Enter Your E-mail

Improvements to the tax treatment of international students coming to the UK, thanks to the Low Incomes Tax Reform Group

Introduction

Students come from overseas to study in the UK and not all of them are penniless. When they have income or gains back “home” their tax lives can get complicated. However, there have been some helpful developments recently.

Background

Over the last two years, the Government has been overhauling the tax rules for people coming to the UK who have money abroad. This includes foreign students. Last year, the new regime was still a mess. For example, foreign students arriving in the UK might have had to pay tax on the new trainers they had bought with their foreign earnings when they arrived at Dover wearing them, as LITRG pointed out last year in their article Students may Pay Income Tax on New Trainers.

However, LITRG worked hard over the following months to persuade politicians, the Treasury and HMRC to improve and simplify the new tax regime and they were ably supported in this effort by the UK Council for International Student Affairs.

What has changed?

One of the first things that changed was the rule that would have levied tax on the trainers. This was retrospectively abolished back to April 2008.

More importantly, HMRC are now more generous in interpreting the treaties between the UK and other countries that prevent people from being taxed both in the UK and abroad on the same income or gains.

Now, if students come from one of the countries with a double taxation agreement with the UK (and this will mean the vast majority of international students), they will not need to pay tax on any income and gains that arise outside the UK which they subsequently bring to the UK for their maintenance or education.

Money is for their maintenance if it is used to fund their normal living expenses while in the UK. Money brought to the UK to pay for food, accommodation, and materials is all included, but bringing in money to invest is not.

Helpfully, HMRC have said that if a student brings £15,000 or less to the UK in a tax year (6 April one year to 5 April the next), they will treat that money as being for the student’s maintenance. Money that is used to pay for a student’s course fees will also be added and counted as for a student’s maintenance.

If you are an international student coming from a country without a double taxation agreement with the UK, then your tax life becomes a little more complicated and you need to swot up on a further set of rules to see if they apply.

HMRC have produced a short guide which is tucked away in the recesses of their website for those who may have to understand the detail. This lists all the countries with which the UK has a relevant double taxation agreement.

Conclusion

Most international students will blissfully carry on their studies without giving a second thought to the UK tax system, whether it applies to them or not. At least, through some of LITRG’s efforts, if they were forced to consider it, they would find the position rather clearer and more favourable than a year ago.