Moving to Malaysia from the UK: the 2026/27 tax guide

Malaysia is one of the few mainstream destinations where the domestic system does most of the planning for you. Individuals are taxed on income accruing in or derived from Malaysia; residents pay progressive rates from 0% on the first RM 5,000 up to 30% above RM 2,000,000, non-residents a flat 30%. Foreign income received in Malaysia by residents came into scope from 2022, but a statutory exemption covers most categories for resident individuals until 31 December 2036 (PwC Worldwide Tax Summaries: Malaysia).

But the deciding factor for your UK bill is not your MM2H visa or your condominium in Mont Kiara. It is the UK Statutory Residence Test (HMRC RFIG20000), which decides, year by year, whether the UK can still tax your worldwide income. Break residence cleanly, claim split-year treatment, deal properly with what stays UK-taxable, and the Malaysian position takes over.

The SRT is applied in order: first the automatic overseas tests (which make you non-resident), then the automatic UK tests, then the sufficient ties test if neither is conclusive. For someone moving to Malaysia with a job, the automatic overseas tests are the target.

• First automatic overseas test: you were UK resident in one or more of the previous three tax years and spend fewer than 16 days in the UK in the current year.
• Second automatic overseas test: you were not UK resident in any of the previous three tax years and spend fewer than 46 UK days.
• Third automatic overseas test: you work full-time abroad across the tax year, broadly an average of at least 35 hours a week with no significant breaks, spend fewer than 91 days in the UK and work here on no more than 30 of those days.

Retirees on MM2H cannot use the full-time work test, so they fall back on the sufficient ties test, which combines UK day counts with the ties kept: family, accommodation, work, a 90-day prior-presence tie and, for recent leavers, a country tie. The more ties you retain, the fewer UK days you are allowed, and a kept UK home makes summer visits the pressure point. Model your position with our SRT calculator at /tools/srt-calculator before you book anything.

Most people do not emigrate neatly on 6 April. Where the conditions are met, split-year treatment divides the tax year into a UK part (taxed on worldwide income) and an overseas part (taxed only on UK-source income). The common gateways for leavers are starting full-time work overseas and ceasing to have a UK home, each with its own timing conditions and UK day limits.

The admin is the same as for any departure. File a P85 (GOV.UK) if you are employed or have a pension and are not filing a Self Assessment return for the departure year. Split-year treatment is claimed on the SA109 residence pages, which cannot be filed through HMRC's free online service, so you will generally need software or an agent. Keep records of travel dates and work patterns: Malaysia's 182-day test runs on the calendar year while the UK's runs to 5 April.

Becoming non-resident does not switch off UK tax on UK-source income. Malaysia's exemption for foreign income means very little is taxed twice, but the UK side still has to be operated correctly.

Two further UK rules deserve their own line. First, the residence-based IHT rules from 6 April 2025: if you were UK resident for at least 10 of the previous 20 tax years, your worldwide estate stays within UK inheritance tax for up to 10 years after you leave. Second, voluntary National Insurance: most leavers should apply on form CF83 to keep paying Class 2 or Class 3 contributions, because a full State Pension is cheap to protect and expensive to rebuild.

Malaysia taxes income accruing in or derived from Malaysia. Residents pay progressive rates up to 30% above RM 2,000,000; non-residents pay a flat 30% with no personal reliefs (PwC Worldwide Tax Summaries: Malaysia). You generally become Malaysian tax resident by being present for 182 days or more in a calendar year, with supplementary linked-period tests a local adviser can apply to shorter or straddling stays (PwC: residence).

The foreign income position is the headline. From 1 January 2022 Malaysia brought foreign income received in Malaysia by residents into charge, then immediately exempted most of it: for resident individuals, most categories received between 1 January 2022 and 31 December 2036 are exempt, the main carve-out being income received through a Malaysian partnership business (PwC: income determination). It is a dated exemption, already extended once, so anyone planning a decade or more in Malaysia should keep the expiry in view. Malaysian dividends are exempt under the single-tier system, subject to a 2% charge on annual dividend income above RM 100,000 from 2025.

Capital gains are the other headline. Individuals pay no general capital gains tax. The tax introduced from 1 January 2024 on unlisted shares, at 10%, applies to companies, LLPs, co-operatives and trust bodies, not individuals (PwC: corporate income determination). What individuals do pay is Real Property Gains Tax on Malaysian real estate: for non-citizens, 30% within five years of acquisition and 10% thereafter (PwC: other taxes). There are no inheritance, estate or gift taxes. The honest boundary: Horizon advises on the UK side; your Malaysian filings and any reliance on the exemption's conditions belong with a local adviser in Malaysia.

Malaysia My Second Home is the long-stay residence route most UK movers use if they are not on an employment pass. The restructured programme runs three tiers, each built around a fixed deposit in a Malaysian bank and a minimum property purchase, with up to 50% of the deposit withdrawable for approved property, medical, education or tourism spending (MM2H programme requirements).

For tax purposes the visa itself is neutral: MM2H changes neither what Malaysia taxes nor what the UK taxes. What it does is make Malaysian residence sustainable for retirees and investment-income movers, exactly the profile that benefits most from the foreign income exemption and the treaty's pension article. Remote workers sit less comfortably: salary for work physically done in Malaysia is Malaysian-source at ordinary rates, so the exemption does not cover it.

A full UK-Malaysia double taxation agreement exists and is in force. The 1996 convention entered into force on 8 July 1998, has had effect in the UK since April 1999, and was amended by a 2010 protocol in force from 28 December 2010 (GOV.UK). Its residence tie-breaker settles the crossover year, and its income articles allocate taxing rights over what you keep.

The pension article is the prize. Under Article 19, pensions paid in consideration of past employment to a resident of a contracting state, and annuities, are taxable only in that state (1996 UK-Malaysia DTA as amended). A UK occupational or personal pension paid to a Malaysian treaty resident is therefore outside UK tax, and inside a Malaysian system that currently exempts remitted foreign income anyway. HMRC's Digest of Double Taxation Treaties confirms full relief, with two limits: no treaty relief on the State Pension, and government service pensions stay UK-taxable under Article 20 unless you are both a national and a resident of Malaysia (HMRC DT Digest).

Two further articles repay attention. Article 25 is a remittance clause: UK relief is limited to the amount actually remitted to or received in Malaysia, so route pension payments into Malaysia if you are relying on Article 19. And Article 26, non-discrimination, is what puts Malaysia in HMRC's personal allowance list: someone who is both a national and a resident of Malaysia keeps the UK personal allowance as a non-resident. British citizens keep it anyway (GOV.UK); the people exposed are third-country nationals, who can lose it against their UK rents and pensions entirely. Treaty claims and double tax relief run through the SA109 and form DT-Individual.

If you were UK resident in at least four of the seven tax years before departure and you return within five years, the temporary non-residence rules tax gains and certain income realised while abroad in your year of return (HMRC CG26500). Malaysia makes the trap unusually inviting: because individuals pay no Malaysian capital gains tax outside real property, a portfolio sold during a three-year stint in Kuala Lumpur is tax-free in Malaysia, and entirely taxable in the UK if you are back within five years, with no foreign tax credit to soften the landing.

The same rules catch certain income, including dividends from close companies you controlled and pension lump sums taken while away, so a large drawdown taken tax-free under Article 19 can be brought back into UK tax by an early return. A Silver MM2H visa runs five years; the temporary non-residence clock runs five complete years too. If the plan is a trial move, time disposals around the possibility of coming home.

Malaysia suits retirees and investment-income movers best: UK pensions land taxable only in Malaysia under the treaty, Malaysia currently exempts them as remitted foreign income, portfolio gains are untaxed for individuals, and there are no estate taxes locally. It also suits owners planning a business exit who can genuinely stay out of the UK for more than five years. Compared with Singapore next door, the cost of entry is lower; compared with Thailand, the foreign income exemption is statutory and dated rather than dependent on remittance timing.

It suits people less well if their income will be earned by working from Malaysia, because that salary is Malaysian-source and taxed at up to 30%; if they are third-country nationals who would lose the UK personal allowance; or if their real aim is UK IHT protection on a short timeline, given the 10-year tail. Malaysia also does nothing for UK property income and gains, which stay UK-taxable regardless. Model the whole move, both sides, with our relocation tool at /tools/relocation before you commit to a date.

We handle the UK side of the corridor: SRT planning and evidence, split-year claims, the final return with the SA109 pages, Non-Resident Landlord Scheme registration, 60-day NRCGT returns, NT code and treaty repayment claims under Article 19, and the five-year and 10-year tail planning that decides when disposals and drawdowns happen. Where Malaysian filings or MM2H applications are needed, we work alongside a local adviser in Malaysia.

Everything is on fixed fees agreed upfront: personal tax returns from £350, non-resident and expat returns from £550, and complex cross-border work, where treaty pension claims and departure-year planning usually sit, from £750. If Malaysia is on your shortlist, book a free 30-minute clarity call and we will tell you what your position looks like and what it would cost to get the UK exit right. There is more on how we work with internationally mobile clients on our expat tax adviser service page.