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Repatriating to the UK in 2023: Your instant guide (Part 1)

By David Norton - February 13, 2023

Are you an expat returning to the UK from Dubai...

And feeling overwhelmed?

This one needs a blog of its own. 

If you're considering moving back to the UK (soon or not so soon), there can be a lot to consider. 

Not only is there the physical move to plan for but the more mundane tasks of taxes and financial planning too.

Especially considering that UK planners are unlikely to understand the nuances of offshore products and investments...

(It’s best to start with having an international financial planner).

You can easily feel overwhelmed.

What if you forget an important task?

What if you run out of time?

What if there's something you haven't even considered at all?

This blog aims to put your anxiety to rest if you are an expat returning to the UK.

It will give you a better idea of what you need to start preparing for now...

So you can avoid any nasty and expensive surprises in the future.

Returning to the UK: Should you sell assets?

If you have time on your side...

Start looking at your financial affairs 12 to 18 months before you return to the UK. 

If you have assets to sell and profit to release, it makes sense (from a capital gains tax perspective) to do this before returning home.

Moving home on or after April the 6th is a great way to simplify your tax situation.

However, even the best laid plans seldom come to fruition.

Having the luxury of choosing your exact date of return is unlikely.

If you have assets such as a property and you can’t or don’t want to sell before you move, then there are additional planning opportunities available to mitigate potential tax on income from assets.

As always, everyone's circumstances are different.

Repatriating may not necessarily be all that complex for you...

As long as you take sage financial and tax advice from a professional.

Retiring back to Britain

If you’re an expat returning to the UK and have a Qualifying Recognised Overseas Pensions Scheme (QROPS), you’re required to inform the QROPS provider when you’ve returned to the UK.

If you then transfer your funds or take benefits from your QROPS, the scheme itself has to report payments to HMRC, regardless of how long you were a non-UK resident previously.

If you’ve started drawing an income from a pension scheme while abroad, you will be liable to tax in the UK on your income once you return to Britain...

(Regardless of whether yours is a UK registered pension scheme such as a SIPP, or whether it's a QROPS).

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It is very important to seek advice at this stage to ensure that the level of income drawn from your pension along with other assets is done as tax efficiently as possible.

For example, you may be able to offset tax liability by drawing down a portion from the pension commencement lump sum, using tax-deferred 5% withdrawals from an offshore bond, using the CGT annual exempt amount, transferring assets between spouses if one is a higher or additional rate tax payer, etc.

You have choices and options – but you must seek advice in advance of your return to Britain.

Otherwise you limit all your choices and options.

Repatriating: How are funds taxed in the UK?

If you’re UK-domiciled, have properly ceased UK residence and are not ordinarily resident in the UK (i.e., an expat), you can bring funds into the UK without a UK income tax charge.

But, if you’ve been an expat for less than 5 years, beware of the temporary non-residence rules...

These could see gains, realised during your absence, taxed on your return.

If you think you may be resident in the UK, UK-domiciled, but not ordinarily resident you will need to seek professional tax advice as your tax position is complex.

Furthermore, if you’re a UK non-domiciled individual, you have options on how you’re taxed.

Seek professional tax advice so you can plan effectively.

How to make and receive an international transfer

You'll need to have a bank account in the UK if you want to receive funds from abroad.

Simply supply the bank you’re transferring from with the following details about the account you're transferring to:

  • Your personal details
  • Your bank’s SWIFT code
  • IBAN (international bank account number) number
  • BIC (business identifier code)*

*Not always requested.

You may wish to use an international currency exchange firm for the transfer because many such companies charge low or zero fees for large transactions, and often offer better exchange rates than your bank.

Ensure you entrust a reputable, regulated company.

Don’t forget currency exchange issues

Unless you hold sterling offshore, you’re likely to encounter a rate of exchange when you move your funds back to Britain and into pounds sterling.

You can forward fix a rate of exchange if you use a foreign exchange specialist company.

This can be a wise move if you don’t want the risk of the currency crashing on the day you move it.

Explore your options with a regulated foreign exchange (also called FX) firm.

Income tax

Liability for tax in the UK is determined by residence and domicile status.

If you’re a tax resident in the UK you’re liable to UK tax on your worldwide income. 

As a non-resident expat you’re subject to tax on UK-source income only, such as rental income from UK properties or UK pension income, for example.  

Where you are subject to UK income tax, the amount you pay will depend on the level of your income, which falls into each of the tax bands.

At present, everyone has a personal allowance of £12,570 which you do not have to pay tax on. 

In terms of registering your arrival back in the UK with the taxman, HMRC says:

“You may need to register for Self Assessment, e.g. if you start working for yourself or have other income or gains from the UK or abroad. You don’t need to register if you’re an employee and don’t have other untaxed income to report.” 

You can find out more about self-assessment and who needs to send in a tax return on HMRC’s own website.

If you’re returning to the UK and taking up a job offer, you are likely to need to fill in a Starter Checklist form from HMRC.

This is for employees without a P45, (which is the form you’re given at the end of a period of employment in the UK, which provides details of your tax code, gross pay, and the tax paid for that year).

This Starter Checklist replaced the old P46, and it gets you back on the taxman’s radar.

Until your tax situation is clarified you may also have to have an emergency tax code.

Apply for both via HMRC’s own website.

For the purposes of income tax, you are generally treated as being resident for the whole of the tax year.

Therefore all income received in the tax year in which you become UK resident will be subject to UK income tax. 

There is however an extra statutory concession for the purposes of income tax which allows a ‘split year treatment’ to be applied.

That means income arising in the tax year of return (but before the actual date of return) will not be subject to UK income tax. 

The rules for this are quite different to those applying to the treatment of capital gains.

And, income tax split year treatment is only available where an individual is leaving or returning to the UK for the purposes of work.

You'll find more information on this here. 

National Insurance

National Insurance contributions (NICs) are payable in order for you to qualify for certain benefits including the state pension.

You can make voluntary contributions while you’re abroad.

However, if you haven’t done so and you’d like to catch up once you repatriate, you can check your NI record online.

You'll also be able to find out how any gaps you have may affect your future entitlement to benefits.

The type of NICs you pay depends on your employment status and how much you earn.

If you’re employed you stop paying Class 1 National Insurance when you reach the state pension age.

If you’re self-employed you stop paying Class 2 when you reach state pension age.

And, you stop paying Class 4 from the start of the tax year after you reach state pension age.

Capital Gains Tax (CGT)

Capital gains is a tax payable on any gain made on the disposals of the majority of assets, whether the disposal occurs due to a sale of the asset or gifting. 

It's assessed in the tax year in which the gain is made, and the rate at which it's paid relates to your total income.

When added to income for the tax year, any part of the taxable gain which falls into the higher or additional rate band is subject to CGT at 20% (28% for property), with any part below the basic rate band subject to tax at a lower rate of 10% (18% for property).

You have an annual exemption per tax year, below which gains realised will not be subject to CGT.

At the time of writing, this exemption is £12,300.

However, announced in the 2022 Autumn Statement, from April 2023 the tax-free allowance will drop by more than half to £6,000.

In April 2024, it will drop again, to £3,000.

Depending on your current residency status, you may not be liable to UK CGT on investment assets that were purchased while you were non-resident, and disposed of while non-resident.

However, once you repatriate, your entire gain from such a disposal could be liable to CGT.

It may be wise to realise any gains on investment assets before repatriation.

You don't need to go about this alone.

A qualified financial planner can help.

HMRC has a useful section on its website with help sheets to assist you in determining whether you have anything to pay.

Also worth keeping in mind is the fact that there is no relief or reduction in liability available to take into account gains that were accrued while abroad. 

For this reason, returning to the UK with unrealised gains on assets is not a good idea.

Where gains are realised during a tax year in which you are non-UK resident, it is important to be aware that you may still be subject to UK CGT. 

This can occur if you are non-UK resident for fewer than five complete tax years before realising the gain. 

It is also worth noting that, while capital gains are assessed in the tax year in which they are made, an extra statutory concession applies where you have not been resident in the UK at any time during the previous five tax years.

Disposals made after the date that you become UK resident are assessable for CGT.  

The result of this is that if, for example, you become UK resident half way through a tax year, you will not be subject to UK CGT on disposals made in the first half of the tax year.

However, if you’ve lived abroad for fewer than five years and made a taxable gain in that time, you may be subject to UK CGT.

Inheritance tax (IHT)

IHT may be levied on the estate of a deceased person who was domiciled in the UK, or who was not domiciled in the UK but who owned assets there.

It can also apply to the assets of deceased expats.

Domicile is distinct from residency, meaning that IHT is applicable to a UK-domiciled individual regardless of where they are resident.

The IHT threshold (or Nil Rate Band - NRB) is the amount up to which an estate will have no IHT to pay.

The amount of the NRB is currently £325,000 per individual.

This threshold has been frozen until 2028 - meaning it's remained unchanged for almost two decades. 

Assuming you’re a British expat, you’re likely to be a UK-domiciled individual whose estate could be liable to IHT.

So you may want to consider taking advantage of certain IHT exemptions.

We've listed 7 simple ways you can save you hundreds of thousands of pounds on IHT.

Potentially Exempt Transfers (PETs) 

PETs are gifts that potentially qualify for an exemption and are made, in general, to either an individual or an absolute trust. 

A potentially exempt transfer will only become chargeable to IHT if the donor fails to survive for seven years from the date of the gift.

In this instance, it is regarded as a failed PET.

On death within seven years of the gift, the value of the failed PET is added to the donor's estate, along with any other gifts made by the donor in the seven years before death. 

Only where the value of the failed PET, when added to any earlier gifts within seven years, exceeds the prevailing NRB (£325,000) will IHT become payable on the failed PET. 

If there is an IHT liability on the PET, then this may be reduced by taper relief, where the donor has survived at least three years from the date of the gift.

The relief is calculated as a percentage reduction of up to the full IHT rate depending on the length of time between the gift and date of death, as illustrated in the table below:

Years from gift Taper relief 
0-3 40%
3-4 32%
4-5 24%
5-6 16%
6-7 8%
7+ 0%

That's it for the first part of this blog.

Hopefully it gives you a feeling of clarity, confidence and control over your ideal future.

It's important for investors, like yourself, to have all the information they need to make better, more informed decisions.

Look out for the second part of this blog, covering everything from lifestyle to pet relocation, in the next few days.

And, as always, if there's any financial questions keeping you awake at night...

Get in touch so you can have the unbiased answers you're looking for.

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