From finding a new home and choosing schools, to packing up and moving house, there are so many things to consider when moving abroad that many people overlook some important tax considerations. With this in mind, we have put together this short guide. More specific advice should be sought from your accountant or from a qualified UK-based financial advisor that specialises in expatriate finance. HM Revenue & Customs have a very comprehensive website that addresses specific issues in detail and there is also the option of contacting them directly for advice.
Before moving offshore, it is important that you notify HMRC and that your UK tax affairs are put in order. Your accountant will provide specific advice, however if you are not required to fill in a tax return, it is likely that you will have to complete form P85 'Leaving the UK - getting your tax right'. If you are leaving the UK to work full-time abroad for a UK based employer for at least a complete tax year, you will need to do both.
Any income arising in the UK (except rental income – see below) is tax-free as soon as you become non-resident (see definition), providing there is a double taxation agreement in place with your new country of residence. If not these income payments remain liable to UK Income Tax. Either way the 10% tax credit on UK dividends remains non-reclaimable. Where authorised unit trusts own bonds rather than equities (and therefore pay out interest not dividends), investors can avoid a 20% deduction at source on distributions by completing form R105(AUT.2). Existing investments are not free of capital gains tax until you have been non-resident for a minimum of five full tax years.
UK tax is due on income from rental property. If you are non-resident and you get rent from UK property paid directly to you, your tenant must deduct UK tax at the basic rate - currently 20 percent. If you use a letting agent, they'll deduct the tax from the 'net rent' - after any allowable expenses they've paid. You can apply (form NRL1) to have the rent paid to you without tax deducted if you don't think you'll have to pay any UK tax, or if your tax affairs are up to date. But you'll still need to declare the rent on a Self Assessment tax return if HMRC sends you one. If the country you live in has a double taxation agreement with the UK you may be able to get relief there for any UK tax paid.
When renting out UK property there is a tax advantage from retaining a mortgage, as rent can be offset against interest payments. However note that there are restrictions on the scope to retrospectively increase a mortgage where the proceeds are not to be used to finance the rental property.
Banks and building societies normally deduct UK tax from interest paid or credited to your account. They should also send you a tax certificate showing the amount of interest and tax paid. If you are non-resident, you can arrange for the interest to be paid without tax taken off. You do this by completing form R105 and giving the completed form to your bank or building society. You may wish to check with your bank or building society to see if they operate this procedure. An alternative is to move your bank account offshore, for example to the Channel Islands, so that interest is paid gross.
If you're planning eventually to claim a UK State Pension or to return to live in the UK, you should consider whether you wish to pay voluntary National Insurance contributions while you are away and, if so, how you want to make these payments. Going abroad can create gaps in your National Insurance contributions record. This may reduce the number of years that count towards your full State Pension and restrict certain state benefits when you return to the UK.
You should look to take full advantage of the available UK tax breaks before departure. These are principally pensions (up to £50,000 per tax year – and potentially more if ‘carry forward is utilised’), ISAs (£11,280 pa for 2012-13) and JISAs (£3,600 per minor). While you cannot contribute further to these plans while you are non-resident, the investments will accrue tax-free and can be added to on your eventual return to the UK.