Points To Consider Before Leaving The UK

With the recent recession in the UK and unemployment rate hovering around 9% as of December 09 the country is facing some tumultuous times. Whereas many in the UK will be looking for work or alternative postings, there are abundant numbers considering the opportunities abroad and hoping to retire in the sun. This article aims to cover all the points you should consider before moving abroad.

HMRC

Your first point of action should be informing HMRC of your departure and making sure that they are aware of your new residency and domicile status by completing a P85. HMRC will require some sort of evidence from you that you are looking to leave the UK. This can be in the form of a foreign property purchase, a contract over overseas employment or proof that you have sold your UK property.

Income Tax In Your Depature Year

You should confirm your liability to UK income tax in the year that you leave. Most will be entitled to a full personal allowance in the tax year that they leave the UK – especially if you are assessed under PAYE.

As you are still technically a UK resident then you are liable to UK tax on any income until the time of your departure. The UK tax year starts on April 6th, however many other countries around the world apply the calendar year instead. If you are moving from the UK to a tax jurisdiction that has a different tax year then your new and previous country of residence will have to approach each other to determine your tax liability for that time period in each of the jurisdictions. Due to the complex nature of tax laws plus the element of dealing with two different tax jurisdictions this can b time consuming and it is recommended to speak with a specialist tax advisor in your new country of residence who is familiar with the local tax laws.

UK Capital Gains Tax In Your Depature Year

While you are a UK resident you are liable to UK Capital Gains Tax on disposals on worldwide assets. If you are hoping to retire abroad then you should look to try and avoid prompting a disposal unless if the gain triggered is within your annual exemption or any loss can be set against other gains.

Generally speaking it is usually recommended to postpone any disposal until you are a non-UK resident, however you should note that if you return to the UK without establishing 5 years non residency then gains garnered abroad may become liable to UK tax once more. If you decide to postpone the disposal of an asset then you should be aware that there may be tax liabilities in your new country of residence.

Wills

Inheritance rules abroad can differ vastly from those in the UK and it is strongly suggested that you seek specialist, independent advice. It is recommended that as soon as you have established yourself in your new country of residence that you draft a will covering any property that you have purchased there.

Inheritance Tax

A person’s liability to Inheritance Tax (IHT) is determined by your domicile, and for as long as you are registered UK domiciled you will remain liable to UK IHT on your worldwide assets. Generally people remain deemed domiciled for three years. Depending on the rules in your new country of residence there is the possibility that you could be liable to both, however a double taxation agreement can be reached through a financial advisor.

Letting Your UK Property

If you are not a UK resident and have property back in the UK it is normally handled by a letting agent who must deduct basic rate tax after deduction of allowable expenses.

If you do not use a letting agent and the rent is more than GBP400 a month then the tenant is responsible for deducting the tax. Non resident landlords can apply to HMRC to arrange to have the rent paid gross, however this is still liable to UK tax.

Stocks, Shares And ISAs

When you are no longer resident in the UK you are able to maintain your existing ISA, however you cannot continue contributing to it. You should also be aware that your new country of residence may not regard it as a tax beneficial investment and therefore should check with a financial adviser prior to leaving. While there may be no initial need to keep your ISA, you should consider if you may one day return to the UK and leave it for a future date.

UK interest is normally paid at a net rate of 20%. If you are not a resident in the UK however it may be paid gross. You should ask your advisor for a R105 prior to establishing your new country of residence.

Dividend distributions from other UK stock market investments will be paid net of UK tax but are usually taxable in your new country of residence unless a double taxation agreement has been made.

Single Premium Bonds

Single Premium Bonds have taken a bit of a battering in the recent recession and it is advised that you seek financial advice before you decide to cash-in these policies before leaving the UK.

UK laws treat bond withdrawals as a return of capital and tax can be deferred until all the capital has been withdrawn.

UK Life Assurance Policies

If you are looking to continue these policies after moving to your new country of residence then you should consider keeping a UK sterling bank account to keep the policy active, whilst informing your life assurance company of your departure. Any premium relief that you may receive on your policy will cease when you move abroad. You should also note that your new country of residence may view life assurance policies as ‘offshore policies’ and tax them differently.

Basic State Pension

If you are living within the European Economic Area then the pension will be indexed-linked. If however you are outside of the EEC then the pensions will not increase year by year. Instead, it will revert to the higher level current at the time you decide to return to the UK.

Your state pension is generally paid gross but can be liable to tax in your new country of residence. It can be paid into a UK bank account or alternatively into a local bank account in the currency of your new domiciled country.

UK Pension Schemes

Any UK pension scheme that you hold is liable to UK income tax. If your new country of residence has a double taxation agreement in place with the UK it may allow your pension to be paid gross and then become taxable in your new country of residence.

Although you can continue your UK pension scheme if you go abroad you may also wish to transfer your pension fund into an offshore scheme (QROPS). It is strongly suggested that you seek financial advice before arranging such a transfer to see that it meets the terms and conditions set out by HMRC. If the offshore scheme is not a QROPS then the transfer can be treated as an ‘unauthorised payment’ and therefore liable to taxation.

You can withdraw a 25% tax free lump sum from your UK pension, however you should check to see the tax liabilities in your new country of residence.

What To Do Before Leaving The UK

• Ensure your UK will is up to date
• Check with your advisor about your existing investments and pensions
• Research health costs and welfare benefits in your new country of residence
• Arrange your tax affairs accordingly as regards the year of departure
• Complete a Form 85 to notify the tax office
• Inform any policy providers of your new address and residency status
• If you are entitled to a state pension, contact the Pensions Service to inform them of your new details and account for where it should be paid
• Register for gross payment of interest if you keep a UK bank account open
• If you decide to keep your UK property you should inform your mortgage provider and local council tax department. You may also wish to consider appointing a UK letting agent