British expats should consider running a financial health check as some big changes in tax are on the way.
Confirming tax residence is always the first step in financial planning for expats, because all the other decisions come from working out which financial jurisdiction takes precedence.
Expat is an unofficial definition for many people living and working overseas, but the term has no legal standing and covers workers temporarily overseas as well as those who have moved permanently out of the UK.
Overseas workers who intend to move back to the UK who regard themselves as expats might find that they are still tax resident in Britain.
Tax residents will find they are winners if government plans to abolish the personal income tax allowance for expats goes ahead.
The measure will only affect non-residents, and could cost them up to £4,000 in income tax if they are higher rate taxpayers.
Property owners and landlords could be the big losers.
Not only will non-resident landlords lose their personal allowance that lets them earn £10,000 a year tax free, but from April 2015, they will also have to pay capital gains tax on the disposal of residential property in the UK.
Again, the government has not completely finalised the rules, so the rate of capital gains tax is undecided – UK taxpayers pay at 18% and 28% depending on their marginal rate of income tax.
Non-residents should not expect to pay any less.
The good news is property values are likely to be rebased for non-residents, with the new rule applying to the April 5, 2015 value of the property.
However, the decision is still with the Treasury and non-residents will have to wait and see.
Switch to a QROPS
Switching pensions offshore to a Qualifying Recognised Overseas Pension Scheme (QROPS) is worth considering for many non-resident expats.
The switch will remove any withholding taxes likely to be taken by onshore providers.
QROPS also offer other tax benefits, more flexible investments and payments in major foreign currencies that takeaway any currency exchange rate issues.
The final tax worry for many expats is inheritance tax. Unlike income tax and capital gains, inheritance tax depends on domicile not residence.
If the decision is blurred by an expat leaving their options to return to the UK open, the likelihood is their domicile remains in Britain. If they intend to remain permanently overseas, then domicile is probably the country where they now live.
Tax and financial planning for expats can be a minefield if residence and domicile are not properly determined, so seeking the advice of an appropriately qualified expert can resolve many of the technical issues.