After working or living abroad, sooner or later you may decide that you want to return to the UK. It can be a busy time with factors to consider such as, securing employment, looking for a new home and shipping your personal goods, so financial and tax planning can often be bumped down the priority list. However, your return to the UK could expose you to unexpected tax liabilities, so it makes sense to plan accordingly and take the steps necessary to protect yourself.
Returning to the UK after living abroad
UK tax liabilities depend a great deal on your residency. Generally, if you are an expat returning to the UK and have lived abroad for less than five consecutive tax years, you are likely to be considered a temporary non-resident by HMRC. If you have lived overseas for more than 5 years, you will be subject to different tax rules regarding your income and capital gains.
However, if you have spent time visiting the UK during your overseas employment, start to have accommodation available in the UK or cease to have accommodation available overseas, it is entirely possible to become a UK tax resident before the date you actually move back to the UK. The date you become a UK resident is crucial to your tax status and you need to be aware of the financial implications before fixing the date for your return.
Key financial considerations
If your move back to the UK is governed by your employment, you may not have the luxury of choosing the date of your return. However, ignoring your personal tax situation and the current changes in UK tax could be a very expensive oversight.
If possible, start to make financial plans for your international relocation at least one full tax year before returning to the UK. Most tax advisers recommend returning at the start of the tax year (6th April) to keep everything straightforward. Ensure that you are up to date with your filing obligations with HMRC and that you review all your financial interests before you go, such as pensions, investments, accounts and property.
Structuring your wealth
Depending on your financial situation and the length of time you have lived overseas, organising your wealth could be complex. As well as arranging to sell assets such as your home and cars, it may be beneficial to restructure your finances. Notable factors to be aware of are:
- Tax efficiencies can arise dependent on the vehicle through which you choose to invest
- Capital Gains Tax complications can arise relative to your property assets (both overseas and in the UK)
- Particular tax planning considerations can be taken into account – through the use of offshore assets and holding structures – if you or your spouse is not British.
Key tax considerations
When planning your return to the UK, it is prudent to understand any other tax charges that could impact you such as, income tax, inheritance tax, capital gains tax and national insurance. A good financial adviser and tax specialist will be able to help you ensure that your financial affairs are in order before you make the move.
Your UK residence status is determined by the Statutory Residence Test (SRT). Although the rules can be complex, the SRT gives you certainty when deciding your UK residence status. It is your residence status that then determines how much UK tax you pay on your sources of income and gains.
For example, if you have lived and/or worked abroad for less than three years, you may be deemed to be a UK tax resident if you spent 16 days or more in the UK. If you have stayed in a UK property that is your main home, for over 91 consecutive days (including 30 days during the tax year) you could be a UK resident for tax purposes. It helps to maintain an accurate record of your time spent in the UK for the current tax year and five years prior to that to help determine your residency status and tax liabilities.
Other factors to consider
Some expatriates choose to rent their property in the UK while they are living overseas and must therefore make the necessary arrangements with tenants or letting agents ahead of their return. Others may need to find a new home or choose to rent in the short term while they settle in the UK. It’s important to note that setting up a home in the UK is a deciding factor of UK residency and may place you back in the UK tax-net.
Moving money internationally is complex in its own right. Your funds will be vulnerable to currency exchange rates and transfer charges, so prudent planning will ensure that you limit exposure to tax and protect your wealth. Additional complications can arise for transferring funds to the UK if the UK is not your home country. In this circumstance specialist UK tax advice will be required.
Other factors to consider when returning to the UK include:
- Establishing a credit rating as soon as possible if you have not retained a UK bank account, credit cards or a mortgage
- Registering your return to the UK with HMRC
- Checking whether you need to make up any missing years for National Insurance
- Enrolling for self-assessment
- Ensuring your investments are structured efficiently for UK tax residence
- Checking any early-exit penalties if you decide to sell your overseas investments
- Understanding your pension rights in both countries
The Fry Group has been helping British expatriates with all aspects of tax planning for over 120 years. Contact us today for help and advice.