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Tax considerations for Expats Returning to the UK

Each year, many UK expats return to the UK without having robust tax planning measures in place or being fully aware of the tax system that they will be subject to going forward. Unintended tax consequences can arise and this can be quite a shock, especially if they have worked in a low or zero tax country for many years.


Tax Considerations for UK Expats Returning to the UK


Key areas to think about: 


Becoming UK Resident 

Many expats still rely upon anecdotal knowledge and as a result can become UK resident much earlier than they anticipated. If you are a UK resident, you are subject to Income Tax on your worldwide income and Capital Gains Tax on your worldwide gains. 


To avoid ambiguity and confusion, HMRC introduced a Statutory Residence Test in 2013. An expat will be able to determine whether or not they meet the definition of UK resident by following these tests.


The SRT is in three parts; the automatic overseas tests, the automatic UK tests and the sufficient ties test. The basic rule is that an individual is resident in the UK for a tax year and at all times in that tax year (although the effect of this rule is relaxed under split year treatment), if they do not meet any of the automatic overseas tests and they either:


Meet one of the automatic UK tests or;

Meet the sufficient ties test


Expats who return to the UK mid-way through the year will have to pay tax on their income for the entire tax year, unless they qualify for ‘split year treatment’. If split year tax treatment cannot be claimed then it is very important to look at when it is most tax efficient to return. 


Changes in legislation since they left the UK 

Over the last 10 years there have been a significant number of changes to UK legislation that the expat may not be aware of. One key area is that of Domicile in that irrespective of how long an expat has been non-resident, if they have a UK domicile of origin, they will reacquire their UK domicile whilst they are UK resident. If you are UK domiciled your worldwide estate is subject to UK Inheritance Tax. 


One area that has not changed in many years is the Nil Rate Band of £325,000 which has been in place now since 2009 and there are no plans for this to change until 2028 at the earliest. Many UK expats will have accumulated significant wealth and so the present and future Nil Rate Bands may not be sufficient to ensure that their wealth is passed on to family members in a tax efficient way. RL360 have a variety of trust structures that can be used to mitigate Inheritance Tax and facilitate a succession plan. 


Taking financial planning advice is imperative for British expats returning to the UK. And because finding a good financial adviser is like sorting the wheat from the chaff, here are a few tips: Finding a good financial adviser.