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Although many people dream of spending their retirement in warm and sunny climes, not everyone moves overseas for good. Moving abroad for work, or choosing to return to the UK for personal reasons means that you might need to plan how to move back.
As an expat, it is easy to move back to the UK, as you will not need to seek permission. However, that does not mean that it is all completely straightforward as there may be expat tax implications to consider.
Our guide looks at how expats can return to the UK in the most tax-efficient way.
Choose Your Dates
If you know you will be returning to the UK, planning as far ahead as possible will allow you to avoid unnecessary tax complications. Giving yourself at least a year will ensure that income tax planning returning to the UK is kept as simple as possible.
If your move is being governed by work, you may not have flexibility over when you return. However, if it is possible, returning at the start of the tax year (6th April) keeps everything much easier. Splitting liabilities midway through a tax year is possible, but it can be complicated to unpick the legislation in how to account for a split year treatment and then how to calculate the liabilities and tax credits for double taxation and foreign exchange differences.
It is also potentially recommended to finalise all your overseas transactions before you return. If you are UK domiciled once more (assuming you may have changed your domicile), but still have income and assets overseas after returning to the UK, you may be subject to additional UK tax rates.
UK Income Tax
Both domicile status and residence help to determine whether some or all UK income taxes apply. The Statutory Residence Test (SRT) was introduced in 2013 and is used to determine tax residency status. This is why expats visiting the UK temporarily have to be careful to limit their stay as it can be easy to breach the rules and re-trigger UK residence status.
Once you return to the UK permanently, you will be subject to income tax in the UK once more. The amount you pay depends on your level of income and is calculated by HMRC the same as all other taxpayers.
To calculate the correct amount of income tax when returning to the UK, you will either have to register for self-assessment or your employer will account for the deduction on your behalf. This means that for expats returning from overseas who are taking up a job offer, their employer will notify HMRC of your new tax status in the UK. The employee Starter Checklist addresses the issue of employment tax after returning to the UK, and minimises the amount of time you will need to spend in the emergency tax bracket, for example.
Whatever date you returned, unless a split year treatment applies, when calculating income tax you are typically treated as if you were resident for the full year. This typically means that all income received in the tax year that you returned to the UK will be subject to UK tax, even if it was earned before you returned. Remember that there is a concession that applies in some circumstances: split year treatment. However, this can be complicated to assess under different case studies and so all circumstances would need pre-planning to guarantee this treatment would apply.
Consider Currency Fluctuations
When returning to the UK, you may need to open a UK bank account once more and transfer your funds from overseas.
To do this you will need to provide the SWIFT code and IBAN number of your new account to the bank you want to transfer from.
Do not forget the impact that exchange rates can have if you are transferring from one currency to another. Even relatively small swings in the exchange rate can make a significant difference if you are transferring a large amount of money.
One option to avoid this is to use a fixed exchange rate; this protects against large losses due to movement in the currency market. Foreign exchange specialist businesses, known as forex providers, are often cheaper and better than banks to handle these types of transactions.
Time Spent Overseas
The amount of time you spent living overseas is relevant to the amount of tax that you may be subject to.
If you spend fewer than five years as a non-resident, the Temporary Non-Residence rules will apply. This means that certain income (or more specifically gains on disposing of capital assets) will be subject to UK tax, such as Capital Gains Tax. However, these rules are very complex and depend on individual circumstances.
As a general rule, any overseas assets gained and disposed of while temporarily overseas will be exempt from UK taxation, but if there is any overlap in your residence in a tax year then gains may apply. Of course, CGT applies to assets purchased before you moved overseas and are then disposed of after you returned to the UK. It is also important to bear in mind that you cannot use any relief for gains which accrued during the time you spent overseas.
If you resided overseas for a period exceeding five years, you will not be subject to the Temporary Non-Residency Rules on taxation. I.e., no clawback will apply.
National Insurance contributions are not payable while you reside permanently overseas, although it is possible to make voluntary contributions. Whether you choose to do this depends on your circumstances and whether you plan on returning to the UK.
Among other things, National Insurance contributions entitle you to receive a state pension. What is payable depends on your status and earnings, but as a general guide you will need 10 complete years of contributions to receive the minimum state pension. To receive the maximum state pension, you will need 35 years of contributions.
You will need to pay National Insurance contributions on your earnings, whether self-employed or employed, once you return to the UK. You may also take up the option to catch up on some of the contributions that you missed while overseas. Your personal circumstances and financial arrangements for retirement will help to determine whether it is beneficial for you to catch up on National Insurance payments you may have missed.
A Complex Affair
Expat taxes are a complicated matter and much depends on time spent overseas, the assets you hold and your personal finances. The one thing which is universally important is planning; it is easy to get caught accidentally by tax liabilities you were not expecting so it is highly advisable to get financial advice, especially if you anticipate moving between countries.