The returning expat: prior planning and preparation is paramount

Returning home can be a huge logistical task for expats, but they must ensure they are putting enough thought into the financial preparations too. Here, Andrew Bates, Head of Private Banking, Middle East at Nedbank Private Wealth, explains some of the key tax and investment implications to plan for.

Life as a UK national living abroad is great – it’s why there are so many “confirmed expats”. There always seem to be new opportunities – even in the middle of a pandemic and even after 20 years as an expat. The people you meet, the experiences you have and the places you visit are often seen as exotic in the eyes of the family and friends still in the UK (and often for you still), offering a sense of achievement.

At some point, however, there is a realisation that you should go “home”, back to the UK, for a variety of reasons. You’re a guest in someone else’s country and you’re not as welcome now as when you first arrived. Or you’ve done well in your career, but the next role would see you travelling so much that you would be living out of a suitcase and miss family time. Or even that your parents have reached a certain age and, while you know that you can get on a plane and be home the next day, work won’t work around long-term care.

The first question to ask yourself is whether you’ve lived abroad for five years or more. If no, you could fall under the temporary non-residence rules and this could mean any “gains” made overseas may be taxed on your return

The biggest issue often faced here is that when you decide to go home, theory quickly becomes reality. You might already have accepted a new job, lost an existing one and realise how really expensive life is, or know a loved one is already ill. This is at odds with any advice, which says you should start planning the move 12 to 18 months in advance.

The first question to ask yourself is whether you’ve lived abroad for five years or more. If no, you could fall under the temporary non-residence rules and this could mean any “gains” made overseas may be taxed on your return.

If yes, you are likely to have more complex finances in the form of home ownership, general investments and pensions, at the very least. Your spouse may not be from the UK (or have any significant ties to the UK and could be “non-domiciled”), you might have had a family abroad and you probably now have significant ties to your (current) “home” country. This all brings in complexities that need an in-depth review – not least, as spouses who are non-domiciled are treated very differently from an Inheritance Tax (IHT) perspective, as an example.

Three big matters will be on lots of lists – in the form of income tax, Capital Gains Tax (CGT) and pensions’ structures – and an approach to managing these is worth considering, even if you don’t have any concrete plans to relocate any time soon

Of course, we believe that you should seek independent advice based on your individual circumstances, but three big matters will be on lots of lists – in the form of income tax, Capital Gains Tax (CGT) and pensions’ structures – and an approach to managing these is worth considering, even if you don’t have any concrete plans to relocate any time soon.

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Top Tip

Returning home after some (or many) years as an expat is a huge move that requires very careful financial planning on a number of fronts. As with all things wealth management, the earlier you take advice the better so as to avoid expensive mistakes – particularly around tax. Wherever you are now, we can help you get the right UK adviser in place, so please do get in touch with our expert team to help set your plans in motion.

Lee Goggin - Co-Founder

Lee Goggin

Co-Founder

1. Income tax

Once you are back in the UK (as a UK national) and are deemed resident, all worldwide income is in scope as far as the taxman is concerned. However, the date you become “resident” may not be the date you actually land with as much in suitcases as is possible.

Ordinarily, you are seen as tax resident if you have spent the majority of that tax year in the UK (i.e. between 6 April one year and 5 April the following year). There are, however, circumstances in which the tax year could be split in two parts, i.e. for taxes liable while you are a “non-UK resident” and still overseas, versus the part of the year when you are deemed to be resident.

It’s important you understand what your deemed date of residency is and what that means for your taxes. If, for example, you are still seen to be working in your old job and transitioning over, you may even be liable for income tax in both places, and may or may not be able to offset those taxes against each other

These complex split year rules automatically apply if you fall into one of the eight criteria in force since 2013. For example, if you owned a main home overseas for part of a tax year, sold it (before you moved to the UK) and then bought a new family home in the UK after you’d become resident, then one of these criteria applies.

It’s important you understand what your deemed date of residency is and what that means for your taxes. If, for example, you are still seen to be working in your old job and transitioning over, you may even be liable for income tax in both places, and may or may not be able to offset those taxes against each other.

2. Capital Gains Tax

Given this tax applies only after you are resident in the UK, any investments – and (residential) property – should typically be sold to crystalise any gains before you up sticks and move back to the UK. Some territories do not charge this tax, but others do and you should make sure any tax liabilities are settled before you move.

Looking at the dates you started your employment, or feel you can be traced to living in the UK, is not always as simple as it sounds given the reach that HMRC has in terms of speaking to airlines and banks (among other providers) to establish their date of reference – and which might be a lot sooner than you thought.

3. Pensions

Often one of the most straightforward situations is if you have a qualifying recognised overseas pension scheme (QROPS) and are repatriating. If this is the case, you need to tell your scheme’s provider when you have returned home and they report that to HMRC – irrespective of how long you have been overseas.

In other instances, while you’ve been overseas, you may have been able to continue to pay into a self-invested private pension (SIPP). However, this is generally only possible if you have UK-relevant earnings.

Regardless of whether you have a QROPS or a SIPP, if you have started to draw an income from that scheme while abroad, you will have to pay UK tax on that income once you are UK tax resident

Regardless of whether you have a QROPS or a SIPP, if you have started to draw an income from that scheme while abroad, you will have to pay UK tax on that income once you are UK tax resident.

As such, it is also worth looking into other options – particularly as many of the rules around accessing overseas pensions may be different to the UK, where you cannot access a private pension before the age of 55. For example, if you leave Hong Kong, and promise never to return, you are allowed to liquidate your mandatory provident fund account and do not need to transfer it to a UK pension scheme on arrival. Instead, another option could be to invest your pension proceeds into an offshore bond and then you may be able to benefit from the 5% tax-deferred withdrawals.

There are, of course, many other things to think through and a holistic wealth plan can support you and your family’s financial needs now and after your relocation. This allows for a comprehensive review of all your wealth structuring, makes sure it remains appropriate and ensures you use the available allowances and reliefs in the UK, e.g. ISAs, Junior ISAs etc. You should also look to open UK bank accounts ahead of your departure.

One of the biggest challenges that expats face when they return is their limited credit score. This is needed by most banks – although not usually by private banks – to assess your eligibility for a UK mortgage and credit cards

One of the biggest challenges that expats face when they return is their limited credit score. This is needed by most banks – although not usually by private banks – to assess your eligibility for a UK mortgage and credit cards. But it also is used when applying for store cards and mobile phone contracts. Building up your score takes time, although it can be improved by other factors, e.g. having a UK landline installed and registering to vote.

And there are non-financial matters to consider. You may want to think about how you maintain some sort of a connection to the home you are leaving before you move and “burn all your bridges”. This is especially the case for those who feel that they have a “third-culture” due to the amount of time spent in one place.

Last, but not least, while there have been a lot of prompts to encourage people to seek out wealth planning, the pandemic has provided more

Last, but not least, while there have been a lot of prompts to encourage people to seek out wealth planning, the pandemic has provided more. Given how unusual 2020 has been and with no crystal ball, we recommend you speak to a wealth manager as a starting point. They can provide the advice and services you’ll need, and – if needed – also connect you with other advisers, e.g. a specialist adviser if you need tax advice, which Nedbank Private Wealth does not provide. This means you can make sure that, when you do return home, you have all your affairs in order and do not start resenting that move because of the financial implications of poor planning.

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