Many people who move overseas from the UK leave it until they have become resident in their new destination before seeking advice on the most tax efficient manner in which they should hold their a
Many people who move overseas from the UK leave it until they have become resident in their new destination before seeking advice on the most tax efficient manner in which they should hold their assets and investable wealth. If they are lucky, in certain jurisdictions this does not create too much of an issue but in others waiting until after they have relocated and become tax resident removes some of the most tax effective solutions available to them.
The old adage is always true ? it?s never too early to start planning. Most people don?t want to risk having to say ?if only I?d known that before?.
Many British expatriates do return to the UK at some point. This can be for a number of reasons, some simply miss the UK more as the years go on; others want to be closer to their children or grandchildren. Also, many surviving spouses and partners choose to return on the death of their partner. Even when it?s not planned there is often pressure for many expatriates to go back to the UK in order to look after elderly relatives.
Many foreign nationals who live in the UK can enjoy a far more beneficial tax regime compared to British nationals living there. By carrying out the appropriate tax and wealth management planning prior to returning to the UK, British expatriates are able to benefit from tax advantages once they have returned that would not otherwise be ordinarily achievable by UK residents.
By taking appropriate authorised advice before you return to the UK, 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. Other than National Savings Certificates, Premium Bonds and annual ISA allowances (?10,200 per annum for tax year 2010/11), there is no other mainstream UK investment available to UK residents that could come close to the tax benefits that returning expatriates can enjoy as long as they plan early enough before their return.
Advantages can also be created for returning expatriates with deferred UK pensions, pension plans in drawdown and those currently in QROPS should they look to return to the UK at some point.
As you would expect this planning often raises a number of questions. The most frequently asked question is whether there will be any taxation implications by starting the planning now while you are still resident overseas. The simple answer is that it depends on what type of investable assets you currently own and the tax position on them. In many countries you are able to start this planning now and can actually improve your overseas tax position while you are still living outside of the UK. The key to making this planning most effective is to start as early as you can, even if you aren?t sure whether you will return to the UK or not. Even if you don?t return to the UK but have improved your overseas tax position, that?s a bonus.
We are certainly becoming more transient these days and it is common for British expatriates to leave the UK, settle in one country and then subsequently move onto another. This raises a further popular question: are there any implications if you don?t return to the UK but instead decide to move to another country? In the same way as some of the most effective ways to save tax for those who return to the UK should be established before they go, the same applies to people who change their plans and move elsewhere. It?s a case of planning before you move. Nothing is set in tablets of stone and can generally be adapted if your plans change. Effective tax planning is all about flexibility and adaptability.
It could well be that you are a British expatriate and don?t return to the UK during your lifetime. Nonetheless you still need to think about the UK tax implications for your money. Most British nationals retain their UK domicile even though they may have lived overseas for many years. You may think you have broken links with the UK; however, if HM Revenue & Customs can find any evidence to create and support a view that you had an intention of returning – even though you didn?t – then they will assess your worldwide estate for UK inheritance tax. Effective planning can be put in place to help avoid this issue even if you are non-UK resident.
Even if UK inheritance tax is not an issue for you because you have successfully broken your UK tax domicile or you have other inheritance tax arrangements in place, for many expatriates their money will eventually find its way back to the UK if their heirs and beneficiaries are UK resident on your death. Again, this is something that you can plan for during your lifetime while you are an expatriate, to ensure that after your death your assets are held in a very tax effective manner for your family and any other beneficiaries who you may wish to benefit from your estate.
If you are thinking about returning to the UK, for whatever reason, plan ahead before you go to establish what you can do to protect your wealth from the various taxes you will face – otherwise some of the valuable tax planning opportunities may be lost. You may be hoping to re-establish a relationship with your previous UK based adviser, or prefer to wait till you return because financial advice is more freely available there, but unfortunately waiting until you are back in the UK often results in you paying more tax than you need to.
Speak to an international tax and wealth management adviser such as Blevins Franks to establish which tax planning opportunities are available to you and would best suit your circumstances.
By David Franks, Chief Executive, Blevins Franks
6th July 2010