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Written by: Adela Cebotari

Adela Cebotari

Privat Client Services

Be careful not to overlook the long-term implications of moving overseas

The pandemic has given us plenty of time to reflect on our day-to-day activities and lifestyle choices, particularly on where we’d like to reside. A recent House of Commons briefing paper highlights that 334,000 people emigrated from the UK in the year ending June 2021, with an estimated 994,000 UK nationals living in other EU countries excluding Ireland.  

In addition to those retiring overseas, more individuals are exploring the option of working overseas.  Just over two years ago, the prospect of working from home (WFH) seemed out of reach for many, akin to a badge of honour to be won, as opposed to a regular feature in today’s working environment. 

With the Nomad Visa options offered by more countries nowadays, the potential to work in idyllic paradises for a period of up to two years, is taking the idea of WFH one step further. We are seeing more enquiries from individuals who are curious about the opportunity of relocating to a ‘sun and sea’ location on permanent basis. Such clients are not only interested in the perfect weather but are also intrigued by the tax saving opportunities that some countries offer.  

Whilst individuals who are not UK resident have less tax reporting obligations in the UK, the comparison of these savings against the tax rates in the new ‘home country’ can often be overlooked when planning to relocate. This can result in higher taxes in the long run or having to drastically adjust ones’ personal lifestyle to the new location. For example, in France a ‘tax fonciere’ is paid by all owners of property and land. The current annual rate is up to 3 per cent. In addition, the income tax in Switzerland is lower but the wealth tax imposed on individuals with wealth value over certain limits should not be overlooked. 

A lifestyle dream can turn into a tax nightmare if things do not go to plan. The anticipated tax consequences of living overseas does not always align with the reality of the circumstances and this can come at an emotional and financial cost. There is certainly a lot to consider before deciding to relocate. For example, those relocating to Dubai for employment will not only experience a high cost of living, but they will also have to get their boss’s approval to obtain a liquor license, and get the company’s approval to rent a property and have a telephone or satellite TV. 

It is not uncommon to hear stories of elderly couples, who despite having all the available financial resource, are unable to employ external assistance due to the remoteness of their dream retirement destination. So, relocating to a UK care home later on in life, to be closer to family members living in the UK may be the best solution.

Given that UK residents are subject to income tax and Capital Gains Tax in relation to their worldwide sources of income/assets, when relocating back to the UK, planning may be required to mitigate unexpected tax costs on their arrival to the UK. The circumstances may impose a last-minute decision for various assets to be disposed of in advance of moving back to the UK. If gains are realised, what jurisdiction are they going to be taxed in? Is this optimal from an economic prism?

Often the split year treatment rules are not met and despite the individual taking UK residence sometime through the year, they are subject to UK taxes as if they lived in the UK from the beginning of the tax year. 

Therefore, for those planning to relocate to an idyllic place with the intention of settling permanently, it is prudent to consider more than just the tax rates, including medical infrastructure, old age care, the education system, options regarding lifestyle choices and external travel links, to name a few.

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