Key financial considerations for people returning to the UK after living abroad

Even as a British national, returning to the UK after living abroad is not as straight forward as simply packing your bags and returning home. As with any international relocation, careful planning and preparation is required to ensure you avoid making any expensive mistakes.

While there are many factors that you need to consider, this article will primarily focus on tax, property and financial planning matters.

As with any international relocation, if you are returning to the UK you should always seek advice about everything covered in this article regardless of how confident you are that you can handle it yourself. You should also never rely on information obtained from online articles as, while the rules to repatriating are regularly changing, every individual’s situation is unique and requires careful consideration from specialists.

If you are unsure who you need to speak to, we provide free introductory services that will connect you with hand-selected specialists who have helped create this article and will be able to provide you with guidance and advice.

Ensure you start planning as soon as possible

For many people, the decision to return to the UK will be driven by specific circumstances often outside of their control. However, if you are fortunate to be able to determine your own timeline for repatriation it is never too early to start planning your return to the UK.

Experts in our network recommend that you should give yourself between 12 and 18 months preparation time and most tax specialists state that you give yourself at least a full UK tax year between deciding to move home and actually making the move. They also recommend that if you wish to keep things as straightforward as possible, you should return to the UK at the start of the tax year (i.e. 6^th April).

Aside from the obvious reason of being well prepared, the reason for starting the planning so far in advance is because things rarely run smoothly. Depending on the complexity of your financial situation you will find that restructuring your finances, selling assets and ensuring you have a home to move into can take significantly longer than you might expect – especially if you have lived outside of the UK for a long time.

You also need to consider that if you become a tax resident of the UK without careful consideration, your worldwide financial assets will be subject to UK tax rules as well as local tax rules meaning you could be stung with an unnecessarily large tax bill.

UK and local tax considerations

Tax residence status

Understanding your tax residence status in the UK is critical to ensuring that you pay the correct tax in the correct jurisdictions. As you may be aware, to determine your UK tax residence status you will need to use the Statutory Residence Test. For people intending to return to the UK you need to be extra careful of accidentally changing your tax residence status by spending too much time in the UK while preparing to move.

For example, if you have lived abroad for fewer than three years, you could be considered a UK tax resident if you spend just 16 days in the UK. For those that have lived outside the UK for longer than 3 years, you would need to spend 46 days in the UK to be classed as a tax resident. This reduces to 30 days if you are considered to be staying in a residence which is classed as your main home.

However, every situation is different and you should never just make assumptions about your UK tax residence status based solely on the time you have spent in the UK.

It is also important to consider your tax residence status in your country of residence. Given that the UK tax year runs from the beginning of April to the end of March, and most other countries have a different tax year, you need to take into consideration how your local tax residence status might affect your situation. Where there is a double tax treaty in place, this will often be covered.

Split Year Treatment

If you plan to return to the UK during the tax year, you should investigate whether Split Year Treatment could apply to you – this is especially important if you currently live in a country with more favourable tax rules than the UK.

If you qualify for Split Year Treatment you would be allowed to apply the tax rules of the UK from the moment your return to the UK, rather than for the whole tax year even if you become a tax resident in that year.

Bringing money into the UK when you return home

Depending on how long you have been abroad, any income (including gains from the disposal of assets) that you bring into the UK could be subject to UK income and capital gains tax rules.

For example, if you have lived outside of the UK for fewer than fives years and during that time you have realised some gains and you return to the UK, those gains could be subject to UK taxes when you return and become a UK tax resident again.

This is typically not the case if you have lived outside of the UK for more than five years, depending on the assets that you have sold.

For this reason, before disposing of any assets, it’s critical that you incorporate your future plans for repatriation before making any decision. There may be financial products and tax wrappers that could be utilised before returning home, and you may need to separate money from different sources and ultimately ensure that you are not exposed to unnecessary tax rules when you return.

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Re-registering with HMRC

When you originally left the UK, you would (or at least should) have declared to the HMRC that you no longer live in the UK.

When you return to the UK with the intention of being employed, you have to announce to the HMRC using a Starter Checklist (formerly a P46) which details any income you have earned and any taxes that you have already paid.

If you are not employed, you may need to register for Self Assessment which requires you to file your own tax return by the 31^st January for the previous tax year.

Investments, pensions and QROPS

Depending on how long you lived abroad, you may have accrued a range of investments which are specifically available to non-UK residents while also providing significant tax advantages to people not subject to UK tax rules.

Often this is likely to impact those people that lived outside the UK for a longer period, or those that were not expecting to return home.

Options for restructuring assets for tax efficiency

While it is quite possible to maintain your offshore and non-UK investments if you return home, it is vital that you understand all of the potential tax implications of any gains or income you receive from your investments as the UK tax system may not be as favourable as your current country of residence.

For this reason, if you already have a financial advisor and they are currently unaware of your intention to move home, you should speak to them as soon as possible to discuss the impact of your repatriation on your investments.

You are likely to also need to engage with a UK, FCA regulated financial advisor before repatriation to understand what alternative options might be available to you that offer you opportunities for growth.

Combined with making financial decisions, you must also speak to both a local and a UK tax expert regarding any investments before selling or realising any investments as you may find that you are charged with taxes (for example, UK Capital Gains Tax) if you dispose of an asset and then repatriate in the same tax year.

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Potential fees and charges

Aside from the essential tax considerations surrounding your investments, you also need to investigate potential charges that may be due, such as early-exit fees and back end loads.

When signing up to any investment every investor should be fully aware of all fees and charges that might be applicable, however due to some lax financial regulations and unscrupulous financial advisors, this might not always be the case and while you might believe you can cash in your investments easily – the actual cost of doing so may be significant.

As such, if you believe that you may be subject to particular charges you may wish to have an independent review of any investments or pensions you have established while living abroad to ensure that you can sell your investments without being stung with additional charges.

Overseas pensions and QROPS

Many expats will transfer their pensions to a QROPS while living abroad and, while this is a perfectly legitimate practice, it is all too often done under pressure from pushy sales guys benefitting from lucrative commissions who have not taken your long-term plans into consideration.

A common misconception is that if you have a QROPS you must transfer it back to a UK scheme. This is not necessarily the case and you can draw an income from your QROPS if you return to the UK.

However, any income received from your QROPS will be subject to the tax rules at source as well as the tax rules in the UK (once you become a UK tax-resident). It is therefore essential to get advice about how your QROPS would be taxed and ensure that there is a tax-treaty between the UK and the jurisdiction of your QROPS to avoid being subject to excessive taxes in both countries.

If possible, you may wish to consider transferring funds to a UK pension scheme which would ensure you are only subject to UK tax rules. Be aware, though, that any pension transfer to a UK scheme will mean that the pension is subject to UK rules. This could mean that you face a charge if you have exceeded the pension lifetime allowance (normally 25% of the excess) – something that QROPS are exempt from.

If you are still working and wish to continue paying into your pension, a QROPS would not typically allow you to make payments from the UK. Therefore, you may have to seek alternative options, or consider transferring your pension to an alternative pension scheme.

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Additional tax issues

If you lived abroad (i.e. been considering a non-resident of the UK) fewer than five consecutive tax years, HMRC would consider you to have only been temporarily non-resident and, if so, you would be subject to different tax rules. This is especially significant if you withdrew any money from your pension while you were abroad as that money is going to be subject to UK pension rules as well as income tax rules.

Whatever your circumstance, again, it is vital that you get independent advice from an expert that understands the nuances of how QROPS are treated in the UK as well as UK pensions rules to be able to offer you impartial advice on the best way to handle your pension to avoid attracting potential charges and unnecessary tax.

Property and mortgages

When you relocate back to the UK, you’re obviously going to need somewhere to live.

While some expats keep a UK property while they live abroad, this is not always possible.

Unfortunately, if you have lived outside of the UK and not maintained any financial assets (eg. bank accounts, mortgage or credit cards) or a UK address of any kind, you are unlikely to have a credit rating. This can make obtaining a mortgage a significant problem.

While it is possible to get a mortgage while still living abroad, your options will be limited and you might face higher than average interest rates along with more limitations on the loan to value of the property.

It is advisable to speak to a specialist mortgage advisor as soon as possible to ensure you know your options and can also create a situation that would enable you have the paperwork in order to get the best possible mortgage deal.

In many cases, it might be prudent to relocate to the UK and live in a temporary, rented accommodation in the short term to establish your UK credit rating as it is easier to obtain a mortgage and buy a property once you are a UK resident again.

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Selling property

In the UK, while your primary residence (i.e. main property) is not subject to any capital gains tax, UK residents are subject to capital gains tax rules when selling other properties in the same tax year that they return to the UK, even if those properties are located abroad.

As soon as you know you are returning to the UK, preferably in the previous tax year, you should seek advice from a tax consultant to discuss the most tax efficient way to sell any properties that you have to ensure you do not end up being left with an unnecessary capital gains tax bill.

Currency considerations

Once you have received your advice and made your decisions about how you are going to handle your affairs, it is quite likely that you will be intending to transfer large sums of money back to the UK. Whether this money is from the sale of a property or investments, assuming that they money is received in a currency other than £GBP you are going to be subject to currency exchange rates and potentially transfer charges.

Ultimately, the larger the sum of money, the more you are going to be affected by significant currency fluctuations and any transfer charges, especially if they are calculated as a percentage of the total transfer value.

You should therefore shop around to find out the best currency transfer options. Specialist money transfer organisations will be able to fix a currency rate to ensure that any short-term fluctuations are mitigated, while others might enable to you to have a multi-currency account that can ensure you do not get charged transaction fees.

Another key consideration is that if you are not in a hurry, never rush a currency transfer. Always seek advice, always evaluate the costs and charges and never rush into anything if you don't have to.

When transferring any amount of money, you must always ensure that the currency firm is fully regulated and that your money is protected.

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Independent advice from experts is key

As with any financial decisions, it is essential that anybody planning to return to the UK obtains independent advice from specialists who understand the nuances of the financial and tax implications of repatriating to the UK.

It is not only dangerous to assume that everything will be OK, it can also be extremely expensive to just relocate back to the UK without receiving advice. In all cases, the sooner you seek the advice the better – especially if this was not part of your original investment decision making process.