Paying National Insurance when living abroad

Posted on: 24th November 2021 in Expats

Should you be paying National Insurance when living abroad?

It’s a question a lot of expats are unsure of, and the answer isn’t always a straightforward one.

Whether you plan on returning to the UK or retiring in the sun, it’s essential to understand the rules around National Insurance as an expat.

In this article, we look at National Insurance for expats and break down what you need to know.

Let’s dive straight in and answer the big question.

Should you be paying National Insurance when living abroad?

The simple answer is, it depends. But, as with anything tax-related, the reality is a little more complicated.

Where you work and how long you are abroad are just two deciding factors.

According to the UK government website, you will pay National Insurance for the first 52 weeks you are abroad if:

• You work outside of the EEA or Switzerland or;
• You work in a country with a bilateral Social Security agreement

You will also need to meet the following three conditions:

• Your employer has a place of business outside the UK
• You are usually a resident in the UK
• You were living in the UK immediately before starting work abroad

The criteria above will apply to those working in several popular expat destinations, including Dubai and other parts of the UAE. 

If you are working overseas for a year, not much will change. However, after a year, you will no longer pay National Insurance contributions which could create issues. But, don’t worry; we will cover that in the next section.

For those working in the EU, Norway or Switzerland, you will usually pay into the country’s social security scheme. 

You should note that you can only pay into one scheme at a time. So, for example, if you pay into Spain’s system, you will not pay UK National Insurance at the same time. However, if you are temporarily working abroad, you have options.

If you are working in the EU for up to two years, you can apply for a certificate or document from HMRC. Doing so will allow you to continue paying National Insurance while living abroad. 

So, why would you want to do this? The main reason is to secure your UK State Pension.

NICs and your UK State Pension

Whether you are looking to retire abroad or in the UK, your National Insurance contributions will impact if and how much State Pension you receive.

You need 10 complete years of contributions to receive the minimum State Pension. To be eligible for the maximum UK State Pension, you will need 35 years of NICs.

Although the UK State Pension probably is not enough on its own to support you financially through retirement, it is an excellent option for topping up your income.

Even if you are not required to pay National Insurance based on your situation, making voluntary contributions can be beneficial. By filling in your National Insurance record gaps, you could increase the amount of UK State Pension you receive.

Should you make voluntary contributions?

Whether or not you choose to make voluntary NICs will depend on your situation, so think carefully before deciding.

For example, let’s say you have a couple of missing years of contributions. The costs for filling in those gaps in exchange for the full State Pension might be justified.

On the other hand, if you are already close to the 35 years required for the maximum State Pension, there may be no need to fill in the gaps. The contributions you make when you return to the UK could be enough to meet the 35-year requirement.

When it comes to important decisions about your pension, it’s best to speak with an expert if you are unsure.

Making NICs abroad

You can make backdated payments for up to six years of NICs. 

Typically, voluntary payments are Class 3 contributions. However, those paying National Insurance when living abroad tend to make Class 2 contributions.

The first thing you will want to do is check your National Insurance record for gaps and if voluntary payments are an option. Our article gives a more detailed breakdown of how to check your National Insurance contributions. 

The UK government website  provides a comprehensive breakdown if you decide to make voluntary payments. 

Right advice, right strategy, fewer headaches

Tax can be a complex subject at the best of times, but even more so for expats. 

You have the UK tax system and the local tax system to contend with, which can create a real headache. On top of that, your personal situation can also influence whether or not you should be paying National Insurance when living abroad.

At Holborn, we are pension experts. For over two decades, our specialists have been helping clients become tax-efficient and work towards their retirement goals.

To find out how we can help you (and avoid unnecessary headaches), contact us using the form below.