Just as forward tax mitigation and wealth planning is advantageous before you leave the UK to live overseas, it is equally important to plan ahead if you are planning to return to the UK, or indee
Just as forward tax mitigation and wealth planning is advantageous before you leave the UK to live overseas, it is equally important to plan ahead if you are planning to return to the UK, or indeed move to any other 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.
Plans do not 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 considerable number do return eventually. Even if they do not, their money may well do so if it is inherited by family members who are resident in the UK.
It is 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 maybe they miss the UK more than they had expected to. Often, when a spouse passes away, the surviving spouse will return to be closer to their children.
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 across Europe; 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.
European governments are seeking to collect more tax revenue, making tax planning even more important.
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. So for example, it may not be a good idea to arrive in the UK in the first quarter of the year 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.
Savings and Investments
By taking advice while you are still resident outside the UK, it is possible to arrange your investable assets in a manner where you can then enjoy tax free growth and income once you are resident in the UK, irrespective of how much money you invest.
If there is any possibility that you or your spouse may return to the UK at some point in the future, it is a good idea to plan ahead for that possibility. You can review your tax and wealth management arrangements now to ensure that they are placed in the best possible position should an unanticipated move take place. Even if you do not return in the end, by planning for such an eventuality you may find that you have improved your current tax position.
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.
Capital gains tax
If you sold a property and/or other assets 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 in fact you could be liable for the whole amount of the gain. If you have to return to the UK early, however, with specialist advice it may be possible to arrange your assets in advance to legally avoid CGT.
Heirs in the UK
Bear in mind that even if you never return to the UK, your wealth will repatriate there if on your death you leave it to heirs who live in the UK ? as is very often the case for British expatriates. It would then start to be taxed under the UK rates and regulations, but you may be able to take advantage of your non-UK resident status to set up your wealth management now to be more tax efficient for your heirs once they inherit it.
Take specialist advice from a 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 do not wait until you or your money is back in the UK, or many valuable tax planning opportunities may be lost.
By David Franks, Chief Executive, Blevins Franks
17th February 2010