Coming back to the UK? Tread carefully around tax

published 21 October 2016

816-moving-1200 — Expats could bring back a tax bill as well

Expatriates and others who leave the UK for an extended period usually become non-resident for tax purposes and no longer have to worry about the intricacies of the British tax system. But anyone planning a return should think carefully about their tax position, particularly if they're disposing of assets as part of the move, or have previously done so.

Anyone returning to the UK is entitled to the same capital-gains tax (CGT) exemptions as other taxpayers on their return. You can make a certain amount of investment profit each year with no liability to CGT (£11,100 in the 2016-2017 tax year) and gains on certain assets don't count towards this allowance. These include profits on the sale of your main home and on cars and smaller items worth less than £6,000.

In general, capital gains realised before you return to the UK are not subject to UK CGT (although they may be taxed in the country that you are leaving). This may now apply even to gains realised in the same tax year in which you return, since rules introduced in 2013 mean the tax year can be split into an overseas part and a resident part for tax purposes, with gains in the overseas part not liable to UK CGT.

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However, this split-year rule is not always straightforward in practice, so advisers tend to recommend realising capital gains in the tax year before you return, when possible, to ensure greater certainty and flexibility.

In addition, you should be aware of the "five-year rule", which is supposed to prevent British residents from gaining a tax advantage by temporarily leaving the country, selling assets while abroad and then returning.

Under this rule, if the asset you sell was acquired before you left the UK and less than five complete tax years have elapsed between your departure and your return, you will usually be liable to CGT on any gain when you return, regardless of when the investment was was sold. So if you are disposing of older investments, check your records carefully to make sure this doesn't catch you out.

David Prosser is a regular MoneyWeek columnist, writing on small business and entrepreneurship, as well as pensions and other forms of tax-efficient savings and investments. David has been a financial journalist for almost 30 years, specialising initially in personal finance, and then in broader business coverage. He has worked for national newspaper groups including The Financial Times, The Guardian and Observer, Express Newspapers and, most recently, The Independent, where he served for more than three years as business editor.