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Moving abroad? Here’s all you need to know about taxation

We’ve all had the same thought. What would it be like living in a different country? Most will dismiss it as too much hassle. And if you like where you are – your job, local schools for the kids, being close to friends and family – then who’s to argue?

But if you are taking the plunge and planning to start a new life in a new country, then it’s a smart idea to really understand the tax implications (that might even be why you’re moving in the first place!). Whether you’re looking for better career prospects or an easy retirement in the sun, you’ll need to know your UK residence status and what to tell HM Revenue & Customs. Here’s tax consultancy PKF Francis Clark’s guide to taxation when moving abroad.

 You may need to tell HMRC

It sounds obvious, but HMRC may need to know you’re leaving.  This is true if you’re going to work abroad and will not return for at least one full tax year (6 April to 5 April) or if you’re going the whole hog and living abroad permanently.

How do I tell them?

 If you have not been asked to complete a tax return but have worked before you leave the UK or receive a UK pension, you’ll need to complete a P85 form which can be found on the HMRC website.  If you have a Government Gateway account, you can submit this online but if you don’t, you can complete the online form and post it to HMRC. If you’ve left work, you'll also need to include parts 2 and 3 of your P45 form which you should receive from your employer (if you don’t, make sure you ask for it).

If you complete tax returns, you shouldn’t fill in a P85. Instead, you should complete the Residence pages of the tax return for the year you leave the UK and notify HMRC of your change of address using your Government Gateway account or via your tax agent.

What counts as ‘out of the country’?

When you eventually do go away, you’ll need to be out of the UK for at least 183 days out of every tax year (6 April to 5 April). However, residence often continues if you are in the UK for more than 90 days and, in some cases, can continue if you are in the UK for as little as 16 days in a tax year.  If you remain UK resident, you will be liable to pay UK tax on your income, regardless of where that income was earned but relief may be available if you are also tax resident where you are living overseas or you pay tax on your foreign income in another country.

If you leave part way through a tax year, you may be treated as resident for only part of the tax year.  If you are expecting to receive foreign income such as earnings after you leave the UK, it is worth checking the rules to find out if you have to pay UK tax.

Due to the complexities of the UK statutory residence test, it is advisable to take advice about breaking UK residence, especially if you’ll be regularly coming and going between the UK and your new overseas home, or you leave the UK part way through the year or you have a home, partner or young child in the UK.

What if I’m owed a tax refund?

Good news – if relevant, the P85 form covers this. Or, if you file tax returns, you can claim a refund when you complete the tax return. If you are owed any tax rebates, HMRC will credit you accordingly.

And if I still have income from UK-based activities?

You might need to pay tax to the UK government even if you’re no longer in the country. Typically, this applies to landlords receiving income from a UK-based rental property, but it could be something else: perhaps you have a UK-based investment that generates income.  Certain UK income is not always taxed once you move overseas and it’s worth taking advice if you are expecting to receive UK income after you leave.

You should also check the tax position of the country you are moving to. But don’t worry – it’s unlikely you’ll be in danger of paying tax twice. The UK has agreements with a number of countries to ensure you only pay what’s due, and no more than that.

What if I sell my home or business when I am overseas?

If you dispose of your home or another house in the UK while you are non-resident, you need to tell HMRC within 30 days of completing.  This is the case even if you complete UK tax returns and HMRC will issue fines if the disposal is not reported.  

If you run your own business and expect it to continue after your move overseas or you are thinking of selling it after you have left, you should take tax advice before you leave the UK so you know how the rules work.  

What if I want to come back to the UK?

Once you’re back in the UK, the normal rules apply: if you are a director, or a self-employed business owner or you receive foreign or untaxed income, you will need to complete a self-assessment form.  Most employees don’t have to complete tax returns unless they have additional income, such as savings or make capital gains. Then they also need a self-assessment form.

But wait! There are more rules for anyone returning to the UK. If you’ve been abroad for less than 5 years, you may be liable for tax on any foreign gains or income that you received while you were overseas (this excludes your wages earned overseas).  If you are returning part-way through a tax year, it is possible that you will be treated as non-resident for some of the year.  If you receive foreign income or make capital gains in the tax year you come back to the UK, it will be important to check whether you will be liable to UK tax.  

Will I continue to pay National Insurance Contributions?

This all depends on how long you expect to be overseas, where you are going and whether your employer sends you to work overseas. If you are working temporarily overseas for up to 2 years, you may remain liable to pay NI contributions. If you leave the UK to work in certain countries that do not have agreements with the UK, you may need to make contributions for the first year you’re working overseas.   

If you don’t have to pay NIC, you may choose to pay voluntary contributions that go towards your State Pension and certain benefits and allowances if you return to the UK.  Whether or not this cost would be worthwhile will depend on how long you are expecting to be overseas before you reach pensionable age and whether social security payments you make in another country will give you a pension in that county or help to increase your UK State Pension.   

Sort out your tax dilemmas: Use a tax adviser

Tax is deceptive. At first it seems simple: the government takes a percentage of your income in order to run the country and pay for the services we all use. But it soon gets complicated.

If you’re thinking of relocating or working overseas, or you’re soon to return to the UK, it’s a sound idea to speak to a professional tax consultant to help you navigate the choppy waters of our income tax and capital gains laws (and keep your tax liability as low as possible). PKF Francis Clark is one of the UK’s leading tax firms – contact PKF Francis Clark today to find out how we can take the stress out of your tax arrangements.

We’ve all had the same thought. What would it be like living in a different country? Most will dismiss it as too much hassle. And if you like where you are – your job, local schools for the kids, being close to friends and family – then who’s to argue?

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