South African Tax Residency is often misunderstood by those relocating to the UK. There is a common misconception that they no longer have to declare their foreign income to SARS. Many believe that since they are not currently residing in South Africa, and because of the DTA (Double Tax Agreement), the income is no longer taxable in South Africa.
This assumption is not correct.
1. South African Tax Residency Still Applies
Unless you have formally informed SARS of your non-residency status, you are still considered a South African tax resident. As a result, your filing obligations continue, and you remain liable for tax on your worldwide income.
Merely living abroad does not automatically break tax residency. You must follow the correct procedures to change your status.
2. Relief Under the DTA for South African Tax Residency
The Double Tax Agreement between South Africa and the United Kingdom is in place to prevent double taxation, but it doesn’t mean automatic exemption from South African tax.
The main forms of relief from the DTA that SA residents trigger:
a. Foreign Tax Credits (Section 6quat)
You may claim foreign tax credits for any UK tax paid if the DTA allocates primary taxing rights to the UK. This is typically based on the nature of the income and where it arises or is derived.
However:
- You must still declare the income in South Africa.
- SARS will allow a credit only up to the amount of UK tax paid.
- If the South African tax liability is higher, you will need to pay the difference to SARS.
- This credit mechanism prevents double taxation, not taxation altogether.
Note: This applies only if you remain a South African tax resident.
b. Breaking Tax Residency Under the DTA (Article 4)
Article 4 of the South Africa-UK DTA provides tie-breaker rules to determine tax residency when an individual qualifies as a resident of both countries under their respective domestic laws. If these tests establish that the UK is your primary taxing jurisdiction, you may be treated as a non-resident for South African tax purposes under the DTA.
The tie-breaker tests are considered in the following order:
- Permanent home availability
- Centre of vital interests
- Habitual abode
- Nationality
- Mutual agreement between tax authorities (if unresolved)
Tip: Simply meeting the tie-breaker criteria does not automatically exempt you. The onus is still on you as the taxpayer to inform SARS of your residency status, and SARS may still require formal documentation, and a ruling or audit could follow.
3. Deemed Disposal: Exit Tax on Ceasing Residency (Section 9H)
If you break residency under the DTA, you will trigger an exit tax under Section 9H(2) of the Income Tax Act.
This means you’re deemed to have disposed of your worldwide assets the day before you cease to be a resident, and any capital gains are taxed.
Immovable property in South Africa is excluded from the exit tax (Section 9H(4)(a)).
4. Annual Obligations After Breaking Residency
After breaking residency under the DTA or domestic tax rules:
While there is no explicit legislative requirement to inform SARS annually of your non-resident status, it is advisable to keep SARS informed or respond promptly to any requests for information to avoid compliance issues or misunderstandings.
If you return to South Africa and regain tax residency, your worldwide assets will be deemed acquired at market value on the date of re-entry. This market value “step-up” ensures that SARS only taxes capital gains accruing after your return, preventing double taxation on gains accrued while you were a non-resident.
5. Foreign Employment Income Exemption (Section 10(1)(o)(ii))
If you’re still a South African tax resident but working abroad, you may qualify for a foreign income exemption of up to R1.25 million per year.
To qualify, both conditions must be met:
- You are outside the Republic for a total of 183 full days in any 12-month period; and
- Within that 12-month period, you are outside SA for a continuous period of at least 60 full days.
Important clarification:
- This exemption applies only to employment income (remuneration) where an employer and employee relationship exists.
- Self-employed income, freelance work, or contracting does not qualify.
6. Financial Emigration – What It Means Today
If you have financially emigrated, the responsibility lies with you as the taxpayer to:
- Inform SARS of your non-residency; and
- Provide appropriate documentation (such as proof of permanent relocation, exit tax disclosures, and supporting records).
Note: Since March 2021, financial emigration via the South African Reserve Bank (SARB) is no longer relevant for tax residency. Tax residency is now determined solely under the Income Tax Act, not exchange control rules.
Final Thoughts
Understanding your tax obligations as a South African in the UK can be complex. The Double Tax Agreement offers relief, but only when the right conditions are met and the correct processes are followed.
Whether you’re:
- Still a South African tax resident and seeking to claim foreign tax credits;
- Breaking residency under the DTA; or
- Navigating exit tax and financial emigration
It’s vital to ensure you remain compliant with SARS and understand the potential tax exposure in both jurisdictions.
If you’re unsure of your current status or obligations, it is strongly advised that you consult with a cross-border tax specialist familiar with both South African and UK tax systems.
Disclaimer
This blog post is for information purposes only and does not constitute legal, tax, or financial advice. Always consult with a qualified tax professional for advice specific to your circumstances.