Tax Issues For Brits Abroad

When we leave the UK and come to Singapore, we may assume we leave the UK tax system behind us. Regrettably, this is not completely true. Here are some of the pitfalls and opportunities you need to be aware of in order to make the most of your time away, without attracting undue attention from the taxman.

Assumptions

The UK income tax stops on leaving the UK. True, but by concession only. You need to be away for one complete tax year (6th April – to 5th April of following year) to fully escape it. If you return for more than a total of 183 days before this, for example, because of sickness, family needs or a job change), then the whole of your income abroad while you are away falls back into UK tax.

UK Capital Gains Tax ceases too. Also true, but only after you have been away for five full tax years. Any disposals during the five year period are reportable, and may incur tax. Failure to report is evasion, and carries severe penalties if discovered.

UK Inheritance Tax is not applicable. False. If your father was UK born, then, on your death, at any time, anywhere, and no matter how long you have been away, the UK can tax your worldwide estate. Only if you formally change your domicile can you escape, and making this change is neither easy to achieve, nor to maintain.

General

You and your spouse need current wills. Dying intestate anywhere in the world causes problems, and can mean that the state will take the bulk of your assets on your death.

If your employer continues your company benefits while you are away (death in service insurance, disability insurance, health-cover) well and good. If they don’t you should replace them yourself, as any accident could otherwise bankrupt you.

Opportunities

If you are going to be away for more than five full tax years, then you might transfer your UK pension abroad. Instead of having to take a UK-taxable pension on retirement, you can gain early access to your entire fund as a tax free lump sum, even if you then return to the UK.

If you have surplus income, or funds to invest, you can build up investments tax-free, and maintain that tax-free status when you return to the UK, giving you untaxed future income or access to tax-free lump sums despite the UK tax system.

If you are worried about inheritance tax, while away you can set up flexible structures to effectively remove assets from your taxable estate, protecting your beneficiaries even after you return.

If your work routinely takes you away from Singapore, you need to pay Singapore tax only on income earned here, or bought back here.

Undeniably, being out of the UK can be beneficial from the perspective of tax; just make sure you are aware of exactly what these benefits are, and of their limitations.

This article originally appeared in the April 2008 issue of Expat Living.