Most ex-patriates will return to their home country at some point. Reasons and circumstances will vary, but many of them will be returning to a high tax jurisdiction such as the UK. We often advise such clients on pre-residency tax planning.
There are a number of popular misconceptions that seem to abound, but with careful pre-arrival planning, UK domiciliaries are usually able to return home without suffering UK tax on their income and gains accumulated abroad. However, the fact remains that the UK tax regime is ever evolving and it would be very naive to assume that the tax rules that applied when you left will still be the same on your return! In this article, we address some of the misconceptions we commonly see together with some basic tips for ensuring a smooth and tax efficient transition back to the UK.
When will you become UK tax resident?
The UK has, since 2013, had a statutory residence test to determine when you become UK tax resident. Often it is worth seeking advice on tax residency in advance. For some clients planning to return, they may be able to manage their days in the UK to avoid UK tax residency for an additional tax year, perhaps transitioning their family back to the UK whilst remaining non-UK tax resident but maximising the time spent in the UK. This can have obvious benefits in minimising UK tax exposure for an additional year. Many will not be able to manage their affairs in this way, but will be returning part way through a UK tax year. These individuals will need to consider whether split year tax treatment (which splits the tax year into a non-UK resident and a UK resident part) will be available and on what basis.
Can you repatriate your savings?
A popular misconception surrounding UK domiciled individuals planning to return home is the fear that the money or assets they have built up whilst outside the UK cannot be repatriated once they are UK tax resident without suffering UK tax. A common example would be savings or investments in an offshore jurisdiction such as Jersey, Isle of Man or Switzerland. This is simply not true. In fact, there is normally no additional tax to pay when these funds are brought to the UK. Of course, once UK tax resident the income and gains accruing in the offshore accounts must be declared to HMRC and any tax due paid.
Review your investments
We often see clients who have purchased a life insurance product through their financial advisor. These are often called "wrappers", "offshore bonds" or "savings plans". Some insurance based products can be beneficial for UK resident tax payers but others which constitute personal portfolio bonds for UK tax purposes carry penal tax consequences for the unwary. Do not make any assumptions in respect of the investment product you own. Reviewing them prior to returning to the UK and taking remedial action where necessary can ensure that you avoid unnecessary tax traps.
Rebasing assets
When assets have unrealised gains, crystallising those gains whilst non-UK resident can be helpful, but often clients will want to retain the assets rather than sell them. There are various ways of rebasing assets and much depends on the type of asset, but taking steps to "rebase" the value of an asset to its current market value whilst still non-resident means you will likely pay less capital gains tax in future.
Accelerating receipt of income
It is not always easy to manipulate the receipt of income, but if you have your own company or can control when a dividend is declared, you should consider doing so prior to UK residency. Similarly, if you have bonuses or other payments such as end of service gratuity, these should ideally be received in the tax year prior to becoming UK tax resident.
Plan ahead of time
Taking advice and implementing pre-arrival planning can be time consuming so seek advice well in advance of your intended return. If you have real estate which may be sold or restructured then you will likely need to leave yourself significantly more time.
Wider estate planning
When a return to the UK is being considered, clients will often want to think about their wider planning. Are your Wills up to date? If you have significant assets, you might want to think about long-term inheritance tax exposure and how to mitigate this. Doing so whilst non-resident can be advantageous.
Seeking professional advice
We are regularly engaged by clients to advise on their UK pre-arrival planning. Our private wealth lawyers can advise you based on your unique circumstances and provide pragmatic solutions. Please contact any member of the Private wealth team should you wish to discuss this further.