Expert tax tips: Considerations for UK expats
Dean Power explains how UK expats can ensure they are paying the correct UK taxes and maximise the opportunities available to them as UK expats living abroad.
When leaving the UK to live abroad, there are a number of financial considerations to ensure you are paying the appropriate UK taxes and maximise the opportunities available to you as an expat filing a tax return from abroad.
1. Things to organise when you leave the UK
First and foremost, ensure that you take the necessary steps to be considered non-resident for UK tax purposes. This is an area that has evolved dramatically over the past few years, with case law demonstrating that assuming a non-resident status is not always straightforward.
While there are plans to introduce a statutory residence test from April 2013, anyone looking at relocating from the UK should make themselves aware of the current attitude of HM Revenue & Customs and consider how their circumstances would be evaluated.
Many departing expatriates overlook the possibility of claiming an income tax refund upon departure. If you have been employed in the UK before leaving, you may not have received the full benefit of the personal allowances you are entitled to through your salary. You might be able to recover some of the tax you have already paid. Make sure to assess your position for the full tax year of departure to ensure that you claim all of the UK allowances that you are entitled to.
Also, if you are letting out UK property, take the time to register under the Non-Resident Landlord scheme. Without this, your letting agent or tenant would be obliged to deduct tax from rents paid to you and pay this over to HMRC. Approval under the scheme means that money can be paid to you without tax deduction.
3. UK tax returns
If you have continuing sources of UK income, you may need to file an annual tax return. Do be warned that a more stringent penalty regime applies to the late submission of tax returns, which means a GBP 100 fixed penalty will apply for any Return that is submitted late - even if there is no tax to pay or if the tax due is paid on time. Continual non-submission will also lead to additional penalties and automatic penalties of GBP 10 per day.
4. Look to reduce any remaining liabilities
Look at opportunities such as ensuring that any immovable assets situated in the UK (most commonly property) are held in joint names with your spouse/partner for tax mitigation.
Also, if you have movable assets in the UK, such as cash on deposit, it may be beneficial to transfer the funds offshore, perhaps to the Channel Islands or the Isle of Man, which sit comfortably outside the UK tax system but within the UK banking system. This will ensure that any interest you earn is not subject to tax while you remain overseas.
5. Maintain non-resident status
If there are any changes to your circumstances while overseas, do review whether this may affect your non-resident status. Should your family move back to the UK or you start to perform duties of employment in the UK, seek individual advice.
Also, keep an accurate record of your movements to and from the UK. You must spend fewer than 91 midnights in the UK per tax year to maintain non-resident status, though other factors must also be taken into account.
6. Exporting UK pension rights
Since April 2006, it has become possible to transfer rights in any UK occupational pension scheme or Personal Pension Plan to a Qualifying Recognised Overseas Pension Scheme without incurring a charge to UK income tax. This may allow an expatriate to consolidate various UK pension entitlements in a way that was not possible before. This is an area that you may want to take specialist advice on.
7. Take local advice
While it is important to make sure that you achieve non-resident status and keep your UK tax position as closely monitored as possible, it is also vital to ensure that you look after your tax affairs in your new country of residence. Before executing any UK tax efficient recommendations, make sure that your local tax position would not be jeopardised. Always seek local support from a reputable local advisory or speak to a company that has international outreach and can support you, wherever you may be.
8. Plan your return to the UK carefully
Real care is needed if, having been treated as a non-resident, you decide to return. The UK has an evolved system of taxation, including income tax of up to 50 percent, a wide ranging capital gains tax (either 18 percent or 28 percent), inheritance tax on estates (40 percent) and certain lifetime gifts (20 percent), and a not insubstantial social security levy.
Any exposure to the UK tax system as a resident needs to be planned very carefully, particularly where substantial assets and shareholdings are concerned.
You must also ensure that your arrival is disclosed and documented properly and that proper tax planning is taken so that liabilities are minimised once you return. With a little forward planning, this is usually possible.
The above does not constitute definitive tax advice as everyone's personal circumstances are different. Therefore it is important to seek personalised advice based on your individual needs. I do hope, however, that they have given you some food for thought for becoming as tax-efficient as possible.
Dean Power, Assistant Tax Manager, The Fry Group
Need advice? Contact Dean via our Ask the Expert channel (in the Tax category).
The levels and basis of taxation are subject to change.