAYE) system.

Double Taxation Agreements:

Some countries have double taxation agreements with the UK, which are designed to prevent individuals from being taxed twice on the same income in both their home country and the UK. Students from these countries may be exempt from paying UK tax on their income earned in the UK or on their foreign income, depending on the specific agreement. It is important to review the relevant agreement, as the exemptions may be limited in monetary terms or the number of years they can be claimed.

Personal Allowance:

Everyone in the UK, including international students, is entitled to a personal allowance, which is the amount they can earn before income tax becomes payable. For the 2024/25 tax year, the personal allowance is £12,570. If a student's worldwide income during the tax year does not exceed this amount, they will not have any UK tax to pay, regardless of their residence status.

Council Tax Exemption:

It is important to note that all students, including international students, are generally exempt from paying council tax in the UK.

Income from overseas

As an international student in the UK, you may have taxable income from overseas. In such cases, you need to determine your residence position under the statutory residence test (SRT) to know if you need to pay tax on that income in the UK. This can be challenging for international students, as their patterns of presence may vary, and it can be unclear where they consider their 'home' to be for the purpose of the SRT.

The UK has double taxation agreements with several countries, which can prevent you from being taxed twice on the same income. These agreements vary in their specific wording and exemptions, so it is essential to check the details of the agreement with your home country. Some agreements, for example, allow students to exclude a certain amount of income earned in the UK from UK tax if it does not exceed a specified annual limit and is intended to supplement resources for maintenance or education.

If your country does not have a double taxation agreement with the UK, you will typically need to pay tax on your foreign income in the usual way. You may also need to pay UK tax on your foreign income if it exceeds a certain amount, typically £15,000 per year, excluding course fees. This income could include money brought to the UK for 'maintenance', which covers education and general living expenses.

It is important to keep records justifying the exemption based on the specific wording of the double taxation agreement. These records may include information on why the payment was made, remitted to the UK, or earned. Additionally, if you decide to leave the UK after completing your studies, ensure that you have paid the correct amount of tax before your departure.

Working part-time

International students working part-time in the UK are subject to certain tax obligations, depending on their residency status and income levels. Students in full-time education employed part-time during term time can expect income tax and National Insurance deductions to be automatically taken from their wages before receiving them. This process, known as Pay As You Earn (PAYE), simplifies tax obligations by ensuring that deductions are handled by the employer.

Every individual is entitled to a personal allowance, which is an amount they can earn before income tax is due. As an international student, if your average monthly earnings exceed £1,048, you are required to pay income tax. Similarly, if your weekly earnings surpass £242, National Insurance contributions become mandatory.

It is important to note that students are very unlikely to meet the tests for full-time work in the UK or overseas while they are studying, even if they carry out full-time work for a few weeks outside of term time. This is because, to be considered to be carrying out full-time work in the UK or overseas under the statutory residence test (SRT), an individual must do so over a much longer period, generally a year.

Additionally, students who come from countries with a double taxation agreement with the UK may benefit from tax exemptions on the income they earn in the UK. These agreements are designed to prevent individuals from being taxed twice on the same income, both in their home country and in the UK.

Furthermore, international students are generally not required to pay UK tax on income earned abroad, especially if it is used for essential expenses such as course fees, food, rent, bills, or study materials. If you are an EU, EEA, or Swiss citizen and were a UK resident before 31 December 2020, you do not need a visa to work in the UK, provided you registered under the EU Settlement Scheme by 30 June 2021.

Student loans

Most international students from outside the EEA cannot get a UK student loan. However, students who are eligible to take out a UK student loan are required to make repayments through the UK tax system, similar to any other UK student borrower, if they enter the UK tax system after completing their course (for example, by finding a job in the UK). Special rules apply if you are a resident overseas and are therefore not liable to pay UK taxes.

If you have received a UK student loan and you leave the UK for more than three months after finishing your course, you must inform the Student Loans Company (SLC). The SLC will then take over the collection of the repayments. If you secure a job abroad, the SLC will ask for the name of your employer and proof of your salary. This is called an overseas income assessment. The repayment threshold relevant to the country you are going to may differ from the UK threshold. The SLC will probably ask you to set up a direct debit repayment arrangement.

If you have been abroad and then return to the UK, it is important to understand whether you have made overpayments on your loan. This situation can arise when you have been paying your loan repayments directly to the SLC and are then asked by HMRC to complete a self-assessment tax return. Your tax return will usually include all your worldwide income and your student loan repayments will be calculated using the UK repayment thresholds, and so will not automatically take into account the overseas repayments you have made directly to the SLC. If you are in this position and you do not want to make overpayments, you must contact the SLC to transfer the direct overseas repayments to HMRC and then apply to HMRC, using an informal 'stand over', to ensure overpayments are not deducted. It is recommended that you check your loan account to ensure that all repayments have been accounted for.

Frequently asked questions