Home » Common Tax Issues For UK Expats

Common Tax Issues For UK Expats

Carlie: Hey there it’s Carlie with the Expat Focus podcast. Let’s face it, for a lot of us when we move abroad, the last thing we really wanna think about is our tax situation. Getting paperwork in order, remembering reporting dates and deadlines, for a country we’re no longer living in.

It’s not exciting, but it’s necessary. And my guest today is going to run through some common scenarios for UK expats. Oliver Heslop is the owner of GETS – Global Expatriate Tax Services – and his company has tax specialists based in the UK, the US and Australia.

During our chat, Oliver provides some interesting tips and examples, but it’s important to point out that what he talks about here is not meant to be specific advice. For that, you should get in touch with him, or another tax advisor. So, first of all, tell me Oliver, what sort of UK expats do you work with?

Oliver: I work with Brits, British expats anywhere in the world, in any country, even if they’re popping back and forth, and I work with foreign nationals coming to the UK, of any nationality.

Carlie: And what would you say their number 1 question is about their tax obligations?

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Oliver: I get loads of email enquiries, especially through Expat Focus, and the question is, “I don’t want to pay any tax, or how do I avoid tax altogether?” Which sounds crazy, but for people going to the Middle East of course that, that’s real, you know it is real, it’s just, “how do I do it, how do I, you know, put up with the other aspects, inconveniences of living in, you know, certain more hostile climates, etc, temperatures, how do I stop paying tax?”

Carlie: And what would you consider to be step 1 for a British citizen then, on the tax front, when they do move to another country?

Oliver: Well I always say to people who contact me, I say get yourself an affordable expat advisor, and I don’t shove myself down their throats, you just want somebody who’s got an expat background as well as an accounting background, ‘cause unfortunately the danger is that if you get an accountant, they could be brilliant at book-keeping and profit and loss, but they won’t know the international side of things, so get somebody with an expat background just to speak to first, for that first briefing.

Carlie: And Oliver, to be clear, if you’re a British citizen but you’re moving to another country, should your expat tax advisor be based in the country you’re moving to, or should they be based in the UK?

Oliver: You, you’ll need them to have a, a local knowledge. So what I would do for example is, if you’re going to Spain, I will hook up with my colleague in Spain, because I’ve got a network, I think it’s at last count 102 countries, so I would do the UK side of you leaving, and my colleague in Madrid would do the other side. So you’ve got local knowledge in both states.

Carlie: In what circumstances might you still have a tax obligation back in the UK, while you’re working or living abroad?

Oliver: This is a real pain, and it happens all the time to people, they, a British person going to Europe, if you own a property back here or your savings are back here, it’s still taxable. I always see it as a way, it’s emanating income, it’s sitting still in this country unfortunately, so, you’re going to France, they’ll tax you on your wages, and the UK is still interested in the rent that you’re getting on the, the London house or the Birmingham house, because that property is sitting here. So I get a lot of people who say, “Oliver, I’ve gone for 10 years, do I still have to file?”, unfortunately you do still have to file, and you still have to tell the UK tax man that you have a house in this country and you’re getting rent on it.

Carlie: So, is this something I should just know, Oliver, or is there gonna be someone who tells me this stuff when I, you know, pack up to leave and rent my UK house out?

Oliver: Um, this isn’t a blatant plug, I’d use Expat Focus, and write to somebody like me, or there’s loads of other names on there, you’ll write to me for free and say “I’m about to go abroad, what do I need to think of?” and you’ll get the advice that way. But there are other chat forums as well, for just for Brits abroad, and they will do it, they will say “this is your top 10 of things to think about”, but don’t try to do it on your own, don’t try and work it out by speaking to the tax authorities when you get to the other side, because they have no duty to get it right! And you’ll be punished, when I say punished I mean just in terms of fines, if you get it wrong, so get an advisor, use your online resources, a lot of people are free now for the first 30 minutes, and that’s how I would do it.

Carlie: Oliver, one of the big appeals of course of moving to a low or no tax country like the UAE is that you have such a low tax obligation. But that doesn’t mean that you are necessarily exempt from having an obligation back in the UK.

Oliver: I think that’s right, and I think if we take, let’s, no let’s use America for a change, but it’ll be the same in the Middle East, I’m going to go and work in Texas this year, let’s say for example. I’ve still got to send all these forms in to the UK tax man, I’ve got to tell him that I’m going, that’s a P85, and when I’m there I have to tell him what’s happening when I’m there, I’ve still got that house, and I am working full-time abroad, I’m not coming back much. The UK tax man will ask that, he’ll say “well you’re in Texas now, but how often are you back to see family, Christmas, summer”, he can ask all those questions and, and sad to say it just goes on and on. If you have a good local inspector he’ll stop and say, “OK I believe you now, you’ve been there for 5 years, I’m going to switch you off”. But unfortunately in the early years you’ve still got to report in to your home country, which is, which is painful really.

Carlie: That’s actually a really good point, what happens if you do plan to split your time between the UK and another country? How does that affect where your tax obligation is?

Oliver: This is where it gets quite messy. You could easily be taxed in two countries. Let’s take an American coming to London, could very well be taxed in two places. And that’s really when that sort of person will end up on my desk, because they’ve got tax at home on everything, they start getting taxed on everything in this country as well, and you go to a tax advisor, and there are ways round, there are treaties and there are agreements between, the UK and the US don’t want you to pay tax in two places. Would you believe, they want to help you and they will, but you just need to know the system. And I guess that’s another good point to mention, when somebody arrives, they might only use me for year 1, or year 2, and then they’ll fade away and do their own thing, and they can do their own returns, so, you’re not signing up for ever with an expensive accountant.

Carlie: And there is a way out of it, if you do come to the party late with this stuff and do have to try and sort out the double tax situation later?

Oliver: Absolutely yes, if you find you’ve paid in two places, you could be going, going over to the Middle East or somewhere and you, you’re kept on PAYE, you’ve paid too much at home, in the UK, and you start, you have obligations elsewhere, yes, it can all be unravelled and unpicked.

Carlie: That’s really good to know! (laughs) Well the worst thing, I guess, is if you mistakenly, you know, assume something about your tax situation and go on for a year or a couple of years without doing anything about it, and then get lumped with a big bill. I mean it’s, it’s really good to know that there is a way to amend it.

Oliver: Yes. I’ve got two sorts of expats really, you’ve got, you know, highly organised ones, who’ve got the time to plan in advance, but loads of you are just too busy, understandably, you get that new promotion, and then you come to me in 18 months down the line, it’s not out of laziness or negligence or anything, it’s just, “I can’t get to it, Oliver, there you go, I’m handing it over to you”, and then I go backwards, and I, I get refunds where I should get refunds, we make payments where they’re late, and countries understand as well, you don’t always get penalties even for late payments, ‘cause you just say “Look I’m really sorry, do you know what it’s like working in Iraq?” And they can understand…

Carlie: A little bit busy! (laughs)

Oliver: Exactly, yeah exactly, it’s, you’ve got other things on your mind, haven’t you?

Carlie: So at the time that we’re recording this, Oliver, we’re heading into the Christmas season. What sort of tax issues typically come up, especially as Brits abroad might come home for the holidays?

Oliver: I need people to be counting their days. Anybody that I’m acting for, every year I have to tell the tax man how many days you’ve been back in the UK, so, any expat who keeps a diary will know that’s important information, whether it’s a 2 week or a 4 week holiday back in the UK, that counts. A very unfestive, boring thing to think about, but the days that you are here is important to your tax advisor. Just talking about the whole population of British expats over in the Middle East, the number of days that you come back here can trigger tax again, so whenever I’m meeting a Brit who’s going abroad for the first time, I’ll say “Go abroad, you have to be away for a full tax year”, and the number of days you’re allowed back here is, as a rough and ready it’s about 90 days, so that means that a female executive with children, who comes back here quite regularly for school holidays etc, can trip over that. Anybody doing project work, in IT, who comes back to London quite regularly, you’ve got to watch your days, ‘cause suddenly that tax-free income in the Middle East, suddenly it’s all taxed.

Carlie: Oliver, does any particular client stick out in your mind, in terms of their tax situation?

Oliver: I’ve got a couple, I’ve got people at the moment who have fled Hurricane Irma, in the British Virgin Islands, and that’s a great test case for everybody, so this lady came home for three months, and she said “Oh my God, I’ve been away for 10 years, I’m a non-resident, I earn £40,000 a year, have I got to start paying in the UK, because I’m sheltering here while my house is being rebuilt?” And, the answer is no, the UK government will look after you, they won’t, you can’t take refuge forever, but they do recognise that people have to come home for, you know, for exceptional reasons. If a woman comes back to London to have her baby, tough, they will tax you, you know, they’ll say, a pregnancy is not exceptional, would you believe? But, if you have, you know, if your child became ill and you had to come home, they, you’re not gonna be penalised for that, there are exceptions, and they don’t just tax every day that you, you come back here, when you’ve got a personal, exceptional reason to be here.

Carlie: I guess another thing that’s really high in people’s minds at the moment, Oliver, would be Brexit, and what may or may not happen, and what may or may not lead them to come back to the UK or to leave the UK. Do we know at this point what tax changes are on the cards, and when they are due to be enforced because of Brexit?

Oliver: I’ve seen a few things. I think the answer is really, it’s like if you ask the Prime Minister now what’s going to happen, they, she doesn’t know, does she? I think they’re work-, they’re all working, and I’m not knocking them, but it’s, nothing is final. I’ve seen a few things going on. Inheritance tax is changing, in the whole of the EU the way that wealth is paced, passed from mother to son or any other combination of generations, that’s all changing. We’re about to step out of that, so that’s complicated. If you are, if you own a French holiday home, how, you know how’s that going to work, is that French house gonna be passed under French law or UK law? So, we know that’s changing. But the UK, the other thing I thought this week as the divorce settlement that we’re about to pay of 40 billion, 40 billion sorry is today’s figure, it was 50 yesterday. I was thinking, well is income tax gonna go up? Are we gonna have to pay for that? Apparently they’re saying not, they’ve got a war chest. So, nobody knows!

Carlie: And I guess that’s the important point too, there’s so much discussion on forums right now and in groups about what you should do when, should I move now, should I move back home now, should I sell my assets now or later? But there really is still a big question mark.

Oliver: Yeah. And I think what, I think the way to do it, if it was me, when I see a lot of people, let’s focus on London, ‘cause I’m sitting in the south-east, people say “What shall I do? What’s happening with Brexit?” And I say, you know, you should be looking really at more common-sense financial stuff. Don’t look at tax stuff, because they’re not telling us anything. Look at the value of your property, because we know that the market’s slowed down over the last year or so, that is your indicator. We know unemployment’s down, we know that today’s news is that immigration from the EU is down by a third. That’s huge in the last twelve months. So those are the indicators that our economy is changing, but our Prime Minister is not saying what she’s doing to tax, because I don’t think she can! (laughs) Next, she’ll have to decide next year, when she sees how many people are living here, for example, or whether unemployment’s changed. So, it’s reading the newspaper, and just seeing what they’re saying about slow-down, or you know, that sort of stuff.

Carlie: Oliver, many UK expats might choose to keep their house initially until they really settle in to their new life abroad, decide whether they’re gonna stay or not and invest locally. So what are the rules when it does come time to sell back home, and you’ve already moved overseas?

Oliver: Great, I’m really glad you’ve asked about this, because it’s changed, and everybody’s getting caught by it. The simple answer, I always used to say it, it’s largely tax-free. So we used to say “no Capital Gains, you’ve lived abroad for quite some time, it used to be your main home, great, just sell it”. As of 2015, there is a potential tax charge on some of the gain. So all that I would ask an expat to take away from this is, if you’re selling a house in the UK, a bit of it’s taxable, and the reason that’s come about is because of loads of investment in London by Chinese and Russian property buyers, people living abroad and making huge profits on resale of property. So now everybody living abroad pays an amount of tax on the growth, a small amount of growth post-2015. It’s not a big deal now. If you call me in 2025, suddenly we’re gonna have had a whole ‘nother 10 years growth, and it’s, it’s gonna be taxed now, which is something to factor in unfortunately, it used to be a tax-free investment in the UK, and now it isn’t.

Carlie: So what about if it comes time to move home? Back to the UK. You’ve accumulated savings, or assets, while you’ve been away. Can you just transfer your earnings back home without any dramas?

Oliver: There is a potential drama, but it is so easy to avoid. So, this is what we call labelling. So if you were to say to me, you’ve been abroad and you’ve got savings of £20,000, we’d just label that up, we want the UK tax man to see it relates to your overseas life, and your overseas work. I’m bringing it back, I’m putting it into a new separate HSBC account. The whole area’s called structuring of bank accounts, and what I really don’t like to see is if you just bring all the money back and put it into one pot, and then the tax man’s gonna say “oh, so where’s this from? When was this earnt? When was that earnt? Prove it to me.” It becomes what they call a mixed fund, and then he’ll try to tax some or all of it. So, we always just, before people return, we say “can you just give us a call, and let’s just set up some new bank accounts, and keep everything ring-fenced and separate”.

Carlie: That’s something I would never have considered Oliver, that you should just keep in mind where exactly you’re putting that money when you do transfer it.

Oliver: Yes, and people who are on the expat circuit, and have had more than one assignment, they know, but it’s regularly missed. The worst thing to see is a letter from the UK tax man saying “I see you’ve got savings of £15,000, where’s that money from?” You just have to prove it, you know, you’re not trying to hide anything, or conceal funds, you’ve just got to demonstrate that money came from another country and it, it’s, you know it’s difficult to prove.

Carlie: So what is the risk if you do go about things inadvertently the wrong way, when it comes to moving your money that you’ve earnt abroad, or selling your home, or just trying to manage your finances?

Oliver: I would say well worst case scenario is the tax that you haven’t paid, plus 100% of that tax. Now I do see that.

Carlie: 100%! That is a fine?

Oliver: Yes! That’s right. And I think India’s still 300%. But I have to say, that never happens in practice. They start with 100, then they work down based on level of guilt or negligence really. So let’s say you and I Carlie, really didn’t know, they could probably immediately halve it and say “I made this error out of ignorance or negligence, I didn’t mean to”. The people who get 100% are the people who run and hide, and that goes on a lot, people who get caught, there’s a huge difference between you Carlie writing and saying “I’m sorry, I’ve got two bank accounts in the Isle of Man, I wish I’d told you”, then they’ll say “Fine, plus 15% penalty”, as opposed to them catching you, and that’s getting more and more common now, banks in the Isle of Man are sending the data, they have to send it in to the UK tax man, so he will find out about Carlie’s accounts before you confess! And then the fine goes up.

Carlie: So honesty is the best policy always! (laughs) Of course not everyone that works abroad is in an executive high-flying job, for example. So how much do you need to be earning before you seriously investigate this stuff and making sure that you’re doing your tax properly?

Oliver: I think, normally we say about £40-50,000 per annum. However, I’ve got two expatriates at the moment, a man and a woman who are working for a charity abroad, with children’s welfare in Africa, I think they make about £25-30,000 each. They’re in Africa, they’re here as well, they’re getting taxed in the UK, and it’s still worth them using us, we have found major savings actually on their accommodation costs, so it does go lower, but if somebody at that income level, if I can’t do anything much for them it’s not worth hiring an advisor. So 50’s a good benchmark.

Carlie: That’s it for today. If you’re a UK expat or planning to be one, I hope you found it useful. Let us know by going to expatfocus.com, follow the links to our forums, and facebook groups. If you wanna ask Oliver any questions, you can do that too. On our website, hit the financial tab, go to UK taxation, and you can seek some no obligation advice. Remember to check out our other podcast episodes, they’re at expatfocus.com/podcast. They’re also available on iTunes. And I will catch you next time.

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