Just as forward tax mitigation and wealth planning is advantageous before you move overseas, it is equally important to plan ahead if you are planning to return to the UK, or indeed move to anothe
Just as forward tax mitigation and wealth planning is advantageous before you move overseas, it is equally important to plan ahead if you are planning to return to the UK, or indeed move to another country. You may be able to take advantage of your current expatriate status and carry out tax and wealth management planning prior to your return, so that once back in the UK you will enjoy tax advantages which cannot be achieved by UK residents.
By taking advice before you leave your current country of residence, it is possible to arrange your investable assets in a manner where you can enjoy tax free growth and income as a UK resident, irrespective of how much money you invest.
Plans don?t always work out as you expect them to. Many people move overseas expecting to remain in their chosen country of residence for the rest of their lives, but a number of people do return eventually. Even if they don?t, their money may well do so if it is inherited by children and grandchildren who are resident in the UK.
It?s quite likely that you know someone who has returned unexpectedly; perhaps because of illness, because they miss their families and want to see the grandchildren growing up, or just to return to their roots. Often, when a spouse passes away, the surviving spouse will return to be closer to their children or because the children ask them to return.
Perhaps you will decide to move onto a country other than the UK. It has become far easier to move from country to country especially within the EU for EU citizens. Forward tax advice is essential here too. Tax regimes vary from country to country, there are different rules and tax rates, often quite complicated, and so effective tax planning is crucial to avoid being caught for high and unnecessary taxation, both on leaving your country of residence and becoming resident elsewhere.
Wherever you live in the world, taxes are going to have to rise and in some countries there are already steps towards this. In the UK, a top rate of 50% is being introduced from 6th April 2010 – but taking into account the removal of personal allowances and the upper limit on National Insurance contributions, the effective top rate will be 62%.
Spain is proposing an increase in savings tax, including capital gains from the current 18% to 19% on the first ?6,000 and 21% on anything over ?6,000 per annum. Instead of completely abolishing wealth tax last year, Spain temporarily put wealth tax on hold by establishing a tax credit of 100% of the tax, effectively setting the rate at zero. This means that the tax authority could well bring back wealth tax in the future.
Timing can play a critical role in saving you from unnecessary tax. It is important to take into consideration the financial years of the country you are moving from and the destination country. Tax years in many countries run in line with the calendar year, but the UK financial year runs from 6th April to 5th April. It may not be a good idea to arrive in the UK say, in the months from January up until 6th April as this could make you liable to UK taxation for the whole year, as well as for taxation for that same year in the country you left. When timing is an issue, it may be worth considering moving to a third country for a short interim period.
If you do return to the UK, it is not always possible to know well in advance. In situations like this time will be limited to put into place appropriate tax and wealth planning arrangements, so they could be reviewed now to ensure that your investments are placed in the best possible position should an unanticipated move take place. Even if you don?t move in the end, by planning now for such an eventuality you may better your tax position in your country of residence.
Even where British expatriates don?t ever return to the UK, it is often the case that their wealth does if inherited by UK residents. It then starts to be taxed under the UK rates and regulations, but you may be able take advantage of your current non-UK resident status to make it more tax efficient once it is back in the UK.
If you retain your UK domicile, then your worldwide assets will be assessed for UK inheritance tax (IHT) to be paid by the estate. UK domicile is difficult to break, and HM Revenue & Customs will look for any evidence to deem you a UK domicile. If you are UK non-domicile, you will only be liable for IHT on assets in the UK, in which case it may be possible to set up an Offshore Discretionary Trust to help avoid liability to IHT.
In many overseas countries, tax on inheritances is paid for by the beneficiaries. If set up properly, Trusts can be valuable in avoiding or reducing these local inheritance taxes, even if your heirs live in the UK.
Specialist advice is needed here to determine your domicile status and to structure your wealth appropriately to avoid inheritance taxes.
Capital gains tax
If you sold a property on leaving the UK, providing you remain a UK non-resident for five consecutive UK tax years then you will not be liable for UK capital gains tax (CGT). Some people believe that if they return to the UK within five years they will be liable for only a percentage of CGT, but this is not correct. If you have to return to the UK early, however, it may be possible to arrange your assets in advance to legally avoid CGT, but again, specialist and regulated advice is essential.
Some UK pensions can now be transported outside the UK when you move abroad using a Qualified Recognised Overseas Pension Scheme (QROPS). Once you have ceased UK residency for five complete UK tax years your QROPS is no longer subject to UK rules, or to the various taxes that can be applied on death. If you have a QROPS and return to the UK, with advance planning you may be able to take steps to continue to avoid the taxes levied to UK pension schemes on death.
There are various tax shielding structures available that can legitimately be arranged in advance of returning to the UK. Take specialist advice from a tax planning and wealth management firm such as Blevins Franks Financial Management that is authorised and regulated in the UK as well as your country of residence.
Whatever the reason for the return, reducing your tax liabilities will help preserve your wealth for your retirement and for the security of your heirs. Just don?t wait until you or your money is back in the UK, or many valuable tax planning opportunities will be lost.
By David Franks, Chief Executive, Blevins Franks
24th November 2009