Many expats feel the need to return to the U.K. in light of all the turmoil and uncertainty around the globe. Some may be considering moving to the U.K. because of changes in their personal or professional lives or it’s time to retire. However, no matter your reason for moving to the United Kingdom, you must understand and consider the tax implications and the wider financial consequences.
If you are returning to the U.K. or spending more time there than you previously have, it could have a greater impact on your finances than you realise, especially if you have lived abroad for a while or if this is your first visit to the UK.
It can be hard to understand the UK tax system, but you must do. A clear plan can help you avoid paying more tax when you move. This guide is designed to help you consider the most common areas before you make a move. This guide does not constitute advice and is meant to be used as a general guide, hopefully giving you some good talking points with your financial planner so your time with them can be more productive. But, of course, your tax position will ultimately depend on your circumstances.
We strongly recommend that you get personalised professional tax advice before returning to the U.K. As always, we can introduce you to one of our highly vetted panel of professionals.
One of our preferred tax experts can help you find tax-efficient solutions. They can also create a plan that will outline all tax planning options for you.
Timing is the most important aspect of any plan. You could assume that the day you arrive in the U.K. as a U.K. tax resident is the date when you become a tax resident. This would not be possible for the U.K. tax authorities.
Your particular circumstances will determine the date on which you become a U.K. resident. This is determined under legislation called the Statutory Residence Test (SRT).
There are many tests that the SRT includes, but not all may apply to your particular circumstances. For example, while most of the tests measure your time in the U.K, some tests consider other factors such as family, home, and work.
The SRT’s basic rule is that an individual must reside in the U.K. for the entire tax year. However, some circumstances allow for split-year treatment’. For example, if an individual arrives from overseas and begins to live in the UK during a tax year.
Split-year treatment allows a portion of a tax year that is not a U.K. resident to be subject to tax and the rest to be subject to tax as a U.K. resident. Split year treatment is available for five different types of people moving to the U.K. Each case has its own set of complicated qualifying conditions. To ensure that you fully understand when you will become a U.K. resident, you should seek specialist advice.
Why is it important to know when your U.K. residency will be? First, it is crucial to know the date that you become a U.K. resident. This will be the date when your worldwide income and capital gains will be subject to U.K. tax.
Non-U.K. residents may have different rules. For example, your capital gains and income can be exempt from U.K. tax. This complex area requires professional advice. It is essential to fully understand the implications of your domicile for your tax situation in the U.K.
The progressive tax rate schedule is used to calculate income tax. This applies to all income that arises in a particular tax year. For example, the U.K. tax year runs between 6 April and 5 April.
Each tax year may see a change in the percentage rates and bands of taxable income. Below is the table that shows the current rates and bands for 2020/21.
Residents of Scotland may be subject to different rates and bandings.
The Personal Allowance is reduced by £1 for each £2 where your income exceeds £100,000. Your personal allowance will be reduced to zero if your income exceeds £125,000.
These income rates apply to earned income like employment income, self-employment profits and rental income. They also apply to pensions, trust income, and certain state benefits.
Dividends and savings income each have their own allowances. Dividends also have their own tax rates.
There are also various other allowances available to individuals in addition to the personal allowance
To be eligible for the respective allowances, you will need to meet certain criteria.
Some sources of income, in addition to the allowances mentioned above, are exempted from tax like:
You become a U.K. resident and are subject to U.K. Capital Gains Tax (CGT). This means that you may be liable for CGT on any disposal of assets anywhere in the world. Although you are not a U.K. resident, you will be subject to UK CGT for U.K. land and property sales or U.K. assets used in trade.
It is important to review your assets and investments before you apply for U.K. residency. This will ensure that any tax-efficient restructuring can be done. You have not been a U.K. resident for less than
You would be considered a temporary non-resident for five years. This is a sign that you should seek advice as capital gains realized during the period of non-residence could be subject to U.K. tax.
Capital gains tax is payable at a rate that depends on the nature and tax rate of your income. CGT exemptions for individuals are generally tax-free. This exemption is currently available at £12,300 in 2020/21. Capital gains exceeding the annual exemption CGT are payable as per below:
There are special rules for U.K. property and land sales when a non-U.K. resident is involved. HMRC must be notified of these sales within 30 days after the sale, together with any tax.
If you plan well before becoming a U.K. resident, it is possible to save significant tax if property or land is sold while not a U.K. resident. This professional advice should be sought before a sale.
Your exposure to U.K. Inheritance Tax is determined by where you live, not your residence.
Anyone who is U.K.-domiciled or deemed U.K.-domiciled is subject to inheritance tax on all their assets. The current threshold for inheritance taxes is £325,000 per individual, with 40% tax.
There are many ways to mitigate an IHT liability other than the £325,000 allowance. You can use the new The Residence Null Rate Band, make gifts or set up trusts. To avoid IHT exposure, it is important to know what your options are to reduce it.
SDLT must be paid on land or property purchased in England or NI above a threshold. For purchases in Scotland or Wales, there are different rules. For residential properties in England and Northern Ireland, the current threshold is £500,000. This will change to £150,000 on 31 March 2021. It is £125,000. The amount of SDLT that is payable will depend on:
A qualified solicitor should provide professional guidance regarding SDLT.
To be eligible for certain benefits or the state pension, you must pay National Insurance Contributions. If you are a foreign national, you may be eligible to contribute to your pension.
You can ask the national insurance office for a forecast of your state pension entitlement if you are unsure about your current entitlement. This forecast will show you how many years you are eligible for and which years you can make voluntary contributions to. You may be able to make voluntary contributions in years where you haven’t paid enough NI.
It doesn’t matter if you are returning to the U.K, or if you are new to the U.K, the U.K. tax system can be complicated.
If you do not plan well, your tax exposure could be severe. You should make sure you do the following before you become a U.K. resident.
While this guide is focused on U.K. tax implications, it is important that you also consider the country where you are moving. You should seek professional advice in your home country to ensure that your tax affairs are fully resolved before you leave.
Each country has its own tax system, and many will have different tax years. However, you can still be a U.K. resident even if you are not a U.K. resident.
Dual residents should check the double taxation treaty to make sure you don’t pay too much tax. Again, this complex area is one that professional guidance should be sought.
As with tax planning, relocating to the U.K. after living overseas requires careful financial planning. This will ensure that you don’t make costly mistakes.
It is important to combine tax planning and financial planning. Planning should take into account how long you have been living abroad. Based on the length of your stay abroad, income (including gains from asset disposals) you bring into the U.K. may be subject to U.K. capital gains and income tax rules.
If you are a U.K. resident and have lived in the U.K. for less than five years and have made some gains, these gains may be subject to U.K. taxes if you return to the U.K.
This is usually not true if you’ve lived in the U.K. for longer than five years. It all depends on what assets you have sold. The rule of thumb is first to crystallize any gains before you return. At this point, it is a good idea to review your pensions and insurance. Remember that everyone is unique, and each person’s needs and plans will be considered. The advice you receive will be tailored to your specific situation.
You must seek advice from an FCA-registered adviser on financial planning to ensure a smooth transition to the U.K. They will have all the necessary permissions to offer advice on U.K. savings and investment products, such as ISAs, U.K. pension products, and life insurance products.
No matter how significant your assets are, it is essential to create a will. Then, you can decide what happens after you die to your property, money and possessions.
While you can create a will by yourself provided that it is properly witnessed and signed, it is important to seek professional legal advice to ensure your wishes are fully understood and implemented. In addition, you may need to update or write a will for several major life events, including marriage, property purchase, or moving country.
A lasting power of attorney (LPA) is another common legal document you might need. This allows you to appoint someone to assist you in making decisions or make decisions for you.
Moving money to the UK is a common requirement when returning to the U.K. You should be able to transfer money directly to a British bank account if you have one. Bank transfers may be subject to charges and uncompetitive exchange rates.
You might consider an online currency exchange specialist if you need to transfer or exchange large amounts of money.
It can be difficult to find a home that is right for you. You may need to plan ahead before you go. You may need to temporarily stay in a hotel, rented accommodation, or with your family if you have limited time.
You must budget for all costs involved in purchasing a property. This includes legal fees, SDLT and estate agent fees.
It may be easier to have a U.K. property. However, you need to notify the local authority about any changes that may affect your council tax bill. You will need to give the correct notice period and follow the proper procedures if you have tenants.
It is essential to register with a local GP when you return to the U.K. A GP can perform routine health checks, and they can refer you to hospital-based specialists for specialist advice or treatment.
To make an appointment with a dentist, you don’t need a referral from your GP. To find a local dentist, you can search on the NHS website.
While most NHS services are free, there may be fees for prescriptions, eye exams, glasses and dental care. You may be eligible for a local authority needs assessment if you have special care or support needs.
It can be confusing to move your belongings from the United Kingdom. However, there are many options for transport and many companies offering relocation services in the U.K.
Many options are available to help you ensure that your belongings arrive in the U.K. safely, regardless of where you are moving. However, to ensure that your international move is cost-effective, avoid breakages, and arrive on time, there are many things you need to keep in mind.
While most NHS services are free, there may be fees for prescriptions and eye tests as well as glasses and dental care. You may be eligible for a local authority needs assessment if you have special care or support needs.
You will be subject to tax for the rest of your life if you live in the U.K. So you will need to check if annual tax returns are required and ensure that they are filed on time and accurately. After the end of the tax year on the 5th of April, the filing deadline is the 31st of January.
Professional assistance may be beneficial for you.
It would be best if you planned for the future even after you arrive. This will ensure that you take advantage of all available reliefs, allowances and react to any changes to the tax system, so you don’t have to pay more tax.
If you have lived and worked outside the U.K, it is possible to put yourself in a very powerful financial position before you move to the U.K. If you are non-domicile, you are in the most luxurious position. The more assets you have accrued the more value can be added by an experienced financial planner and good accountant.
