Becoming an expat doesn’t automatically exempt you from paying any UK tax. If you’re planning on moving overseas, you’ll need to think about the impact on your tax position.
The precise tax implications of moving abroad will depend on your current circumstances and the tax laws in the country you’ve chosen as your new home. Here’s what you need to know.
Tax implications of relocating abroad
Should I inform HMRC?
Giving HMRC notice of your plans to move abroad is an essential first step before relocating. You’re less likely to face scrutiny or come across bumps in the road later on if you inform the tax authorities.
The notification process will vary depending on whether you usually file a self-assessment tax return:
Non-filers should either fill in a P85 form online (if you have already moved abroad) or the P85 form offline (if you have not yet left the UK).
Meanwhile, self-assessment customers can let HMRC know of their plans to move abroad via the ‘resident’ section of their self-assessment tax return.
It’s important to note, however, that this method is only available if you send a paper return by post. You cannot use online services to inform HMRC of your plans to leave the UK.
Changing your residence status
If you remain a UK tax resident, you’ll likely be taxed in the UK on all your worldwide income, no matter where you are based. That’s why it’s important to seek non-UK resident status as soon as possible: this ensures that you only pay UK tax on UK source income.
You can use HMRC’s statutory residence test (SRT) to work out your residence status for each tax year. This considers various factors, including:
- the amount of time you spend and work in the UK
- the connections you have with the UK
Spend 183 days or more in the UK, and you’ll automatically be considered a UK resident for tax purposes.
It’s important to get your residence status correct. However, determining it can be complicated, especially if you still own property in the UK or visit the country on a regular basis. A specialist international accountant can guide you through the process, helping you comply and ensuring you don’t pay more tax than you need to.
Once you’ve obtained non-resident status, you’ll usually only need to pay income tax on earnings received inside the UK. This could include rental income from UK rental properties.
Navigating capital gains tax (CGT)
If you plan to sell UK assets like property or land when you move overseas, you will need to think about the capital gains tax (CGT) implications.
CGT is a tax charged on profits (or gains) made when you sell or dispose of certain assets in the UK.
As a non-UK resident, you’ll need to report sales of UK property or land, even if:
- there is no tax to pay
- you made a loss
- you are registered for self-assessment.
As of 6 April 2020, you’ll need to report disposals within 30 days of the sale using an online CGT UK property account.
Managing your CGT liabilities can be more complicated once you live outside of the UK. A specialist international accountant can report the disposal on your behalf and help you stay compliant while minimising your bill.
Moving money overseas
While transferring money in and out of the UK will not always attract a tax charge, non-UK domiciled individuals often face more complicated tax implications. Working with an accountant who specialises in currency transfers can help ensure you meet your tax obligations.
Foreign income for UK residents
If you remain a UK resident for tax purposes but live abroad, you may need to pay UK tax on your foreign income as well as earnings from inside the UK. This could include:
- pension income
- overseas rental income
- interest accrued from foreign investments.
Accounting support when moving abroad
Navigating the UK tax regime when moving overseas can be complicated. It’s therefore essential to work with international tax planning and compliance specialists to oversee any UK tax implications.
At Pearson May, we stay abreast of the latest developments in taxation and accounting regulations so you don’t have to. We’ll work closely with you to tailor a tax strategy to your unique circumstances, ensuring you meet your obligations while minimising the impact on your personal finances.
Contact us today to book a free 30-minute consultation with an accounting professional experienced in international matters.