“It is important to differentiate between moving overseas for a short period of time and expatriating indefinitely,” says Jason Witcombe, chartered financial planner at Evolve. For example, an Isa portfolio, while retaining its UK tax advantages, could be taxed in a new country of residence. As such, he says if you are moving overseas for good, you may be better off cashing it in and reinvesting it into something that will be more tax-efficient in your new country of residence.
It is important to understand that rules can vary widely between countries, so it is vital to research the specific rules. For example, Witcombe notes that when emigrating to certain countries – including Australia, Canada and South Africa – Britain freezes the state pension entitlement so you could see your retirement income fall in real terms.
Robert Blower of Charles Russell notes that if buying a house abroad, it is important to make a will in your new country of residence. Blower also warns that you will need to adhere to a country’s probate rules – he says France, for example, has a strict system. As such, l’hexagone is not the place for anyone planning to leave all their worldly goods to their pet moggy.
Sarah Lord, managing director of Killik Chartered Financial Planners, says there are a number of key things people need to do prior to moving abroad:
• Make sure your passport is well within expiry date. If less than a year, consider renewing it.
• Notify HMRC of your leaving date through the completion of a P85.
• If renting out UK property, notify HMRC that you are moving abroad and register as a non-resident landlord.
• Notify your mortgage lender.
• Get all the appropriate paperwork required for the new country (paid- for visas where necessary).
• Open an offshore bank account if likely to be required.
• Notify financial providers such as banks, pension providers etc. of your change of correspondence address
Lord also points out the most costly mistakes made by those moving abroad:
• Over-committing financially in a new country having just arrived.
• Over-reliance on believing what a new employer tells you – particularly if the company is local to the country – for example, if earnings are predominantly through commission or bonus payments.
• If renting a property, a lack of research of the rental market into the country moving to, so committing to paying unnecessarily high rents.
• Inadvertently being treated as a UK resident for tax purposes by not being aware of how many days you can spend in the UK without being treated as a UK resident for tax purposes.
On this latter point, Ashley Clark of Need An Adviser says “there are many examples of workers moving to Dubai, where no income tax is deducted, only to return early to the UK and find that income taxes are due on all the money earned overseas.” This, he says, “can be extremely painful.”
Clark believes many people make the mistake of thinking that just because they have left the country, they are instantly free from UK taxes. He says “income tax, capital gains tax and inheritance tax liabilities in the UK can catch many people out.” He points out that you do not lose liabilities to UK tax until you:
l•Become a tax resident in your new country.
• Lose your UK ordinarily-resident status, which takes 5 years for capital gains tax disposals.
• Acquire a Domicile of Choice, i.e. lose your UK Domicile status for inheritance tax in the UK, which takes a minimum of three years (plus many other qualifications).
Moving abroad is so potentially costly that getting expert financial advice is essential. For those that want to get an overview of the facts, Witcombe recommends the expatriate guides produced by the Association of International Life Offices (AILO).
Paying less tax isn’t the only factor in deciding where to live – the 3 per cent tax on expatriate salaries in Bahrain doesn’t look tempting right now – but Hong Kong’s 15 per cent tax on gross income, or Singapore’s top income tax rate of 20 per cent, are a temptation for high earners wanting to avoid the UK’s prohibitive 40 and 50 per cent rates.
Samuel Johnson might have been right when he quipped to his biographer James Boswell: “When a man is tired of London, he is tired of life; for there is in London all that life can afford.” However, the qualifier “afford” is key here – it is hard living in this great city being taxed until the pips squeak.