Useful Expat Tax Advice: Maximise Savings & Avoid Penalties

Expat Tax Advice

If there's one part of being an expat that just isn't at all attractive, it's the tax implications. Now, often time this is actually advantageous from a tax perspective - aside from the stereotype of non-domiciled people avoiding tax, it is natural that many of the sort of countries people more to have more relaxed tax regimes.

After all, the move is often motivated by a desire for lifestyle change, so it's natural that people find themselves in countries that are more laid back, and this extends to their macroeconomic regimes as well as their social strengths.

UK Perspective

Although we are based in the UK and will write this blog from a UK expat perspective, we will try to keep it as generalised as possible in order to ensure that it's valuable for everyone.

Strabo is meant to be a universal platform for internationals, and we want to aim functionality at people from all countries. We have included every currency in the world in our currency switcher from the very beginning, and highly value our expat community.

Understanding Expat Tax Obligations

The first thing to think about is - what are your circumstances? Have you already moved? Or are you thinking about moving, and worried about what sort of tax you'll be liable for. Ok one step back even before that - why are you moving? It's likely one of the following 3 options.

1. Working Abroad Some of the Time

This depends on your residency. If you are a non-resident, you will be mostly exempt from UK tax. For this to happen, you must have been working outside the UK for more than one full tax year. By extension, you are then not allowed to spend more than 91 consecutive days in the UK, or more than 182 total in one tax year. You will need to be very careful about how much time you spend in the UK. Finally, to be a non-resident, you must also not work in the UK for more than 30 days per year.

2. Working Abroad Permanently

If you qualify for the above conditions, you'l be classed as a non-resident. That being said, if you still receive some income in the UK, such as income from an investment property that is based here, you may still be taxed on it in the UK.

3. Retiring Abroad

If you are retiring abroad but still have UK based pensions, you will have to decide how best to take income from those pensions. Some people choose to transfer their pension into an overseas qualifying pension scheme, in order to have it paid in the country where they now reside. This can be simpler and incur a lower tax bill than taking the income in the UK, paying UK tax on it and then having it transferred over to your new country of residence.

Top Tax Benefits for Expats

HMRC in particular has massively tightened up its approach towards taxing expats and their obligations to contribute towards the British tax system in recent years. This is only likely to head in one direction, particularly due to the shift in political focus.

Keeping in touch with the UK regulatory changes can be tricky enough, let alone the new laws in the jurisdiction of your new home. With that in mind, again we urge you to either conduct very detailed personal research before moving, or to seek specialist advice, particularly if your circumstances are slightly outside the norm.

Common Tax Mistakes Expats Make and How to Avoid Them

There are a number of mistakes that expats make when leaving the UK - many due to either naivety or a desire to get out of paying what is usually the highest marginal tax rate.

1. Mistake No1 - completion of UK tax returns online using HMRC's platform. You are unable to declare non-resident status using HMRC's online tax system. It has to be declared with the filing of a hard copy of the supplementary return. This supplement is what declares your residence position to HMRC
2. Mistake No2 - thinking you're not a resident because you only spend 90 days in the UK. This is a requirement but is not all you have to do - you are also obligated to complete a Statutory Residence Test
3. Mistake No3 - thinking you can leave the UK for a year and avoid paying UK capital gains tax when you sell some investments or take a dividend. Essentially, if you return within 5 complete tax years, you will likely still have to pay it on your return.
4. Mistake No4 - thinking if you pay tax on your pension in the UK, you don't need to declare the income in your new country of residence. For example if you are tax resident in Germany, you will still have to declare your income there and apply to have your pensions paid without the deduction of tax.
5. Mistake No5 - thinking leaving the UK will make you exempt from inheritance tax. All British Expats will remain within the UK's inheritance tax net, unless they have taken steps to completely sever ties with the UK and acquired a domicile elsewhere. Without a domicile, you are often referred to as a 'non-dom'. There are also separate rules if a British expat is married to a non-dom, but you should consider individual circumstances with an adviser and act accordingly.

Double Taxation: What is it and How to Prevent It

Now, what you absolutely want to avoid is paying double tax - you're structuring your assets so that you can pay once, and hopefully less than you would have before. So this is important!

Can you be taxed on the same income twice?

Technically, yes you can be asked to pay tax both in the UK and in your new country of residence. However, some countries have a double taxation agreement with the UK, so it can be possible to claim back some or all of the 'extra' tax (depending on the individual circumstances). Please seek advice on this if it is a concern.

What About Financial Advice?

A common problem faced by internationals is finding a trustworthy financial adviser to dispense tax, especially if you are living in a new jurisdiction that is unregulated. Please be incredibly careful about taking financial advice, particularly advice that pertains to tax or investments, from people that you don't have experience working with.

You should do plenty of research before paying anyone any fees whatsoever, and if in doubt should try and take flat fee advice on a time-basis rather than a percentage on assets or transactions. This keeps incentives slightly better aligned.

Some advisers based in the UK offer specialist international advice, or might be able to connect you with their overseas counterparts, so this could also be something that you might want to explore.

Conclusion

If you thought preparing your taxes was a minefield in the UK or your country of birth, as soon as you leave to a new country it becomes even more challenging. Every country in the world has a different tax regime, so it's impossible to prescribe something that will be applicable to all of them.

That being said, there are a number of best practices you can adhere to that will make the financial assimilation to a new country that much easier, many of which we have tried to list above.

One of the smartest things you can do is keep a close eye on exactly what assets you have! Particularly as this changes over time, and if you're spread among different countries it is subject not just to market risk but also currency risk, meaning that the values of your holdings can be much more volatile than before, and the geographical allocation needs to be managed appropriately.

Fortunately, we can help with that! At Strabo, we've built a fully seamless multi currency dashboard that allows you to manage your assets all over the world. You can switch between currencies based on live rates, create custom dashboards to manage your assets across different countries and show the breakdown by asset, country, holding type and more. Check it out!

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