Everyone should plan to a certain extent, but some people should plan more than others. In general, the longer you have been outside the UK, the more money you might have accumulated and the more complicated your financial situation, this increases the importance of sound financial planning prior to your return to the UK.
If you have only been outside the UK for 6 months, and are coming back without any money, your situation is much less complicated than for somebody who has over 1 million GBP in various investment accounts, and with companies in two countries.
Especially for people who are dealing with multiple jurisdictions, the situation becomes even more complex.
For example, if you are living in Singapore (one jurisdiction), have investments in the Isle of Man or Puerto Rico (another jurisdiction) and a business in Luxembourg (a third jurisdiction), and are coming back to the UK, your situation will be more complicated than if all your money is in Singapore or the UK. So the more assets you have in more jurisdictions, the more important it is to take advice from a professional before you fully commit to returning back to the U.K.
It usually makes sense to plan your repatriation 6-12 months in advance, if that is possible.
How can you simplify your tax situation?
If you can move home around April 6, you will simplify your tax situation. This will mean that all your income made during the tax year, will be subject to UK income tax.
In comparison, if you arrive in July or December, you might have to go for a split tax year, which is more complicated. This is because the tax authorities have to annualise your income and calculate UK taxes accordingly.
How about selling assets before coming back to the UK?
In general, it makes sense from a capital gains perspective to sell your assets before returning home.
However, you need to consider the following issues:
- What is the capital gains tax rate where you live now? If it is 0%, and your investment platform is based on a 0% capital gains environment, that is a strong reason to sell before returning to the UK
- If, on the other hand, you don’t plan to liquidate your investments for decades, and are living in an even higher tax place than the UK right now, it doesn’t make sense to always sell. For example, in Canada, capital gains can even be taxed at 50%!
- How long you plan to stay in the UK for. If you are 32, and plan to stay in the UK for three years, before moving abroad again, your situation is very different to somebody that wants to permanently settle back into UK life. This is because capital gains, by definition, occurs when you liquidate an investment and realise a gain. Therefore, having money in overseas accounts, and making a capital gain, aren’t the same thing in some cases.
- Which assets they are specifically. I will speak about that more below.
So if you have assets to sell and profit to release, it makes sense from a capital gains tax perspective to do this before returning home.
A final consideration in this section is foreign exchange fees. If you hold USD or Euro assets or cash in bank accounts, you could face a significant charge for liquidating positions.
How about QROPS?
If you have a QROPS pension, you will need to inform your provider you are moving back to the UK. You will be liable to pay income tax on any drawdown of the pension.
Are offshore bonds similar to the QROPS situation?
Not exactly as the regulation is different. Nevertheless, it is best to notify your providers and give them your updated proof of address and tax numbers, whenever and wherever you move.
This applies to moving to a third country as well, and not just returning to the UK.
In general, portfolio bonds, many of which are linked to QROPS, can be tax-efficient if you draw down up to 5% per year. You can also sometimes transfer allowances between you and your husband, wife or partner as well.
How about taxes on investment funds in the UK?
This is complicated and depends on whether you are an ordinary resident or non-ordinary one, and where your domicile is. In general, if you have been an expat for more than 5 years, it is easier to bring money into the UK in a tax-efficient manner and pay 0% on these. However, temporary non-resident rules mean that gains can be taxed.
Do I need to open up a bank account remotely before coming to the UK?
Not always because it is legal to live on overseas income in the UK of course. I know many online business owners that simply keep using their same USD overseas bank account, and self-assess every April. However, you might want to start using a UK bank account again. If you already have a bank account in the UK, you don’t need to make new provisions.
Some online banks such as Revolut are the easiest to deal with in terms of account openings, before returning to the UK.
How about registering for tax?
If you have a job, you will automatically be enrolled on a pay as you earn (PAYE), and might need to fill out a starter checklist form from the UK tax authorities, HMRC. This is available on their website.
If you start working for yourself, you will need to register for self-assessment. This is regardless of whether you have an existing business you can run from home, or you are starting a new business.
Should I fill in any national insurance gaps before returning?
National insurance pays for the old-age pension and some other benefits. You can voluntarily pay national insurance whilst you are abroad. This can make sense for those that are overseas for a short period of time.
In general, you should be careful with filling in big gaps for a simple reason; the UK has an aging population and the state can’t be trusted not to go back on previous promises. This became an issue in the 2019 general election after the retirement age was increased. Whatever your feelings on the issue, it seems certain that the UK retirement age will move to 70 and beyond.
How about UK property?
The UK has increasingly become more regulated when it comes to renting and buying property and this might be a kind of “reverse culture shock” for returning expats.
Many landlords are now requiring tenants to get references in the UK from previous British landlords. This can be hard for UK expat returnees for obvious reasons. In addition to that, credit checks are also sought by various lenders in the UK.
So what are the most effective ways to overcome these issues? In general, it makes sense to:
- Get references from landlords abroad
- Focus on private agreements for private renting if possible. I have spoken to 1-2 friends that have returned from abroad in the last year, and they have negotiated private agreements with Airbnb landlords. In other words, renting from them for a few days, and then signing a contract outside the platform. They have found these landlords to be more flexible than the average.
If you want to buy a UK property after living abroad, you will need to prove where the funds are coming from to avoid any anti-money laundering legislation. You might be asked as a recent expat for more detailed proof of where the money has come from.
So information like wage slips, contracts, proof of sale documents for assets and other things can be very useful when speaking to a lawyer. Assuming you need a mortgage, it gets even harder, as most lenders do a credit check and if you haven’t had an address in the UK for years, you are more likely to be rejected because of the associated ‘risk’ of lending to an overseas buyer from a lenders perspective.
You can combat this issue by focusing on smaller lenders that are more flexible than mainstream ones, and maintaining correspondent addresses in the UK can be useful.
In other words, if you kept a UK address open for getting letters and electronic correspondence, which went to your parents or sisters home, this makes things a lot easier.
What are the biggest financial mistakes that returns make?
The biggest mistakes I have seen are:
- Leaving the process too late and panicking. This can result in big tax bills or headaches.
- Not taking proper legal and/or tax and financial planning advice. This is especially an issue with people with very complicated situations
- Assuming your companies HR will sort everything out. It is beneficial to have a good HR department that sorts out most of the requirements. This is more likely to be a benefit for income tax and other work-related issues. It is less likely to be beneficial for your personal wealth situation.
- Not considering more complex situations. If you are moving money from Myanmar/Burma or a country which is under US sanctions like Iran, your case is much more complex than most expats.
- If you wish to stay with your existing investment platform, not asking them about rule changes. For example, it is no longer legal for EU residents to buy some kinds of US-domiciled ETFs, including the S&P500 funds, but you don’t have to actually sell such positions if you return to an EU country. You merely can’t add to the positions.
- Not fully considering the move. I have met countless expats that go overseas again within a few months of landing, due to failure to adapt to life back in the UK.
- Not considering a third country. I have met countless people that are only returning to the UK due to losing a job, or they are finding it more difficult to extend a visa if they are self-employed. They often assume that the UK is the easy option. However, it is increasingly normal for people to be able to work from home. Most countries offer residency visas by investment, and not all are super expensive. Therefore, coming home to the UK isn’t always the cheapest option, or most convenient idea, as this article has made clear. Considering buying a property or putting money in the bank, in return for residency in a third country, could be a viable option for many people.
What are some of the non-financial issues you might face coming back to the UK?
It isn’t the main purpose of this article to speak about non-financial issues, but some of the other issues people face are:
- Importing pets, cars, and vehicles into the UK
- Getting on the NHS list or having new private medical insurance
- Being put on the electoral register to vote again
- Sometimes getting a non-British wife or husband into the UK.
Will the ongoing health pandemic impact your return to the UK?
Needless to say, the ongoing global pandemic is causing travel issues, with many airlines cancelling flights.
We are in the early days when it comes to this crisis but what we can expect is:
- Delays in paperwork. If you need to complete paperwork, including for your investment accounts or taxes, there could be delays
- If you have a non-British partner, wife or husband, there might be some restrictions such as quarantines if they arrive back in the UK.
- You need to plan on an ongoing basis. In other words, check the updated travel advice related to flights and quarantines, on the morning of your flights.
The situation involving the global pandemic makes planning even more important.
There is help from the UK government, including a hotline, which will allow you to speak to somebody regarding your flights, if you are stranded, and can’t return home as expected.
Will it make a difference where you are coming from?
Many of the fundamentals are the same, regardless of whether you are coming from Spain, Australia, Turkey or Belgium.
Conclusion
- Tax and how your investment situation is considered is a complicated topic if you are returning to the UK.
- It is especially complicated if you have assets in multiple jurisdictions.
- It is best to receive independent tax and financial advice, before repatriating to the UK.
- This is especially the case as the situation is always changing, with new laws announced on a regular basis.
