Relocation from Israel to The United Kingdom

The United Kingdom stands as a premier destination for Israelis contemplating international relocation. Its robust economy, English-speaking environment, and flourishing Jewish communities – particularly in London- create an exceptionally appealing combination. From its globally renowned financial hubs to its vibrant cultural landscape and superior quality of life, the UK consistently attracts Israeli nationals seeking fresh opportunities abroad.

However, relocating to the United Kingdom requires careful planning and a comprehensive understanding of the legal, financial, and tax implications associated with the move. This article outlines the key considerations to address before making the move.

The 5-Step process for relocating from Israel to the United Kingdom

1. Assess employment opportunities and living costs.
2. Consider terminating Israeli tax residency, taking into account matters such as exit tax.
3. Obtain an appropriate visa or residency.
4. Review your tax obligations under both Israeli and Argentine law, including potential double taxation and available reliefs.
5. Plan fund transfers and banking.

The following sections explain the main tax, legal, and financial considerations for Israelis relocating to the United Kingdom.

Key Considerations When Relocating from Israel to the United Kingdom

The relocation process consists of several essential steps. 

First, review employment opportunities in the UK, the cost of living across regions, the local tax system, education options for children, and access to healthcare services.

Second, consider whether you intend to sever your Israeli tax residency. Terminating residency affects, among other things, income tax, social security, and estate planning obligations. You must also plan how to manage your finances, assets, and private health insurance. The UK operates a public healthcare system known as the National Health Service (NHS), which provides healthcare services to anyone defined as a permanent resident in Britain. In contrast, foreign residents and holders of temporary residence permits are required to arrange private health insurance in order to receive full medical coverage during their stay in the country.

You must also secure legal status in the UK—this could involve obtaining a work visa, student visa, permanent residency, or ultimately citizenship. Each visa type has unique requirements, including income thresholds, employment contracts, investment levels, and age or education criteria. Advance planning is essential to choose the appropriate visa type.

Tax Aspects of Relocation to The United Kingdom

When moving to a foreign country, the question of post-move tax obligations in Israel arises. 

The answer usually depends on whether you have terminated your Israeli tax residency.

Termination of Tax Residency

One of the main issues in the relocation process is determining your residency for tax purposes. In Israel, Israeli residents are taxed on their worldwide income, while non-residents are taxed only on income sourced in Israel.

If you intend to settle in the United Kingdom for the long term, it may be preferable to sever your residency from Israel (for both income tax and National Insurance). Note that Israelis who sever their residency are required to pay an “exit tax” on certain assets.  

According to Section 1 of the Israeli Income Tax Ordinance, residency is determined based on the center of life test, and a rebuttable presumption based on the number of days you stayed in Israel, as follows:    

• Days test – An individual is considered an Israeli resident if they spent 183 days or more in Israel during a single tax year. A person may also be considered a resident if they spent 30 days or more in Israel during the current tax year. This applies when their total stay in Israel is 425 days or more over the current and two preceding years. This presumption can be rebutted if the individual proves that, despite their stay in Israel, their center of life is not in Israel.
• The center of life test – This is a substantive test, in which all personal, family, economic, and social ties are examined. These include a permanent place of residence, a place of economic activity, a location of economic interests, and more. 

Anyone who meets the days test, i.e., is considered an Israeli resident under this test, must file Form 1348 – “Declaration of Residency”. This form is attached an annex to the individual’s tax report. Its purpose is to declare the termination of Israeli tax residency and to describe the circumstances demonstrating that the individual’s center of life is no longer in Israel.

It is important to note that terminating tax residency is usually not a one-time event but an ongoing process. The Israeli Tax Authority (ITA) may review your residency status even years after leaving. Therefore, it is recommended to keep detailed documentation of all actions indicating the transfer of your center of life to [Country Name], and to avoid creating new ties to Israel.

These days, a dramatic bill to amend the Income Tax Ordinance regarding the definition of Israeli residency for tax purposes has been submitted to the Knesset. 

According to the proposal, there will be absolute presumptions that determine the number of days defining an individual as an Israeli resident. These presumptions cannot be rebutted. The “center of life” test will serve only as a secondary tool in cases not covered by these presumptions.

As a result, there may be situations where an individual who has terminated their residency in Israel will still be considered an Israeli resident for tax purposes. This can happen when the number of days spent in Israel in subsequent years is high enough to meet the residency threshold. 

To view the draft bill, click here.  

Exit Tax

Israelis leaving Israel may be required to pay an “exit tax” on certain assets. This tax is intended to capture the unrealized capital gains of assets held by Israeli residents.

According to Section 100A of the Income Tax Ordinance, an individual who ceases to be an Israeli resident is deemed to have sold their assets on the day before terminating the tax residency (“Exit Day”). The tax is calculated on the notional gain between the original purchase price and the value on the exit day. Note that some assets, such as real estate, may be exempt from this tax.

There are various methods for calculating and paying exit tax liability, each with different implications for the taxpayer. The timing and structure of these payments can significantly impact the overall tax burden. It is highly recommended to consult with an international tax expert before departing Israel to develop a tax strategy that best aligns with your specific circumstances and financial goals.

Double Taxation Treaty between Israel and the United Kingdom

Israel and the United Kingdom have a double taxation treaty. This treaty is intended, among other things, to prevent a situation where a person pays double tax on the same income. The treaty regulates issues such as determining residency in cases of dual residency, withholding tax rates on passive income (dividends, interest, royalties), and taxation of employment income.  

Under the treaty, employment income earned by an Israeli resident who works in the United Kingdom is generally subject to tax in the United Kingdom, provided the work is physically performed there. However, if the employee is present in the United Kingdom for less than 183 days in a 12-month period and certain additional conditions are met, Israel may retain the right to tax that income. Each case should be assessed based on its specific circumstances. 

In addition, the treaty also addresses dual residency. In cases where an individual is considered a resident for tax purposes in both countries, the treaty offers equalization rules for determining residency, as follows: 

a) The individual shall be deemed to be a resident only of the State in which a permanent home is available to that individual; if a permanent home is available in both States, that individual shall be deemed to be a resident only of the State with which the individual’s personal and economic relations are closer (centre of vital interests);

b) If the State in which the centre of vital interests is situated cannot be determined, or if a permanent home is not available to the individual in either State, the individual shall be deemed to be a resident only of the State in which that individual has a habitual abode;

c) If the individual has a habitual abode in both States or in neither of them, the individual shall be deemed to be a resident only of the State of which the individual is a national;

d) If the individual is a national of both States or of neither of them, the taxation authorities of the territories shall determine to resolve the question by mutual agreement.

To read the Double Taxation Treaty between Israel and the United Kingdom in English, click here.

How will Terminating Tax Residency Affect Income Taxation?

If the move to the United Kingdom is temporary, you remain an Israeli tax resident and cannot terminate your residency status. This means you are liable for Israeli tax on your worldwide income and must report all income, including income earned in the United Kingdom, to the ITA.

If tax residency is not terminated, it is often possible to claim a tax credit for taxes paid in the United Kingdom.

If the move to the United Kingdom is permanent and you have terminated your Israeli tax residency, you will only be liable for Israeli tax on income sourced in Israel, while all other income will be subject to tax in the United Kingdom.

For more information on the termination of residency, click here.

National Insurance

An Israeli resident living abroad is required to pay National Insurance (Bituach Leumi) contributions. However, once tax residency is terminated, there is no obligation to pay National Insurance, and the individual is no longer entitled to health or social security benefits in Israel.

There is a social security agreement between Israel and the UK. The arrangement under this agreement is intended to prevent situations where an Israeli resident would be subject to social security obligations in both countries simultaneously, or, conversely, would not be eligible for social security coverage in either country.

Tax System in The United Kingdom

In the UK, an individual is automatically considered a tax resident if they spend at least 183 days in the country during the tax year. If this condition is not met, a person may still be regarded as a resident if they satisfy one of the other automatic residence tests, such as having their only home in the UK or working full-time in the country.

If none of the automatic residence tests are met, the “sufficient ties test” is applied, which examines the strength of the individual’s connections to the UK, including family ties, accommodation, employment, and presence in previous years.

The UK has a progressive personal income tax system, with the following tax brackets:

• Up to GBP 12,570 – tax free
• GBP 12,571 – 50,270 – 20%
• GBP 50,271 – 125,140 – 40%
• Above GBP 125,140 – 45%

Capital Gains Tax in the UK

Annual Capital Gains Tax Exemption: Every UK resident is entitled to an annual exemption of £3,000 for the 2025/26 tax year. Capital gains exceeding this amount are subject to tax.

Tax rates effective from 30 October 2024:

• Basic Rate Income Taxpayers: 18% on capital gains.
• Higher/Additional Rate Income Taxpayers: 24% on capital gains.

Important note: The applicable tax rate is determined based on your total taxable income plus capital gains. If adding your capital gains to your taxable income moves you into a higher tax band, the portion exceeding the threshold will be taxed at the higher rate.

The corporate tax rate in the UK is 25% for companies with profits exceeding £250,000, effective from 1 April 2025. Companies with profits up to £50,000 benefit from a reduced tax rate of 19%. For profits between £50,000 and £250,000, a marginal relief applies.

In addition, profits derived from the exploitation of patents are eligible for a reduced tax rate of 10%, which can include profits from the sale of products incorporating a patent, not just royalty income.

Inheritance tax in the UK applies to the estates of individuals after their death, at a rate of up to 40% on the value of the estate exceeding £325,000. There are exemptions and reliefs, such as for transfers between spouses and gifts made more than seven years before death. From 6 April 2025, the tax will apply to UK assets regardless of the deceased’s place of residence, and to assets outside the UK only if the deceased is considered a “long-term resident.”

For more information on inheritance tax in the UK, read the article “Tax Aspects of Inheritance in the United Kingdom.“

Transferring Funds from Israel to the United Kingdom

You should review the different options for transferring funds abroad, such as bank transfers and international credit cards. Each option has its own advantages and disadvantages regarding fees, transfer times, exchange rates, amount limits, and regulations. Pay close attention to reporting requirements for authorities and banks, in accordance with anti‑money‑laundering laws and international regulations (FATCA, CRS). It is also advisable to open a bank account in the United Kingdom in advance.

According to Section 170(a) of the Ordinance, when a payment from Israel to a foreign resident constitutes taxable income, withholding tax applies. Therefore, transfers of funds that do not constitute taxable income may not be subject to tax but could still require prior approval from the ITA.

In addition, there are additional requirements regarding the transfer of money abroad, such as an accountant’s certification regarding tax payments or the source of funds, and more.

For more information, see the article “Transferring Funds from Israel Abroad.”  

Opening a Bank Account in The United Kingdom

Opening a bank account in the UK is possible for foreigners. In general, the requirements for opening a bank account in the UK usually include a valid passport, a residence visa, proof of address in the UK, and sometimes additional documents.

Returning to Israel

When returning to Israel, it is important to carefully assess the potential implications. If you have terminated your tax residency, you may qualify for benefits as a regular  or veteran returning resident, depending on the duration of your stay abroad. These benefits can include tax exemptions on income and capital earned outside Israel.

You should also take into account the waiting period of up to six months for the renewal of National Insurance (Bituach Leumi) health coverage, as well as possible benefits available through the Ministry of Aliyah and Integration.

In short, relocation to the United Kingdom offers many opportunities, but it is a complex process that requires professional planning, personal guidance, and a thorough understanding of all legal and tax aspects. It is recommended to consult with international tax experts to ensure early and comprehensive planning for a smooth and successful transition to your new life in the United Kingdom.

The firm of Nimrod Yaron & Co. has extensive experience advising on international relocation and Israeli tax residency termination. For an initial consultation, click here.

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