Don’t be caught in the tax trap abroad
Eastern Daily Press, Monday, May 28, 2007
Moving abroad is something that an increasing number of us want to do, with more and more people expressing their wish to retire to sunnier climes.
But while the initial potential problems – finding a property, learning the language and fitting in with the culture – might seem obvious, there are a number of financial aspects to life abroad that are just as important.
Tax issues are at the heart of everything you need to consider before, during and after you leave the UK, according to Antony Howard, a Director of Norfolk-based Insight Financial Associates.
There are three major arms of taxations that need focusing on – inheritance tax (IHT), capital gains tax (CGT) and income tax.
“Much depends on where you are resident and where you domiciled,” Mr Howard said.
“If you leave the UK permanently, you will no longer be taxed in the UK on most types of income or CGT from the day you leave.
“The exception to this is if you receive rental income from a UK property, and you will need to register with Revenue and Customs as a non-resident landlord.
“If the income is also taxable in the country you move to, you should get credit for any UK tax paid so that you don’t suffer a double tax charge.”
Most countries will treat you as a resident and tax you if you are physically present for 183 days or more.
The UK rules are much more complex, but you should beware of spending more than 91 days a year in the UK.
If you are drawing a pension, you will not pay UK tax on that income if you live in a country that has a double taxation treaty with the UK. If such an agreement doesn’t exist, however, your pension is likely to be subject to UK tax before it is paid, and you will need to contact your UK tax office to ensure you don’t pay tax twice.
Meanwhile, dying intestate in another country could cause problems for your heirs. It may be necessary to have a will drawn up under local law, but because some countries operate ‘forced heirship’, you should check whether there are rules governing who you may and may not leave property to.
You could make two wills when living abroad – one for any assets in the UK and one covering property and savings where you live.
“It is not uncommon for expats writing their wills to take into account tax issues abroad in an effort to get the best deal in the local jurisdiction,” Mr Howard said.
“But if you overlook tax issues back in the UK, you could be left with a horrendous tax bill in the UK and you run the risk of being taxed twice on your assets.”
It is worth bearing in mind that many countries, particularly in Europe, impose wealth taxes based on a percentage of your net worth and also local taxes similar to council tax. Spain, for example, has an annual wealth tax.
For detailed advice, speak to a financial adviser or accountant. To contact Antony Howard, call 01603 268080 or e-mail antony@insightifa.com.