Expatriates: Taxes will still be there when you return home

Expatriates & their Taxes

Have you moved overseas? Chances are, if you’re reading this, you may be fortunate to be an expat in a low-tax jurisdiction. Congratulations, because taking income tax out of the equation frees up income for you to build a secure financial future.

But hang on – let’s not get carried away because we’re not out of the woods yet. Let’s start at the very beginning.

Planning an expat move?

You’re still back home and so legally taxable on any income, etc. you’re making.

Now that you’ve moved, you might think everything’s clear. But taxes don’t go away just because you have. You still may be considered a legal resident back home – which means any income that hits your accounts there is open to tax. And if you’re then making any asset sales to finance your new life, you’re open to the potential of capital gains. As soon as you can, formally clarify your status back home. We can show you how.

When you become a medium-term expat – say between one to three years – things have more clarity from a tax perspective. You know what income’s being taxed, and what isn’t. Your adviser has sorted out your residential status back home. But don’t confuse residence with domicile. The first is easy enough to change, usually. But for UK expats, being born or raised in the UK, or having a father who was, makes them British domiciled whether or not they live there. And domicile status comes with tax obligations. It’s always best to get an expat expert to check how that affects you.

Three to five years in, you might still be considered a tax resident for CGT back home, even if you’re not physically resident and in debt, to the taxman on any earnings you make back home, such as from rental income. And lest we forget, capital taxes are also still lurking on real estate. In many jurisdictions, these taxes are applicable no matter how long you’ve been away.

Right, now let’s play the long game.

Say you’ve been an expat for 5 years+. You’ll eventually retire, but you’re not even sure where. It could be back home, or it might be to warm climates. And it’s been so long that you haven’t been a legal resident back home that the taxman may be a far memory.

If you’re retiring back home, you might find that it’s impossible to draw down from your hard-earned savings without paying the taxman. This is also true for many of the sunnier destinations you might be thinking of heading to. Now’s the time to start casting an eye at tax-favourable ways of structuring your savings, investments & pensions, so you don’t lose out when accessing your funds. No exaggeration – you can save thousands, if not hundreds of thousands, just by seeking expert help to get your portfolio structured the right way. People sometimes think of taxes as only applying to income during a job. They can often apply to savings, investments & pensions as well.

When you finally hang up your boots and are eyeing that plane taking you to your retirement destination, it’s best to do one last set of tax diligence. Tax rates differ across jurisdictions and asset classes. Last-minute expat tax optimisation can make a huge difference, so don’t take your eyes off the ball.  That’s where your adviser’s local expertise really matters, depending on where you’re heading.

As always, choose your adviser carefully. Ensure they have global coverage mixed in with local knowledge – because taxes can take a bite out of your portfolio when you least want that to happen.

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Mike is recognised at the forefront of financial planning as a financial advice mentor who demands only the best outcomes for both individuals and businesses he works alongside.

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