This article is written by

Stephen Ford

Stephen Ford of Amber River Premier outlines some of the key financial considerations for people moving to – and from – the UK.

Find out more about Stephen

People often choose to work with a financial planner when they are undergoing a major life transition and need professional and independent advice to help navigate change. One key life transition is becoming an expatriate or ‘expat’: someone who lives (and works) somewhere outside their native country. As well as being a qualified financial planner, I’m also an expat myself. I moved to the UK from Australia with my wife and two children back in 2007. I’m always pleased to help other expats weave together a financial plan that can help them achieve their financial goals and make the most of their exciting new life.

That said, putting together a financial plan can often come with additional complexity for expats, particularly when it comes to taxes. Different countries have different – often complicated – taxation rules. But whether you are starting a new life in the UK, moving elsewhere or returning to the UK from overseas, life as an expat can, in fact, open up some valuable wealth planning opportunities that are not available to the British taxpayer.

"Putting together a financial plan can often come with additional complexity for expats, particularly when it comes to taxes"

Paying taxes in the UK

For people choosing to live and work in the UK, the number of taxes they need to become acquainted with can feel a bit bewildering. Expats moving to the UK will need to start considering Income Tax, National Insurance, Capital Gains Tax, Inheritance Tax, Stamp Duty and Buy-to-Let taxes, as well as tax allowances available through pensions (including salary exchange), Individual Savings Accounts (ISAs) and other tax-efficient investment vehicles.

Take income tax, for example. If you move to the UK for work and are classed as a UK resident for tax purposes (which means you’re staying in the UK for at least 183 days of the year), you will be eligible for a tax-free personal allowance on your UK income of £12,570 (applicable from 1 April 2022). However, once the taxpayer’s income hits £100,000 the allowance begins to diminish. The personal allowance goes down by £1 for every £2 of adjusted net income above £100,000, and the allowance goes to zero if the taxpayer’s income is £125,140 or above.

This can become financially painful for expats coming to the UK who have overseas income that must be declared to the UK taxman, taking them above the zone where they can benefit from the tax-free allowance. For example, it’s quite commonplace for people to move to the UK for a specified period and to rent out their home (back home) for the duration of their stay in the UK. Many believe that keeping their overseas income separate is allowed, but in most instances the rental income needs to be declared in the UK and can be taxed at a rate of 40%-45%, even if the money itself is still kept in the overseas country. In these situations, I would put an expat client in touch with a professional tax adviser who can help them to understand the tax implications of their personal situation, specifically UK tax on foreign income that come with moving from one country to another.

Inheritance tax, wills and trusts

One area of taxation that often causes confusion among expats is the subject of Inheritance Tax (IHT). IHT is not common across most countries, and living outside of the UK doesn’t automatically protect a person’s estate. It’s important to remember that IHT is taken from the value of the deceased’s estate, so it’s the responsibility of their beneficiaries to pay any tax due on the value of the estate. The current IHT threshold is £325,000 per individual, with tax charged at 40% on the rest of the estate. An estate is not subject to IHT if it is being passed on to a spouse.

Anyone who is UK domiciled is liable to inheritance tax on their worldwide assets. Expats should also note that wills, insurance policies and Power of Attorney documents drawn up in one country may not be considered applicable or legally binding in another. The same is often true in cases where trusts have been arranged. So, it makes sense to consult a tax expert who will be able to provide guidance on whether any existing documents or arrangements need to be updated.

"Choosing to spend some of your time – or potentially even the rest of your life – in a different country is an exciting opportunity"

UK tax on pensions

One thing I wish I had known before I moved to the UK from Australia was that as a higher earner, the higher rate 40-45% tax relief available on UK pension contributions make them an excellent long-term investment, especially for younger expats working in the UK but who are planning to return home in the future. For example, transferring pensions accumulated in the UK into an Australian superannuation scheme means the entire pension can be withdrawn tax-free – which can give the accumulated pension a significant boost in appeal!

In Australia, in certain circumstances, it’s possible to access the superannuation as a cash-free lump sum at the retirement age of 60. However, in the UK, only 25% of any pension withdrawals are cash-free and the sum taken from the remainder will be taxed as income. That could take a significant bite out of someone’s pension if retiring in the UK, although there are other tax reliefs available depending on your circumstances.

Therefore, it’s important to take professional tax planning advice that would be valuable in assessing whether your personal situation determines when pension withdrawals can and should be taken, preferably as tax-efficiently as possible.

When it pays to be pragmatic

Moving to a new country for work reasons often makes it hard to lay down roots, especially if you’re not ready to make a lasting commitment to one country or the other. It’s, therefore, often a good idea to take a flexible approach that gives you time to decide where your long-term future lies.

For example, Australian expats working in the UK can invest in an Offshore Bond. This can deliver tax-free growth in Australia if held for ten years or more, and 5% of contributions are tax-free in the UK for a period of 20 years. Also, if you go and work overseas, the growth on the Offshore Bond while you are away remains tax-free in the UK (the growth is apportioned over time). The proceeds can then be reinvested at a stage of your life when you’re better able to determine the best home for you and your money.

Choosing to spend some of your time – or potentially even the rest of your life – in a different country is an exciting opportunity that comes with a few stresses attached. My advice to anyone currently living as an expat, or moving to somewhere other than their native country, is to talk to a financial planner who can help you make the most of your new surroundings, and remove some of the stresses that moving from one country to another can invariably create. Subsequently, if your financial plan requires additional tax planning advice, we can put you in touch with someone who can identify the opportunities available to you.

There have been significant changes to pension savings in the Spring Budget 2023 that may impact your retirement planning. To find out more, see: How does the 2023 Budget affect your pension and retirement planning?

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