Tax Advisory: Implications to consider when repatriating to the UK

Many “expats” are considering moving back to the UK either for retirement or work. This article highlights some of the tax pitfalls to watch out for, where a bit of advance planning can avoid significant unnecessary expenses.

Timing of UK Residence

As UK tax residence is the key factor for liability to UK tax, the timing of becoming a UK tax resident is critical. The UK Tax Year runs from 6th  April to 5th April, and the starting point is that an individual is a UK tax resident for the whole Tax year, even if they don’t arrive in the UK until part way through – ‘ split year’ can apply, but it is quite limited in its scope.

One particular trap for those returning to the UK is that they may end up with an ‘only home’ in the UK if perhaps one party to a marriage is staying in UAE for work, but the other has already set up a home in the UK. This can make both individuals UK tax residents, which can have disastrous tax consequences – for example, any ‘End of Service Gratuity’ payable on the termination of UAE employment becomes wholly taxable in the UK. Furthermore, if you have only been abroad for less than 5 UK Tax Years, you may have tax when you return on income and capital gains you made while away.

Rebasing Assets / Reviewing Structures

When you become a UK resident, there is no automatic rebasing of assets for tax purposes. If you have any assets, e.g. a London property, that you have held for many years, you could avoid some or all of the tax on any gain by selling it before becoming a UK tax resident. The same goes for investments – make sure you review these in plenty of time before you leave so that they can be sold and any gains realised tax-free.

If you have any offshore companies or trusts created while you have been resident abroad, review these, preferably in the Calendar year before you plan to return to the UK. Becoming a UK tax resident with an offshore structure in tow can give you a worse tax outcome than directly held investments. If you continue to have business interests in UAE after you return to the UK, consider corporate governance to ensure that the whole business does not become UK tax resident when you do.

Planning for Tax Efficiency after you return to UK

There are still ways that you can invest tax efficiently after you return to the UK, provided you have rebased your assets beforehand. Consider various options with a UK-qualified financial adviser, including appropriately priced offshore insurance bonds, ISAs and pension planning.

Moving back to the UK may also be the time to consider UK Inheritance Tax planning (the rate of UK IHT is 40%). This can be mitigated by making gifts, using trusts or a ‘Family Investment Company’, which can be a very flexible estate and tax planning tool for medium to high net worth clients.

Consider whether your Wills are up to date and whether you still have assets in UAE or elsewhere outside the UK which need to be covered by an estate plan.

The timing of buying UK real estate can be very important. New purchasers may face an additional 5% Stamp Duty from 1 April 2021 onwards because of new rules – this can be mitigated or reclaimed in certain circumstances, but strict timescales apply.

Michael Evans

Michael is a UK Solicitor with over 30 years of experience advising financial institutions and high net worth individuals on international trust and tax matters. He travels widely, especially to the Middle East, where he is a regular contributor to the Society of Estate Practitioners Arabia Branch.

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