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Safe passage: Ensuring your clients don’t have a taxing ordeal when returning to the UK

Coronavirus may have put life on hold, but thousands of expats will still have plans to return to home in the near future. However, moving back to the UK might impact their finances more than they think, particularly for those who have worked abroad for an extended period. Advisers can ensure individuals don’t pay more than they need and create a clear tax plan for clients – here are the most important things to keep in mind while doing so. 

 

Getting the timing right

 

Creating a timeline with the client once they’ve decided to make the move back home is essential. It’s never as straightforward as it seems, so advisers should make sure to give themselves and the client at least a year or 18 months to get everything in order. Due to the complexities of the Statutory Residence Test, it is possible to become a UK resident before even setting foot back in the country so proper planning is important.

It should therefore be made clear that the date the client resumes UK residence can have a big impact on their tax situation. The client may have a tax liability in both the country of departure and the UK subject to any double taxation relief that might available. 

 

Before they return 

 

The next step advisers must take is to identify which of the clients’ assets might need to be reorganised in order to mitigate their UK tax exposure as efficiently as possible upon return to the UK. This potentially may be important for those planning to retire in the UK, as doing so they can make the most of any funds they’ve saved, or investments made abroad. 

Advisers should also remind clients about the potential UK tax benefits of selling off the investments they had abroad before returning. Many returning expats forget to take this step, causing them to receive a substantial UK Capital Gains Tax (CGT) bill. One trap that is sometimes overlooked is temporary non-residence, which generally applies when you are non-UK resident for less than 5 complete years. The rules around this are quite technical, so advisers should look to understand their client’s circumstances. One of the downsides of temporarily being a non-UK resident is that sales of assets made while non-resident may become taxable when UK residence resumes.

Advisers should also ensure their clients have due regard for the tax rules of the local jurisdiction to avoid unwelcome surprises. Some destinations for UK expats such as Hong Kong and Dubai have no CGT so selling off investments before a client returns can save them thousands of pounds. At the same time, advisers should recommend that clients consider tax-favourable investments. 

While not paying anything above what they need to is important, advisers must ensure they account for the unique financial situation and plans of every client and make sure they are comfortable with the plan of action proposed. 

 

Repatriation

 

Advisers should continue to be available for clients adjusting to their new way of life once they’ve returned. Tax is an everchanging landscape and the UK tax regime may have changed significantly during the time a client was abroad, so advisers should outline how it has changed and advise accordingly.

Additionally, advisers can help clients restructure their finances to maximise the benefit of any allowances they’re entitled to. For those returning as a couple, splitting out their assets can prevent them from paying unnecessary taxes. Whether it’s dividends, CGT or ISAs, it’s easy to forget that personal allowances are tied on the individual, not a couple, and advisers would do well to remind clients of this. By utilising the services of tax and wealth advisors, it is possible to structure annual income for a couple at a far more efficient tax rate than if the income is considered against either person individually.

 

Pension planning

 

For those returning to the UK, choosing what form of pension to move forward with can often be a confusing process. As such, advisers should raise pension planning in any conversation when speaking about the long-term plan of action. 

If a client is planning to retire abroad, it’s likely they’ve already set up a pension in their country of choice and transferred any pension savings to the new fund; the Qualifying Recognised Overseas Pension Scheme (QROPS). However, if a change in circumstance, such as the need to care for a loved one or concerns around coronavirus, has meant they’re now returning to the UK, they’ll have to decide whether to keep their QROPS or transfer back to a UK pension. 

If this is the case, advisers should outline the different options available to clients and what the benefits and drawbacks of each approach are. 

Unlike a UK pension, QROPS isn’t subjected to the pension lifetime allowance so sticking with this option rather than transferring into a Self-Invested Personal Pension (SIPP) could save them money. However, transferring into a SIPP will mean they’re liable for the pensions lifetime allowance, which is currently set at £1,073,100.. Any savings accessed over that amount will be charged at 25% tax if withdrawn as an income or 55% as a cash lump sum. That could potentially be a substantial tax bill which may be avoided with QROPS. 

However, if the client expresses a desire for flexibility with their pension, QROPS might not be right for them. Some providers don’t allow flexi-access for instance, which means they would be restricted in how much money they can withdraw over 12 months. By contrast, a SIPP will give them more control and flexibility over their income, so they can choose to invest or withdraw funds as and when they want.

Whatever the circumstances, returning to the UK is a big step, and advisers need to be ready to help guide clients through every step of the way. Building up a clear financial plan for their return to the UK, and even retiring, that is both personal to them and which maximises their tax efficiency, can give them peace of mind and ensure they rest easy on the flight back. 


Finn is Managing Director at ATC Tax. Finn has been working across the Wealth Management, Private Banking, and Tax industries for more than 20 years, specialising in international investment advice, retirement planning and inheritance tax planning. 

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