While the number of expatriates moving back seems to have increased over recent years, contrary to media reports it’s not always because of the financial climate. There are various reasons why people return “home”. Sometimes it’s because they’ve been missing their family too much, or because their family need them nearby, or because as they get older they’d feel more secure there, or maybe they just feel it’s time to move on. Many people return after their spouse or partner has died.
You too may find yourself returning to the UK one day; even if it’s not something you expect right now. Or you may already be considering or planning to move back. If so, the most important tax tip I can give you is that you need careful planning in advance of your return.
To make sure you don’t miss out on any tax saving opportunities, you should complete any necessary arrangements in the UK tax year (6th April to 5th April) before you return. Let’s say you plan to move back to Britain in summer 2013, you should have carried out any necessary changes by 5th April 2013. If you’re returning any time this year, you should complete everything by 5th April.
UK tax on investible assets
Once you’re resident in the UK, you would normally be liable to UK taxes on your worldwide income and gains.
This includes any income or gains in offshore trusts in which you have an interest. Trusts are a complex area so you need to seek specific advice for your circumstances.
Did you know that many foreign nationals living in the UK enjoy a much more beneficial tax regime than British nationals? If you’ve been living outside the UK, and carry out the appropriate planning while still non-UK resident, you may be able to benefit from tax advantages when you return which are not ordinarily available to UK residents. It’s often possible to arrange your investible assets in a manner where you can enjoy tax free growth and income as a UK resident, irrespective of how much money you invest, but you need to start your planning early enough.
Capital gains tax
The five year trap often catches returning expatriates out.
If you had sold any UK assets after you left the UK (eg. an investment property, shares, etc), or made any other gains (including gains on non-UK assets which you purchased before you left) while you were resident overseas, these gains escape UK capital gains tax if you remain non-UK resident for five complete and consecutive UK tax years. If you return before the five years are up, you will have to pay tax in the UK on the gain you made. You’ll have to pay the full amount of tax too; it’s not proportionate to the time you spent outside the UK. So you would pay the same tax rate, and on the same amount of gains, if you returned after four and a half years as you would if you returned after one.
I’m afraid the amount of time you have owned the asset does not make a difference either. You don’t get any tax reductions for owning a property for many years.
If you are in this situation, there may be a window of opportunity for you to take steps to avoid being faced with the tax when you return to the UK, but since this would depend on your circumstances you need to take personalised advice.
At the same time, if you are selling your current property you also need to consider what your local tax liabilities are on any gain made. The same applies for gains you made on the sale of any other chargeable assets which you may have to pay tax on locally.
If you are also liable to the tax in the UK because you are returning within five years, you will get a tax credit in the UK for the tax paid in the other country.
Under proposals that are due to be introduced from April 2012, besides capital gains tax, if you have not been non-UK resident for at least five consecutive UK tax years, you could also be liable to UK income tax on large dividends received from a closed company while you were non-UK resident, or large chargeable gains from an encashment of a life assurance policy.
Next week I will look at UK inheritance tax, pensions and QROPS, and when your UK residence will start. In the meantime, if you are planning on returning to the UK, you should seek advice from an adviser like Blevins Franks who are experienced in this area and keep fully up to date on both UK and international tax laws.
By Bill Blevins, Managing Director, Blevins Franks
26th January 2012
The tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; an individual must take personalised advice.