A successful overseas move relies on careful planning, especially when it comes to your finances and taxes. Here are five key pointers to make your relocation smooth and help you avoid costly mistakes…
1. Detailed financial review
The first stop is an international financial and tax advisor. Moving abroad means creating a whole new economic profile for yourself. Your current assets and investments will likely be sterling-based and administered in the UK. Once you’re overseas, you’ll report to a different tax jurisdiction with different rules and conditions. Your objectives will probably change too – for example, retirees usually want low-risk passive investments.
Your advisor will discuss options for things such as ISAs, which you can no longer contribute to as a non-UK resident, shares and dividends, holdings in investment funds, pensions (see below), rental income and immovable assets like property. Perhaps you’re selling a business in the UK – is it best to do this before or after moving abroad?
Any actions your advisor suggests will be based on your objectives and keeping your tax bill to a minimum. Restructuring a financial portfolio takes time, so ideally planning should start at least a year before your departure date.
2. Protect your pension!
One of the most important investments in our lifetime, so well worth a paragraph. The drawing of retirement benefits can be complex when the pension scheme and the members are residents in different jurisdictions.
Typically, a UK state can be paid directly into your overseas account or a UK account (which will then need transferring using Smart Currency Exchange). You should inform the International Pension Centre in the UK of your move abroad.
Planning with your financial advisor should cover your options for any UK-based private pensions, including workplace, SIPPS and SASS schemes, and existing annuities. They’ll advise on how to decide where they’re taxed and how double tax treaties work, options for paying in and withdrawing funds, and any tax-efficient ways to transfer them into a local or international scheme, such as a QROPS. Remember, tax-free lump-sum drawdowns in the UK could be taxable as a non-resident. Moving a sterling-based scheme into a foreign currency scheme to avoid exposure to exchange rates makes sense for many expats. As does consolidating multiple private schemes into one.
3. Tax and why timing matters
Firstly, moving abroad brings tax reporting obligations. You need to tell HMRC when you leave the UK and stop being a UK tax resident. Similarly, you will be obliged to register for tax residency once you are living in your new country. Meanwhile, buying a foreign property typically requires you to obtain a tax identification number in that country, usually done at the time of opening a local bank account.
Deciding exactly when to switch to formal tax residency (which is not the same as having a residency visa to live somewhere) needs planning with your financial advisor. Rushing it could have expensive tax repercussions. There could be capital gains tax savings by selling certain assets before leaving the UK.
The UK tax year
The UK tax year (April-April) is out of sync with most of the world, which uses a calendar year. It creates an overlap and means you could unintentionally end up being taxed twice in the same year. Take care when selling your primary UK residence after relocating or during the same calendar year as you intend to move – in some cases, this can leave you (unnecessarily) liable to capital gains tax (in your new country).
As a rule, in most countries, you are considered a tax resident after spending 183 nights or more within a tax year. But if you move to a home that is intended to be your new permanent residence, you’re often required to register as a tax resident on arrival.
For more guidance, download ‘The Buyer’s Guide to Currency’
4. Be realistic about the budget
Remember to factor in buying costs when calculating a sensible budget for your property purchase. These cover the various taxes and fees payable on top of the agreed price. They are often higher than in the UK, by how much depending on the destination. Your agent or independent lawyer can advise you on this.
Equally important, be wary of currency exposure. You’ll agree on a property’s price in its local currency, but its cost in Sterling will fluctuate in line with the exchange rate. Until you’ve transferred the required funds for completion or taken measures against this uncertainty, you can’t budget for your relocation effectively.
5. Take care of currency
Crunched the numbers and ready to move forward? Time to address your currency needs and speak to Smart Currency Exchange. Specialists in making bank-to-bank international payments will chat through your currency requirements for buying abroad and any ongoing requirements, such as transferring income or pensions. Once registered, you’ll benefit from their personal service and clever payment solutions. A popular one is the forward contract, which lets you secure an exchange rate the moment you commit to a property purchase. In the months before you emigrate, use their useful bulletins to check the exchange rate daily – you can also check our daily currency note.
