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Wealthy British expats face "nasty tax surprises" when moving back

Asia Private Banker interviewed Buzzacott's Associate Director Ishali Patel. They discussed the issues facing expats moving back to the UK who face significant charges if they have not prepared their taxes sufficiently.
Each year, a significant number of wealthy British citizens encounter “nasty tax surprises” when they move back to the UK without having robust tax planning measures in place, according to Ishali Patel.
 
“We do see a lot of people who go back without doing any planning at all and having nasty surprises when it is too late to change things,” Patel told Asian Private Banker.“It’s now more important than ever that clients take advice,” she added.
 
Over the past decade, considerable changes have been made to UK tax legislation, including the introduction of the Statutory Residence Test, the taxation of non-residents who sell UK property, and amendments to capital gains tax rules that concern those who return to the UK after taking up residency elsewhere.
 
Further, the country is enforcing non-domicile tax rules, which have raised concerns among British expats living in places such as Hong Kong and Singapore.
 
“Not everyone is aware of the changes in legislation and they are relying on anecdotal knowledge that is often based on the old rules when thinking about the tax impact of going back to the UK,” Patel said.
 
In many cases, returning expats become residents in the UK earlier than they anticipate, which means their UK tax exposure is higher, says Patel. In addition, many individuals end up being taxed punitively on foreign investments that they acquired while living abroad, meaning they are taxed on these investments at 45% rather than at the capital gains tax rate of 20%.
 
Patel explains that expats who return to the UK mid-way through the year will have to pay tax on their income for the entire tax year, unless they qualify for ‘split year treatment’. “A lot of the advice we give to clients is around how to ensure that they can qualify for this exception prior to becoming UK residents.”
 
Patel notes that many Hong Kong-based clients seeking UK tax advice work in the banking and financial services industries. Buzzacott receives numerous referrals from private banks in the city, she says.
 
“A recent case that I dealt with was for a client who was returning to the UK and was set to have a large amount of share vestings that were granted to him while he was a non-UK resident,” Patel said. “We were able to get a position for the client that would exclude all these from UK tax through looking at residency planning, the Hong Kong-UK tax treaty and specific HM Revenue and Customs guidance.”

Statistics from Hong Kong’s Immigration Department showed that last year, the number of British expats living in the city fell by 10.6% year-on-year.
 
To download the full article, please click on the 'Download PDF' button on the right of the screen.
 
Article first seen in the Asia Private Banker

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