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Six key issues for expats returning to the UK

When Richard assessed his decision to return to the UK after 20 years of working in Asia, he was taken aback by the “astronomical” costs of moving back.

The move cost him £3,400 for a spouse visa, £10,600 on one-way flights for himself, his wife and two children and £17,600 for a 20ft shipping container with associated packing and unpacking.

“The pinnacle of stress, though, was moving our pet bird,” says Richard, whose name has been changed at his request.

He explains that the paperwork for transferring Teri, the family’s parakeet, took five months. It eventually cost him £9,400 to bring the pet back — nearly as much as the transport bill for the rest of the family combined.

British expats have been leaving Asia — particularly Hong Kong — in increasing numbers in the face of draconian Covid-19 containment policies.

Moving Teri the parakeet from Asia to Britain cost one family more than £9,000

A net 170,000 Hong Kong residents have left the former British territory so far this year, according to analysis of Hong Kong immigration statistics by database Webb-site Who’s Who. In Singapore, which has also had strict lockdown policies, the number of people employed fell by almost 150,000 in the 12 months to June 2021.

Escalating prices of all kinds mean bigger bills for those returning to Britain. Average airfares for global outbound travel from Hong Kong are up by 95 per cent in the first half of 2022, compared with 2019, according to travel data company ForwardKeys.

Inflation is a significant problem, but those returning to the UK after a long stint abroad can face bigger challenges when moving and settling back in. Tax rules and residency rules are notoriously complex, pensions often difficult to transfer, and managing the timing of your move and the sale of any assets can make a big difference to your tax bill.

Experts say the efficient arrangement of your tax position and assets could have the biggest impact on your finances, so it can pay to start planning well in advance of a move. FT Money offers six key issues for returning British expats to consider.

1. Is the timing right?

If you are considering a move home, preparation is key — and one of the top priorities is tax. When Simon Cahill, a chartered financial planner at Octopus Wealth, moved back to the UK in 2020 having spent four years in Dubai and a year travelling, colleagues and friends pestered him for advice about the process. He decided to write a guide on how to overcome the main hurdles, interviewing 30 former British expats who had lived in the UAE.

“The most common mistake people made was not planning enough in advance,” he says, explaining that one person was hit with a £32,000 tax bill that he could have avoided with a deferral of his return.

Simon Cahill at home in south London
Simon Cahill: Plan well in advance of a move back to the UK © Richard Cannon/FT

First, you should work out how much tax you have to pay on your return to the UK. This can depend on how much time you have spent living overseas. As soon as you have become a non-resident of the UK for tax purposes, you will not have to pay dividend tax or capital gains tax on any of your UK assets.

However, under the so-called “temporary residence rules”, if you have lived abroad for less than five years, any tax savings you have made on UK dividends or capital gains since you left would have to be paid to the exchequer on your return.

“The temporary residence rules are designed to stop people from going away for a short period of time to incur tax-free capital gains,” says Tim Stovold, partner at accountancy firm Moore Kingston Smith.

“If, say, I had bought a ton of bitcoin years ago and decided to go and live in a low tax jurisdiction for a year, sold the lot, made £1mn in profit, and come back a year later, I haven’t saved any tax at all because it’s as if the capital gains arrive at Heathrow with me and it is taxable there,” he explains.

The other timing consideration is the moment in the tax year at which you choose to move back. If you can time the move so you arrive on or shortly after April 6, the beginning of the UK tax year, that will save you the possibility of having to complete a “split year” tax return, the rules of which are “really fiddly and horrible”, Stovold says.

The split year rules allow you to have only UK tax liabilities from the date you move back, rather than from the whole tax year of your return. But they will only apply if certain conditions are met, relating to working days, property ownership and a partner’s working patterns.

2. Sort out any assets

If you have any assets to sell, including stocks and property, it usually pays to plan this carefully before leaving.

Chris left the UK for Hong Kong in 2012, where he set up a business travel agency but returned in May this year, frustrated by the effect of the city’s onerous Covid restrictions on his five-year-old daughter’s education. “Everyone is sick of it,” said Chris, who asked for his full name not to be used.

Before leaving Britain for Asia, he rented out his flat near Manchester and sold it for £215,000 shortly before coming home.

Having bought it in 2010 for £150,000, he only had to pay capital gains tax on gains made from April 2015, when the then chancellor George Osborne introduced capital gains tax (CGT) on residential property for non-UK residents.

CGT in the UK is charged at 10 per cent for basic rate taxpayers and 20 per cent for higher and additional rate taxpayers, rising to 18 per cent and 28 per cent respectively for residential property. If you plan to move back to the UK following a prolonged stint elsewhere, seeing a tax adviser long before you move back could save you money.

Cahill suggests that if you have any stocks listed in a low tax jurisdiction, you might want to consider selling them and coming back to the UK with cash, to prevent you having to pay UK taxes on profits accrued abroad.

“From the point you are resident in the UK, all your worldwide income is taxable at UK rates,” explains Mike Hodge, tax partner at accounting firm Saffery Champness. “If you are coming back it’s generally not going to be the case that you will benefit from structures, such as an offshore trust, you’ve set up while you were offshore.”

Different rules apply to the “non-dom” status, which enables people domiciled in another country to live full time in the UK for up to 15 years without paying any tax on their foreign income, provided they keep it overseas.

Unlike other countries, the US tax system works on a citizenship basis, so if you hold US citizenship, you are generally taxed on your worldwide income. The UK and the US have an agreement designed to prevent double taxation, but Dhana Sabanathan, partner at law firm Winckworth Sherwood, suggests you might want to seek advice if it looks like both countries will seek to tax you on the same income or gains.

Once you’re in the UK, Cahill recommends you start building or rebuilding assets if possible in the tax-efficient structures available. UK residents over the age of 18 can open an individual savings account (Isa), which can grow free of tax up to a substantial £20,000 maximum in the current tax year.

If you’re an employee, you should automatically be enrolled into a workplace pension. You can also set up a self-invested personal pension, which will give you income tax relief on money paid in at your marginal rate, and you will also pay income tax on money withdrawn while being able to access 25 per cent tax free.

3. Transferring your pension

Those moving back to the UK to retire should check their national insurance records to see how much of the state pension they will be eligible for, says Andrew Tully, technical director at Canada Life.

“Work out if you have paid enough to get the full state pension and, if not, consider buying added years,” he suggests.

If you have a pension pot overseas, you might also want to look into transferring it back to the UK, bearing in mind the potential impact of currency exchange fluctuations.

“It could be better to leave the funds in the overseas pension if it includes contributions prior to 2017 as there are certain tax breaks you may be able to take advantage of,” says Rachel De Souza, private client partner at tax adviser RSM UK.

Some pension funds, such as Australia’s superannuation fund, will only let you transfer your pension in very specific circumstances before you reach retirement age.

“We recommend expats should check procedures and requirements in their local country and apply to a Sipp provider to accept a transfer,” De Souza adds.

If you’re lucky enough to have a pension pot with a value in excess of the lifetime allowance, currently £1,073,100, an additional charge is applied when you start to draw down on your pension — or when you reach the age of 75 — whichever is sooner.

“Expats should consider whether they need to apply for a lifetime allowance enhancement factor, which provides an increase to the lifetime allowance for periods worked abroad,” De Souza suggests.

4. The relocation process

Anyone thinking about moving back soon with a lot of belongings will have to navigate the global shipping crisis which has “really impacted global mobility,” says Jeremy Chandar, director at Bournes Relocation Solutions, which has helped around 500 families relocate to the UK over the past year.

While home removals represent a fraction of maritime freight, Chandar says there’s still a post-pandemic “boom market” in UK relocations. Disruptions at ports are causing significant delays and household goods are afforded lower priority than shipping lines.

“The US ports in particular are heavily congested, meaning shipments are delayed until space becomes available on a vessel and we have seen inbound delays of around four to six weeks,” Chandar said.

Expats should brace themselves for high prices, especially if moving from Asia where freight costs are among the highest. Chandar says he had seen rate increases of between 20 and 60 per cent worldwide, for a variety of reasons — from freight, labour costs and fuel and port surcharges — and capacity constraints.

Finding suitable accommodation in the UK can also be a problem. On moving back to the UK in May, Chris and his wife and two daughters stayed with his parents while they looked for a place to rent.

He described the UK property market as “crazy”, explaining that as soon as he found a place he liked, in Hale Barns, a village in Greater Manchester, he had to sign the rental agreement on the same day.

Completing the contract was a struggle in itself. When he went through the process of proving his right to rent, the fact that his income was still paid from a Hong Kong company caused further delays.

Chandar says the rental housing climate has changed significantly in a relatively short space of time. “On average there are 30 to 40 per cent fewer properties available than there were in 2019, and everyone has put their charges up.” 

5. Getting a visa

Anyone needing to apply for a visa in the UK should brace themselves for a tortuous process.

Owing to Ukraine’s humanitarian crisis, applications for family member visas currently take 24 weeks to process, twice as long as normal, according to the UK government’s website.

Ben Pearcy, chief strategy officer at food and agriculture group Olam, based in Singapore, plans to return home after three years working in Singapore, with his spouse of 23 years, a Brazilian citizen.

“We paid approximately £6,000 in fees to apply in June — including a lawyer as the forms are so complex that it’s needed,” Pearcy says. “The system is designed to deter.”

Having hoped to come back in August, they now have to wait until a spouse visa decision is given — a process for which he says a date is never provided — and will miss his daughter starting university in the UK in the autumn.

Priority and “super-priority” visa services have been temporarily suspended for new study, work and family visa applications, removing any option to pay more to speed things up.

6. The cost of living

Despite low taxes, having factored in Hong Kong’s sky-high rents and schooling costs, and the UK’s NHS, Chris thinks his life in the UK may work out cheaper.

However, he was taken aback by the “crazy” cost of energy bills in the UK, which is due to get worse in October when the energy price cap rises.

The annual consumer price inflation in the UK is currently 9.4 per cent, compared with 1.9 per cent in Hong Kong, 2.5 per cent in the UAE, 6.7 per cent in Singapore, 9.1 per cent in the US and 10.8 per cent in Spain. Fluctuations in currencies can also mean that the timing of your move could have a significant impact on your wealth.

The lesson is that coming home may sound straightforward, but the process may be much more elaborate and expensive than you expect.

One FT Money reader, who returned to the UK in 2018 after 38 years overseas, offered some reassuring advice: “Don’t wing it as far as HM Revenue & Customs is concerned. Take good advice, pay a little to confirm it, and it should be relatively stress free from a tax liability perspective.”

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