The Biggest Tax Mistakes British Expats Make

Taxation, residency, and cross-border financial regulations are notoriously complicated. Most people will never have to dig deep into the labyrinth of rules and special requirements built into the UK tax system. However, for the hundreds of thousands of people leaving the UK every year, understanding the treatment of money earned and assets purchased abroad is a necessity (The Migration Observatory, 24 AUG 2018).  

British expatriates migrate to different parts of the world looking for better jobs, cheaper retirement, or special opportunities. However, many of these expats leave without a clear understanding of their domicile status and tax position. Here are some of the biggest mistakes British expats make and how to avoid them:

1. Not determining domicile status

Research shows that nearly 81% of British expats mistakenly believe they are no longer domiciled in the UK, while they still hold property here and have not ruled out returning to the country at some point in the future (Kirsten Hastings, International Advisor, 19 July 17). In fact, it is remarkably difficult for an expat to shake off domiciled status even if they’ve been living in another country for many years.

Fortunately, HMRC periodically publish a guidance note to list all the factors they consider while determining a tax-payer’s domicile status (HMRC, 19 July 2018). According to their latest note, the department considers factors such as time spent abroad, property held in the UK, and intentions to return home as part of a rigorous statutory residence test. If you’re planning on leaving the UK soon or have already left, it’s worth reading through the notes (preferably with a professional advisor) to see where you fit.

2. Assuming only UK assets are subject to inheritance tax (IHT)

High-income expats may have properties, investments, and financial assets spread across the world. Nevertheless, most expats mistakenly assume only their British assets are subject to UK inheritance taxes when they pass away. This misunderstanding could have a profound impact on beneficiaries.

Indeed, all assets owned across the world are subject to UK IHT, currently set at 40%, if the individual is deemed UK-domiciled at the time of death (HMRC, 19 July 2018).

3. Underestimating the need for a power of attorney (POA)

Assuming that loved ones can sign legal documents and handle personal finances if a person becomes mentally incapacitated is one of the most enduring misconceptions people have.We have previously discussed how important it is to implement a lasting power of attorney (LPA) as a fail-safe for your finances and family’s well-being. Without one, your family could be left in a vulnerable position if you lose the capacity to make critical financial or healthcare-related decisions.

4. Assuming the power of attorney applies everywhere

Finally, a British power of attorney (POA) document may not be valid under the laws of the country where you live. As an expat, you are covered under both the British legal system as well as the laws of the country where you live. You may need to create another POA in your adopted country and acknowledge the UK one in the document to ensure they do not supercede each other.

Moving to another country is never easy, but with a little research and some expert assistance you may be able to manage your personal finances across borders more effectively.

Information is based on our current understanding of taxation legislation and regulations which is subject to change