Tips to Avoid Common Mistakes when Moving Abroad
Hundreds of people choose to emigrate abroad every year, whether it be a temporary or permanent move. It is a great opportunity to get away from the British weather and tax regime.
“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 imperative to comprehend that regulations can differ greatly between countries, so it is of the utmost importance to investigate the specified rules. For example, Witcombe notes that, “When immigrating to certain countries such as, 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 cautions that you will need to obey the 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 few important things that people need to do before they move aboard:
- It is a good idea that you have a passport that is has a good few years left before it expires. If less than a year, consider renewing it.
- Notify HMRC of your leaving date through the completion of a P85. (more info can be found here)
- 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 (such as visas if necessary).
- Open an offshore bank account if you need one.
- 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 presuming that just because they have left the country, they are suddenly exempt for 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:
- 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 extremely costly which is why getting expert financial advice is crucial.
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 percent tax on gross income, or Singapore’s top income tax rate of 20 percent, are a temptation for high earners wanting to avoid the UK’s prohibitive 40 and 50 percent 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 word “afford” is important here, it is not easy living in this great city being taxed until the cows come home.