Expatriate Taxes: Will still be there when you return home
Have you moved overseas? Chances are, if you’re reading this, you’re 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 to move?
At this stage, you’re still back home and so legally taxable on any income you’re making. While you’re making relocation plans, it won’t hurt to doublecheck that your new destination has a double tax agreement with home so you’re not taxed on global income twice.
Now that you’ve moved, you might think all’s clear. But taxes don’t go away just because you have. You’re still considered a legal resident back home – which means any income that hits your accounts there is open to tax. And if you’re making any asset sales to finance your new life, you’re open to 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 at least from a tax point of view. 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 a tax expert to check how that affects you.
Three to five years in, you might still be considered tax resident back home, even if you’re not physically resident. And that means owing the taxman on any earnings you make back home, such as from rental income, dividend payments, savings interest or royalties. And lest we forget, capital taxes are also still lurking on both stocks and real estate. In many jurisdictions, these taxes are applicable no matter how long you’ve been away.
Right, now let’s play the longer game.
Say you’ve been an expat for ten to fifteen years. You’ll eventually retire, but you’re not even sure where. It could be back home, or it might be to sunnier climates. And it’s been so long that you haven’t been a legal resident back home that the taxman is 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 investments 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 often apply to savings as well.
When you finally hang up you 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 tax optimisation can make a huge difference, so don’t take your eyes off the ball. That’s where your tax 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.
If you like so many of clients need advice on your tax planning journey then get in touch and book your discovery meeting today.
Blog published by Mike Coady.
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