Donald Simpson, Partner at Turcan Connell explains why expats returning to the UK should take tax advice and plan early as there may be opportunities to mitigate tax liabilities. Considerations include tidying up your tax affairs before you leave your expat location as well as being aware of your tax status when back in the UK. And remember, if you return to the UK within five years of leaving, you are liable to pay UK tax on any capital gains realised during your absence. Listed below are the main points expats should consider:
1. Resuming UK Tax Residence
If you return to the UK to live or work, you will in most circumstances become tax resident in the UK. The UK tax year runs from 6th April. The legislation provides that a person is tax resident for the whole of the year in which they return. By concession, HMRC allows a split year treatment allowing income and gains before your return to be taxed in your previous jurisdiction, meaning only your income and gains following your return are subject to UK tax. As this treatment is by concession, HMRC could withdraw it. It is therefore best to realise income and gains, where appropriate, in the previous tax year where possible. Those returning to the UK would need to register with HMRC for self-assessment. There may be no requirement for self-assessment where there is no unearned income.
2. Finalising matters before you return
Finalise your tax affairs in your current country of residence and ensure any necessary returns are filed. It is important to be aware of the tax rules in the country you are leaving:
- when does the tax year end?
- will they only tax you on income and gains until your departure date or for the whole of the tax year?
- where overlap exists in tax between the UK and your current country of residence, is relief available under the double tax treaties so that you are not paying tax twice?
3. Taking advantage of better tax rates
If you are living in a country with lower tax rates than the UK, it makes sense to accelerate income payment before you return to the UK. Those with businesses should take dividends and bonuses ahead of their return. Subject to any penalty charges, it may also make sense to close deposit accounts before returning so that interest is received and taxed outside the UK. Depending on the situation it may be beneficial to cash-in investment bonds before you return. Where tax rates are lower in the UK than in your country of residence, the reverse is true and income should be deferred until you acquire tax residence in the UK.
4. Capital Gains Tax Considerations
If you return to the UK within five years of leaving, you are liable to pay UK tax on any capital gains realised during your absence. Conversely, if you have been non-UK resident for at least five years, any gains on assets disposed of during that time will not be subject to UK tax. This presents an opportunity where you have been outside the UK for five complete tax years. Investments standing at a gain could be sold before you return to the UK. Planning for land and property standing at a gain is more difficult where you wish to retain those assets. However, with careful planning it is possible to retain such assets within family structures but trigger a gain ahead of your return to the UK. On any future sale of those assets, only the gains since your return to the UK would be taxed.
5. Non-UK Domiciles
For those with a non-UK domicile, special considerations apply. Offshore structures may be appropriate to keep UK situated assets out of the UK inheritance tax net. Non-domiciles should consider holding assets and investments in offshore jurisdictions and seek to be taxed only on gains and income which they remit. Where a non-domicile has been UK resident for 7 out of the last 9 tax years, a charge must be paid to be taxed on the remittance basis. Those non-UK domiciles who have been resident in the UK previously and took advantage of the remittance basis, should consider transferring any unremitted income and gains to the UK before they become UK tax resident again. That would enable the funds to be used in the UK after their return.
Also see Watch out for new tax rules
Donald Simpson is a Partner, Turcan Connell, legal, wealth management and tax specialists www.turcanconnell.com