If you are returning to the UK after being resident overseas, forward planning can help make your move as seamless and tax-efficient as possible.
British expatriates who decide to permanently move back to the UK can make their return as seamless and tax-efficient as possible with forward planning.
We normally encourage relocating to Spain, France, Portugal, Cyprus or Malta, as we know first-hand the benefits of living in Southern Europe. But we understand there are many reasons why you may be considering returning to the UK. It could be part of your retirement plan, or you could find that circumstances – such as family requirements or ill health – unexpectedly draw you back home.
Whatever the reasons, once you decide you are moving it is important to give yourself enough time to review and reorganise your financial affairs. This is not only for your own peace of mind, but to make sure the financial implications of your return work in your favour.
Timing your move
Where possible, it is better to plan your return date around your tax planning rather than the other way around.
Today, your finances should be designed to suit your personal circumstances where you are resident. But assets and structures that are taxed beneficially for you where you are currently resident are unlikely to work so favourably for you in the UK. Conversely, you could find more tax-efficient opportunities in the UK once you regain British residency.
Your residence status will affect the tax implications for any income, such as your pension, as well as selling or moving any of your financial interests. Remember: as soon as you are seen as UK resident, HM Revenue and Customs (HMRC) acquire taxing rights over your income and gains.
While generally you cannot decide where you are resident for tax purposes, you could plan to transition at a time that will minimise your tax liabilities in both the UK and your current home country.
When will you be seen as a UK resident?
You could potentially be considered a UK resident before you even leave for the UK.
Even if you have been overseas for many years, you may still have links to Britian that can trigger residency and bring you into UK liability much sooner than you think.
For example, if you still own a UK property, or buy one before moving back, you could become resident before you arrive. Once you cease to use your foreign property as your main home, you could be seen as a UK resident straight away, even if you keep your overseas property.
If you are likely to spend time in the UK preparing for your permanent return, be careful that you do not accidentally bring forward the date of your UK tax residence status. Residency can be triggered after only 16 days in the UK if you have been a non-UK resident for under three years. Otherwise, you generally become resident after 46 days of a tax year, or 30 days if staying in a UK property that is considered your main home.
See more about UK residence rules
Buying and selling assets
Before buying a new UK home, you need to understand how tax rules locally and in the UK might restrict or eliminate the availability of main home reliefs. When it comes to capital gains tax, it may be much more tax-efficient to sell or buy when resident of one country over the other. You might therefore find it beneficial to either bring forward or delay selling or transferring any assets according to where you are tax resident.
You will also need to consider Brexit implications. If you return after the UK has left the bloc, you will be moving to a non-EU country as a non-EU resident. This may mean you no longer qualify for preferential tax treatment, such as main residence relief.
Estate planning and pensions
Make sure you review your estate planning before you relocate, taking into account inheritance taxes, succession law, probate, your will and any trust arrangements to ensure your legacy is still on track to go to your chosen heirs. Returning UK nationals are normally liable to UK inheritance tax even if they had acquired a new domicile of choice, so if you have any structures set up on the basis of being foreign-domiciled, seek specialist advice.
See more about UK domicile rules
Five things you may not realise about UK inheritance tax
Similarly, if you transferred UK pensions into a Qualifying Recognised Overseas Pension Scheme (QROPS) or made pension decisions based on taxation in your current country of residence, you will need expert guidance on the best way forward.
Ideally, before you even set your departure date, take time to review your tax and financial arrangements, including your estate and pension planning. You can benefit from speaking to an adviser with in-depth knowledge of both tax regimes to make sure you get the best out of your finances for your new life ahead.
Contact us to discuss your options
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; individuals should seek personalised advice.