If you’re planning a move overseas to become an expat one important consideration should be how your UK tax bills will be affected. A common misunderstanding is that moving or living overseas immediately means you won’t need to pay any UK tax, but this isn’t always the case, and careful planning and preparation is needed.
What tax considerations are there before moving overseas?
Before you make a move there are a number of tax matters to be aware of. Understanding the UK’s rules, along with those of the country where you’re moving to, is very important. The key issue to get to grips with is your residence status, which dictates how much tax you’ll pay and where.
Inform HMRC before departing
An important step before you move is to let HMRC know your plans. Keeping the tax authorities up to date means there’s less likelihood of problems down the line, especially if you can be clear about your plans and provide some notice about the exact date you’ll be leaving the UK. A P85 form is the official document which notifies HMRC that you are leaving the country and helps ensure that you’ll be taxed appropriately in the UK.
Moving overseas tax implications
If you are a UK tax resident, potentially, taxed in the UK on all your income and gains arising anywhere in the world (including any income you receive from overseas employment). As a result, it’s important to take steps to seek non-UK resident status which will help reduce your tax bill; once you have it you’ll only pay UK tax on any income you receive in the UK.
Understanding when you’ll become non-UK tax resident, and how you can maintain that status, is a key part of your plan to live abroad tax-efficiently. The UK tax authorities, HMRC, uses a tool called the Statutory Residence Test to help determine this. The test runs through your ties to the UK, including how much time you spend working and visiting the UK, and whether you maintain a home here. It’s important to seek advice from a professional to give you peace of mind in this complex area of tax planning.
Moving abroad and avoiding Capital Gains Tax
Capital Gains Tax is generally charged on any profit you make when you sell something (usually it applies to an asset like land or property) that’s increased in value. The tax applies to the gain you make, not the amount you collect. As an expat, there are special rules for disposing of UK land and property when you’re a non-UK tax resident.
If you’ve been outside the UK tax net for more than five years, it will only be the gains which are made on your UK property before 5 April 2015 which attract UK Capital Gains Tax. You won’t be charged on anything which happened over the whole life of the ownership of your property or land, with any calculation based on the value of your property in 2015, compared to the amount you sold it for. Leaving aside the special rules for UK land and property, generally you need to be continuously non-UK tax resident for more than five years to escape UK tax on other gains that you make.
Tax on moving money overseas for UK residents
If you do need to move money between the UK and overseas then it’s usually sensible to work with a currency transfer specialist. Generally, there are no immediate UK tax charges for transferring money to and from the UK. However, if you are a non-UK domicile the rules can be more complex. It’s always best to consult a tax professional in these situations to ensure you don’t fall into an unnecessary tax trap.
UK Income Tax
If you aren’t a UK tax resident any Income Tax you have to pay is generally limited to the income you receive in the UK only. This might include any money you receive if you have a UK property you’re renting out.
Tax on foreign income
If you are still classed as UK resident, but live abroad, you may have to pay tax on your foreign income. This could include:
- Your salary or wages
- Foreign investment income such as dividends and savings interest
- Rental income on any overseas property
- Income from pensions held overseas
It’s worth noting that foreign income is classed as anything you earn outside England, Scotland, Wales and Northern Ireland. As a result, the UK tax authorities will consider any income arising in the Channel Islands and the Isle of Man as foreign income.
Moving overseas tax advice
If you’re moving overseas, it’s vital to seek specialist advice – this can be a complex area of financial planning, and it is now much more difficult to ‘escape’ UK tax than it used to be. Working with an expert – who is well versed in the needs of expats – can be very worthwhile. It can be useful to talk to any friends or colleagues who have made a move overseas about what challenges they faced, as well as ask for recommendations.
The Fry Group has been providing tax advice to British expatriates since 1898. Our strong heritage, and detailed understanding of the needs of expats, means we can help when you are planning a move overseas. Many of our team are also expats themselves, helping provide a useful perspective of some of the challenges and opportunities which living and working abroad brings.
Discuss your tax planning with The Fry Group
Getting the right tax planning in place will make your life as an expat a much smoother process. It can also mean that you are in a good position if and when you decide to return to the UK. With teams across eight offices in the UK and overseas we can help support you before, during and after your move. To discuss any aspect of expat tax planning, contact your nearest office.
Would you like to find out more?
We are here to help with your financial planning requirements. For more information, whatever your circumstances, please contact us today.