Prepare for life's next big adventure
As an expat, you know a thing or two about moving overseas. But what about moving home?
We’re here to give you help and support when you decide to move back to the UK. We can help you transfer finances, ensure your insurance policies are in order, help you get a mortgage, keep you updated on your financial portfolio, offer guidance on university planning and help you understand tax regimes.
The New Statutory Residence Test
Consider your UK tax treatment when moving to the UK under the New Statutory Residence Test. You would normally be treated as UK tax resident for the whole tax year of arrival, but beneficially this can be split into periods of non-residence and residence in the tax year provided that you qualify under any one of five set criteria within that part of the test.
This will enable you to tax efficiently plan for the actual tax year of your move, so that pre-arrival overseas income from earnings and investments does not fall within the UK tax net.
Remember to consider the closure of offshore Bank accounts (this includes the Channel Islands and the IOM). You can retain overseas investments once you become UK tax resident, but the subsequent income is then taxable in the UK.
UK occupational pensions
These may have been exempted from UK tax whilst living overseas due to a Double Tax Agreement or claim for Overseas service, but this exemption will need to be removed once UK tax resident.
With overseas earnings and related bonuses/severance payments – provided these wholly relate to a period of overseas employment and the contract terminated before becoming UK tax resident – then no UK tax issues will arise.
Generally, those who have been ‘not resident’ in the UK for more than five years are not liable to UK capital gains tax on the sale of world-wide assets (apart from UK residential property from 6th April 2015). It would therefore be prudent to consider selling assets such as shareholdings/Unit Trusts, showing large capital gains before becoming UK tax resident, in order to realise these gains completely tax free. By the same token, any assets showing losses should be retained until after becoming tax resident, because a sale whilst non-resident will result in the capital loss being wasted.
UK residential property
New rules effective from 6th April 2015 Non Resident Capital Gains Tax rules (NRCGT), now capture disposals of UK residential property by all non-residents, although as a ‘sweetener’ the property value can be rebased at 5th April 2015 to wipe out any accrued gains prior to that date. These new rules are not extended to commercial property.
Should you decide to re-occupy or occupy a UK family home, consider any future capital gain that may arise on a future disposal for periods of absence not covered by capital gains exemptions and reliefs, particularly bearing in mind the change in Principal Private Residence relief (PPR) rules form 6th April 2015.
Make contact with HMRC after you move back to the UK, should you start self-employment or have a pension, to ensure that you are registered under Self-Assessment to complete annual Tax returns. For those employed, your employer will take care of matters with HMRC unless you have other sources of reportable income that will need to be reported
Avoid unnecessary tax
Make sure that your investments are arranged tax efficiently to avoid unnecessary tax. For example, holding sufficient income earning assets in the name of the lower earning spouse to ensure that your overall UK tax exposure is minimised. There are a number of tax efficient UK investments to consider, such as ISAs, which aren’t available to non-residents once they reside overseas.
Update National insurance contributions to ensure entitlement to the UK state pension and other benefits. These are available at the class 2 or 3 rate for non-residents and are considered a very good return of value compared to an equivalent sum placed in other pensions schemes. Current rates are £14.25 for Class 3 and £2.85 for class 2 NIC. These should be strongly considered if there are gaps in your contribution history.
Although a UK resident and domiciled individual is liable to UK tax on world-wide income and capital gains, a UK resident but non-domiciled person is not liable on overseas income and capital gains. To be non-domiciled and resident in the UK, you will typically be a foreign national living in the UK. While you may be considered a tax resident, your domicile will typically remain as your country of birth. As a UK resident non-domiciled individual, you have the option of being taxed on the arising basis and remittance basis.
The arising basis is when you will be liable to UK taxation on your worldwide income and gains when it arises. The remittance basis of taxation is when you choose to be taxed only on your UK income and gains and ONLY foreign income and gains you bring back to the UK. You have the option of electing for either every tax year depending on your circumstances for that year. For example one year it may be more tax efficient to claim the arising basis as opposed to the remittance basis. To claim for the remittance basis, it’s free of charge for the first six years of residency. After that if you want to enjoy this favourable treatment there will be an annual charge known as remittance basis charge.
The remittance basis charge is £30,000 if you have been resident for seven out of the last nine years, rising to £60,000 if you have been resident for twelve out of the last fourteen years and finally £90,000 if you have been resident for 17 out of the last twenty years.
If you are a UK resident claiming the remittance basis of taxation in a tax year, you will lose your entitlement to your tax free personal allowances and capital gains tax free allowance in that year, unless your total income and gains in the year is less than £2,000.
To claim for the remittance basis, you must file a Tax return. The remittance basis is not automatic. If you do not claim for this treatment, the tax authorities will assume you are taxed on the arising basis and hence you will have to declare your worldwide income.
If you are a UK resident non-domiciled individual with foreign income and gains of more than £2,000 per tax year you will need to consider every tax year which of the two basis is more tax efficient for you. This is very important. For obvious reasons, this area of tax is very complex.
From April 2017, if you are a long term resident (resident for at least fifteen out of the last twenty tax years) there are current proposals to stop the availability of the remittance basis altogether and you will be taxed on the arising basis. These were announced in the Spring 2017 Budget, but are currently on ‘hold’ pending the outcome of the forth coming June 2017 Government election.