Expats Returning To The UK: Avoid Financial Pitfalls With These 10 Tips

So, your time as an expat is coming to an end, and you’re joining the 80,000+ UK expats each year that are heading home. Moving back to the UK after living overseas can mark an exciting turning point, but it can also be a complicated process.

There is plenty to consider, whether it’s finding schools for your children, deciding what possessions to sell and what to bring back, or where to live and work. If that wasn’t enough, one more thing to add to the list before you get on the plane is how you’ll manage your financial affairs.

For many expats who have done a stint overseas, their financial affairs are more complex than when they left the UK, so will now need more thought and planning than they did before.

For those moving back, there are potentially expensive pitfalls to avoid, tax implications to be aware of and some legal considerations to factor in. While repatriating can be exciting, it makes sense to plan for the financial aspects of moving home, to ensure you are not left out of pocket or unwittingly falling foul of the law.

To help we have put together this short guide; to raise awareness of the things you should be thinking about to ensure your move back goes smoothly and you minimise the chance of ‘repatriation regret’.

So, here are our top 10 recommendations to help you navigate your return to the UK.

1. UNDERSTAND YOUR TAX RESIDENCY

Your tax obligations will be based on where you’re considered to be a tax resident.

In the UK, the Statutory Residency Test (SRT) is a crucial tool in determining your residency status for tax purposes and is therefore essential to understand.

It considers the number of days you spend in the UK, your work activities, and your ties to the UK. Spending 183 days or more in the UK during a tax year typically classifies you as a UK resident, making you liable for UK tax on your worldwide income.

Returning expats should carefully track their days and understand these rules to avoid unexpected tax liabilities. Misunderstanding the SRT or failing to meet its criteria accurately can lead to significant financial consequences, including double taxation or hefty fines. So, understanding the rules is essential, and planning your return accordingly is key to avoiding unpleasant surprises.

2. GET (BACK) TO GRIPS WITH THE UK TAX SYSTEM

Reintegrating into the UK tax system is one of the first and most crucial steps when returning to the UK.

The UK has specific rules regarding residency and taxation, which can affect your income, capital gains, and inheritance taxes. Understanding these rules and planning accordingly can help you manage your financial obligations efficiently. Some things to be aware of include:

Registering with HMRC
Upon your return, you need to notify HMRC of your change in residency status. This ensures that your tax records are updated and that you receive the correct tax codes.

Taxation of Foreign Income
If you’ve earned income or accrued assets abroad, it is essential to understand how these will be taxed once you return to the UK. The UK has double taxation agreements (DTAs) with many countries to prevent the same income from being taxed twice. These agreements can potentially help mitigate some tax burdens, by allowing you to claim relief or exemptions on foreign income.

Types of Foreign Income
Different types of foreign income, such as salaries, rental income, dividends, and interest may be treated differently for tax purposes. Knowing the specific rules for each type can help you to plan your finances better.

Changes in the UK Tax System
If you’ve been away for several years, the UK tax system may have undergone changes. This could include changes in tax rates, allowances, and reliefs. Staying updated with these changes is crucial to take advantage of any available benefits and make sure you don’t fall foul of the law.

Current Rates and Allowances
A good understanding of the current system of tax rates and allowances is vital in minimising your tax obligation. These can change regularly, so it’s important to stay up to date.

Avoiding Penalties
Failing to comply with UK tax regulations can result in penalties and fines from HM Revenue and Customs (HMRC). Proper planning and timely submission of required documentation can help to avoid these issues.

Tom Buss (Finura): What initially made you seek a financial planner when you decided to return to the UK?

Mark Williams: The primary reason was that I had been putting money away while living overseas, and when I moved back to the UK, I realised I wasn’t particularly savvy about how to transfer that money back. I was concerned about the tax implications, what I needed to think about regarding investments, and how to manage my finances overall. I had my ‘fingers’ burned before, by an unregulated advisor in Dubai, so I was cautious. I wanted someone trustworthy, recommended, and regulated.

3. REVIEW YOUR ASSETS AND INVESTMENTS

Repatriating assets, investments and savings back to the UK involves careful planning. Areas to think about include:

Exchange Rates
Currency exchange rates can significantly impact the value of your savings and investments. Consider the timing and method of transferring funds. Using a specialised currency exchange service may save thousands of pounds, compared to simply transferring from your bank. Look for one that is easy to use, offers competitive exchange rates and has features such as limit orders that allow you to automatically transfer when the rates are in your favour.

Offshore plans
Assess your offshore savings and investment plans for fees and charges, complexity, tax efficiency and investment risk. Overseas fees can often be higher than in the UK (where the market is mature and regulated). This means that fees and commissions of offshore plans can often outweigh the benefits. So, it’s worth weighing up the pros and cons of keeping these plans, versus transferring them.

Investment Strategies
When people move country, it’s often linked to a change of life plans. That makes it a good time to review and adjust your investment portfolio, to align it with the UK market conditions and your long-term financial goals. Consider your life goals, desired retirement age and activities, the finances you need to fund them and whether your current investment strategy needs any adjustments.

Tax-Efficient Savings
Optimising your tax position is key, so explore UK tax-efficient savings options such as ISAs (Individual Savings Accounts). Understanding your options and how to make best use of them, will help minimise your tax burden and maximise your investment returns.

Tom Buss (Finura): Did you have any concerns about using a financial planner?

Mark Williams: Absolutely. I had a bad experience with an unregulated advisor in Dubai who ‘skimmed off’ such a percentage, that my money never grew beyond what I was putting in. I was looking for someone who was not only regulated but also transparent about fees and genuinely interested in providing good, honest advice. I spoke to a few advisers and settled on one who offered transparency and took the time to understand my situation.

Tom Buss (Finura): How did receiving financial advice impact you psychologically?

Mark Williams: There were two main impacts. Firstly, it gave me confidence that I wasn’t making silly mistakes with my investments and taxes. I felt assured that I was using my tax-free allowances and pensions wisely. Secondly, having an adviser helped me break bad habits like trying to time the market. They reminded me that it’s about the time in the market, not timing the market, which helped me avoid decisions that weren’t in my best long-term interests.

Tom Buss (Finura): How did this advice affect your family and work life?

Mark Williams: My wife doesn’t handle our finances, so her main concern was always, “Are we alright?” The clarity you provided reassured her. Knowing our retirement plans and what we can and can’t do financially gave us both peace of mind. It also helped me make informed decisions about property investments and our future.

4. REVIEW OVERSEAS PENSIONS

If you have an overseas pension scheme (either through an employer or privately), it’s important to assess how your foreign pension schemes will be treated in the UK.

QROPS
You may have been advised to transfer your UK pension to a Qualifying Recognised Overseas Pension Scheme (QROPS). These can benefit expats, as retirement income is paid gross of tax, and investment options in foreign currencies may be available.

Unfortunately, there are potential pitfalls; such as potentially higher fees and potential poor investment choices, due to a lack of regulation, that can limit growth or damage the value of your savings. The good news is, that it is often possible to transfer these plans back to the safety of the regulated UK environment, where fees can be much lower, allowing you to take more of the benefit from any gains your investments make.

Pension Transfers
Some overseas pension plans can be transferred to a UK-recognised pension scheme, which might offer lower charges, better growth potential and improved tax benefits. Things to consider include the timing of the transfer, potential transfer fees and any tax implications in both the UK and the country where the pension is currently held.

Taxation on Withdrawals
Understand how pension withdrawals will be taxed. Some foreign pensions may be subject to double taxation, unless there is a specific agreement, so being clear on this before making any withdrawals, will be essential.

Tom Buss (Finura): Can you recall any specific outcomes from the advice you received?

Mark Williams: Yes, the most significant was a £50,000 tax rebate in the first year. Had I been managing things myself; I would have missed this. The strategic planning, like maximising ISAs and pensions, made a huge difference. This experience underscored the value of professional advice in optimising financial decisions.

5. THINK ABOUT YOUR HEALTHCARE NEEDS

Upon returning to the UK, you will be eligible for NHS services, but if you’ve been using private healthcare insurance while overseas, you may find the service in the UK falls short of what you’ve become used to.

Private Medical Insurance
Consider maintaining private medical insurance to provide additional coverage and peace of mind. If you or your loved ones need urgent care, private medical insurance can be worth its weight in gold, so it’s worth thinking about when you move back, rather than waiting until you need it.

GP Registration
It’s also important to register with a GP as soon as you return. There is a shortage of places at some GP surgeries, so getting registered quickly will help to avoid delays, when you need to use them.

Dental care
There is a shortage of dentists in the UK, which means NHS cover is increasingly difficult to come by. Consider whether you should get dental insurance, to avoid long waiting lists and difficulty in finding the care you need.

6. REVIEW LIFE AND CRITICAL ILLNESS INSURANCE ARRANGEMENTS

UK life & critical illness insurance policies may be more comprehensive and affordable, than their offshore equivalents.

Offshore policies may provide adequate coverage for a UK resident; however, due to the maturity and competition in the UK market, UK policies may offer better protection and lower premiums. So, it’s worth reviewing your needs and existing policies, to make sure you’re getting the right level of cover and the best deal.

Tom Buss (Finura): What advice would you give to others considering financial advice?

Mark Williams: I’d recommend meeting two or three advisors to find someone you trust and who seems genuinely interested in your long-term success. Understand their fee structures and ensure they are transparent and fair. Also, look for an advisor who has experience moving between tax regimes themselves, as they’ll have a better understanding of the challenges you face.

7. MAKE INFORMED DECISIONS ABOUT PROPERTY

If you have bought property abroad, deciding what to do with it when you move back is crucial.

Selling Property
If you’re thinking of selling your overseas property, several factors must be considered to maximise your financial outcome and ensure compliance with tax regulations

• Capital Gains Tax (CGT): When selling property, you may be liable for capital gains tax in the country where the property is located. Different countries have different CGT rates and rules, so it’s vital to understand these implications, before proceeding with the sale.

• UK Tax Implications: Even if you pay CGT abroad, you may also be liable for tax in the UK. The UK has agreements with many countries to avoid double taxation, but understanding how these agreements apply to your situation, is essential.

• Timing the Sale: The timing of your property sale can significantly impact your tax liability. For instance, selling during a period of favourable exchange rates can increase your net proceeds. Moreover, the timing within a tax year can affect your tax status and obligations.

• Market Conditions: Assess the current real estate market conditions, both in the country where your property is located and in the UK. Selling in a strong market can maximise your returns, while selling during a downturn might result in financial loss.

• Legal and Administrative Costs: Factor in the costs associated with selling property, including legal fees, agent commissions, and administrative expenses. These costs can vary widely between countries.

• Exchange Rate Fluctuations: Be aware of how currency exchange rates can affect the final amount you receive from the sale. Consider strategies to mitigate exchange rate risks, such as using forward contracts or choosing optimal transfer times.

Renting Out Property
If you choose to rent out your overseas property instead of selling it, there are several important considerations and obligations to keep in mind to ensure you comply with tax laws and optimise your financial benefits

• Tax Obligations Abroad: Each country has its own tax regulations regarding rental income. You will likely need to pay tax on rental income in the country where the property is located. It’s important to understand these local tax laws, including any allowable deductions, tax return filing requirements and deadlines.

• UK Tax Obligations: Rental income from overseas properties must be declared in the UK. HM Revenue & Customs (HMRC) requires you to report this income on your Self-Assessment tax return. The income may be subject to UK tax, even if you have already paid tax on it abroad. However, you might be able to claim relief under double taxation agreements, to avoid being taxed twice on the same income.

• Allowable Deductions: In both the UK and the country where the property is located, there may be allowable deductions that can reduce your taxable rental income. These can include expenses such as property management fees, maintenance costs, insurance and mortgage interest. Knowing what you can deduct is essential for tax efficiency.

• Exchange Rate Considerations: Rental income received in a foreign currency will be subject to exchange rate fluctuations, when converted to pounds sterling. This can affect the amount of income you declare and the tax you pay. Consider strategies to manage exchange rate risks, such as using forward contracts.

• Property Management: Managing a rental property from afar can be challenging. You may need to hire a local property management company to handle day-to-day operations, tenant issues, and maintenance. The cost of these services should be factored into your financial planning.

• Legal and Administrative Requirements: Each country has specific legal and administrative requirements for landlords. Ensure you comply with local landlord-tenant laws, registration requirements and health and safety regulations, to avoid legal issues.

• Insurance: Adequate insurance coverage is crucial for rental properties. Ensure you have comprehensive landlord insurance, that covers property damage, liability and loss of rental income.
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UK Property Purchases
If you plan to buy property upon your return:

• Mortgage Eligibility: Returning expatriates might face challenges in securing a mortgage. Lenders often require proof of income, credit history, and possibly a larger deposit, so it’s prudent to plan ahead. Starting to rebuild your UK credit score, gathering financial documentation, and speaking with specialist mortgage lenders who understand the unique circumstances of expatriates, can be useful to pre-empt and avoid unforeseen problems.

8. REVIEW YOUR WILL

If you have a will, you may need to review or update it, to reflect your return to the UK. It’s important to understand the process and ensure your Will is valid under UK law.

This may involve reviewing and amending provisions to align with UK inheritance laws, appointing new executors or guardians, and ensuring any overseas assets are correctly addressed, to avoid legal complications.

Consulting with a UK-based solicitor who specialises in Wills and estates can provide valuable guidance in making these updates.

9. INHERITANCE TAX PLANNING

Nobody likes to think about dying but, while we’re on the subject of wills, we should talk about Inheritance Tax (IHT) planning.

IHT is a tax on the estate of someone who has died. The standard IHT rate is 40% of the value of your estate, which is above any available Nil Rate Bands. The standard NRB is £325,000 and is available to everyone. In addition, your executors may be able to claim the Residential Nil Rate Band (RNRB). The RNRB is an allowance that is applied to the value of your primary residence, providing it is left to direct descendant (children, grandchildren, stepchildren etc.). If you qualify for the RNRB and have built up assets including property, worth over £500,000, a big chunk of your estate could be heavily taxed. It’s important to be aware that the RNRB tapers down for estates valued at over £2 million, reducing by £1 for every £2 over this threshold.

There are various reliefs, exemptions and ways of planning for IHT that can maximise the amount you can pass on to your loved ones, without incurring IHT. These include gifting of assets, combining allowances of married couples and civil partners and the setting up of trusts. Getting this right can be very beneficial, but it’s equally important to ensure you are compliant with the UK’s tax laws, to ensure that your loved ones don’t have to deal with unanticipated financial complexities, when you pass away.

Tom Buss (Finura): Do you have any final thoughts or suggestions for expats considering this transition?

Mark Williams: It’s important to go in with your eyes open and understand the complexities of moving from one tax environment to another. Make sure you’re utilising all available allowances and planning effectively. If the details overwhelm you, find an advisor who can handle the boring but crucial stuff and provide you with peace of mind.

10. UK PENSIONS AND THE STATE PENSION

For most UK citizens, it makes sense to contribute towards their private and state pension for the future. Evaluate any pension schemes that you contributed to before moving abroad.

Frozen Pensions
If you have a ‘frozen’ pension, consider your options for reinstating contributions or transferring the pension to a more favourable scheme. It’s essential to review the fees, potential penalties, and benefits associated with your current pension plan compared to other available options to ensure you’re making an informed decision that will benefit you in the long run.

UK State Pension
The eligibility for a UK state pension, depends on the number of qualifying years of National Insurance (NI) contributions that you have made, any gaps in contributions and what type of contributions you’ve made. If you’ve lived abroad, it is worth reviewing where you stand in terms of your eligibility. Check your National Insurance contributions to ensure you are eligible for the full state pension. You might be able to make voluntary contributions, to fill any gaps whilst having lived abroad.

Understanding the potential tax relief advantages of utilising the current UK pension system could help you retire earlier and with more income.

SUMMARY

Navigating the complexities of returning to the UK after living abroad can be a daunting task. With all the other things involved in planning a return, it can be tempting to leave financial planning on the back burner and deal with the more immediate issues. But failing to plan, can result in costly and stressful decisions that could have been avoided.

Getting sound professional advice is key to making a successful return to the UK and avoiding potential pitfalls.

To find out more about how to make your move back as smooth as possible, book a free, no-obligation chat with Tom Buss at Finura. Tom is a fully qualified Chartered Financial Planner with over 15 years of experience helping expats manage their financial affairs when returning to the UK.

Email: tom.buss@finura.co.uk Tel: +44 7587 088995

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