As if 2021 wasn’t life changing enough with the pandemic, there was also the small matter of BREXIT thrown into the mix. For some, there will be an insignificant impact. Certain items may take longer to appear on the supermarket shelves or could disappear altogether. But we’ll soon find alternatives. Some employees may have been impacted to a greater degree, as with some business owners. For others, it could create a challenge, or an opportunity, to reconsider life in the UK and whether that is what they want for their future. Here, I’m talking about tax rules for living abroad, how they have changed, what it means for residency, and how we can assist in your financial planning if living abroad is something you are considering.

The fact that technology has supported us through the past 18 months has enabled almost entire workforces to continue to work efficiently and effectively from home; provided communication around the world on a scale previously not considered by many companies; and brought families closer than ever before – even if only on a virtual level.

Whether you are looking to work abroad or retire outside the UK, then there are some things to consider before confirming your future. Even moving to a non-EU country could mean your financial future could be affected by the UK leaving the EU.

So, as with all financial planning, any changes to tax rules for living abroad should be approached as part of the bigger picture, not simply by looking at one or two elements of the following guidance in isolation.

Rights of residency in the UK and EU

There are no longer automatic rights to live and work in the EU, and so any move abroad, whether that be for work, a different family lifestyle or for retirement, must be aligned to the immigration rules of the country you have chosen as your new home.

If you do decide to go, tests can be applied to establish whether you will be classed as resident, or become a non-resident, in the UK.

However, you will automatically be considered a non-resident on leaving the UK, if:

  • You stay in the UK fewer than 16 days in the tax year, or
  • You are leaving to work full-time abroad, self-employed or employed, and on average greater than 35 hours per week. If you are considering working part-time, be mindful, as there is no longer mutual recognition of most professional qualifications. You can visit the UK for up to 90 days per year, 30 of which may be for work.

You are automatically considered a UK resident if:

  • You remain in the UK for 183 days or more in the tax year, or
  • Your only home is in the UK, and you  live there for 30 days within the tax year for this test to be relevant. It is unlikely to apply if you are leaving the UK to live abroad however, as you are likely to have a home abroad as well as a UK property.

If neither of the above tests apply, your UK residency is based on the sufficient UK ties test. The more days you spend in the UK during the tax year, the more likely you are to be considered UK resident, and you are allowed fewer UK ties, which are based on the following applying:

  1. Whether you have a spouse, civil partner, or children (minors) living in the UK?
  2. Whether you have accommodation in the UK which you use during the tax year?
  3. Whether you work in the UK for 40 days or more, within a tax year?
  4. Whether you were in the UK for more than 90 days during either of the previous two tax years?
  5. Whether you spend more time in the UK than any other country within the tax year?

As a retiree, you should carefully consider the implications on your pension and healthcare, before deciding on your country of residence.

In fact, we advise all our clients who are considering moving abroad to discuss their current financial portfolio, options, and retirement plans sooner rather than later.

Notifying HMRC and paying Income Tax

One of the first tax rules for living abroad if you are either moving abroad from the UK permanently, or are going to be working abroad full-time for at least one whole tax year, is that you must notify HMRC before you leave.

Specific information is required. A P85 form must be completed, along with sections of the P45 from your employer, or a Self-Assessment tax return if you are self-employed. And you cannot use the online service if you are advising HMRC of your plans to leave the UK. Everything must be sent by post.

HMRC will calculate whether you are due a refund. But you should also know that you may have to continue paying tax if you have a UK income, such as a rental property, for which tax may be deducted at source.

The UK has a double taxation agreement with many other countries, to ensure you don’t pay tax twice. Check the tax rules for the country you are moving to, before making any concrete financial decisions.

It is best to seek guidance from a financial advisor prior to completing formal HMRC documentation, rather than attempting it yourself and potentially omitting important information. You could get caught out if details are incorrect, or else you could miss out financially. Neither of which will enhance your move away from the UK!

Retaining your UK residency status, even if you move abroad, means you will pay income tax on earnings generated within the UK or abroad. So, you will pay taxes no matter where your employment takes place. Generally, if you become non-resident, tax is due on any UK income, but you will not pay UK tax on income generated from duties abroad.

As a non-resident, your personal allowance remains in place. And one of the tax rules for living abroad which could be of benefit, if you plan to retire abroad, is that your UK tax liability is subject to an upper limit.

It is possible that some of your income is taxable here in the UK and abroad. But beware of the worst-case scenario which could leave you paying the higher tax either in the UK or in the country to where you have moved.   

Tax rules for living abroad - Capital Gains Tax (CGT)

If you are a UK resident, you are liable to pay CGT on any asset disposal gains no matter where in the world they are situated.

As a non-resident, any UK residential property remains liable for CGT (although only gains accruing since April 6th, 2015, are taxed upon sale of the property).

Tax rules for living abroad - Inheritance Tax (IHT)

This is generally calculated using your country of birth, your natural or your permanent home (or domicile), unlike other taxes mentioned.

You can change your domicile, but you may only have one at any time, even if you were born in the UK but now spend long periods living abroad. The exception where it may be worthwhile considering changing is if you are a retiree, now living outside the UK. This is because your estate could be liable for IHT in both the UK and your final country of residence.

You are liable to pay IHT if domiciled in the UK, on assets gifted, regardless of where those assets are located.

It is also worth seeking financial advice in respect of gifts and resident status of a partner or spouse. And we would also strongly recommend discussing your Will in respect of property and assets in the UK and abroad. It is worth having one Will to cater for your UK estate and a separate one for your overseas assets. However, do not simply go ahead, seek guidance first, as you do not want your UK Will to be revoked.

How Simpson Financial Services can ease the burden of all your financial planning

There are so many intricacies when it comes to tax rules for living abroad. From considering your pension, residency status, banking, savings and investments, insurances, and mortgages. And that is all before you have actually packed up and moved away. Which is why it is crucial that you seek professional financial advice as part of your to-do list.

Whether you are still classed as a UK resident after moving abroad, or officially a non-resident, your residence status should be reviewed for each tax year. There could be pros and cons across your financial portfolio and tax liabilities which we can work out with you as part of our annual financial review offer.

As you are required to pay 35 years’ contributions, it is advised to look into paying National Insurance even if you are no longer paying UK tax, as this could benefit your UK state pension entitlement when you reach retirement.  

Our expert financial advisors will ensure that your finances are in the best place to ensure stability and security.

And if moving out of the UK further down the line is something you have in mind, then now is the perfect opportunity to book in a complete financial review. This can include school fees, pension planning, buy to let mortgages if you are considering keeping a rental property here in the UK, savings and investments, through to care home fees and estate planning.

I hope you have found this information of interest and of use. And if you are considering moving away from the UK in the immediate or more distant future, our friendly team at Simpson Financial Services will gladly discuss the tax rules for living abroad with you, to help set you up financially ready for your new life!