Your tax position on emigration when leaving behind property
When moving abroad, you need think in detail about your finances, and this includes the potential benefit of transferring your pension to a QROPS, as well as your personal tax position on emigration.
For many people, the two biggest questions are: what should I do about my pension if I want to retire abroad, and what are the tax implications of leaving my property behind?
You may decide that, in order to make the most of your pension, you transfer into a QROPS. QROPS stands for Qualifying Recognised Overseas Pension Scheme. It is a scheme into which you can transfer a UK pension if you are living or working abroad and you plan to draw your pension outside the UK.
If you have contributed to an occupational or private UK pension, you could move the pension fund offshore using this option. This could give you greater flexibility, the opportunity for growth and potential tax advantages. You can find more information in our guides which outline the process of transferring your pension.
The other issue to consider is the tax implications of keeping a property in the UK. Many people who own UK property want to retain ownership for a period of time after they have left the UK. This is usually because they think that they may return at a later date, and want to continue to have some exposure to the UK property market.
For some expats, the reason not to sell comes from the wish to generate an income by renting out their primary home. It’s important to think about the tax implications of this option as well.
Tax considerations when retaining a UK home
Wherever you live, any income from UK property is considered a UK income.
This means that you may have to pay UK tax on the rent received. You may qualify for the personal tax allowance in the UK. For the 2017-18 tax year, the personal allowance for each individual on income earned in the UK is £11,500.
If you rent out a UK home that you own, you will pay tax on the rent if it is more than your personal allowance.
Who receives the UK Personal Allowance?
You’ll get a Personal Allowance of tax-free UK income each year if either:
- you’re a citizen of a European Economic Area(EEA) country - including British passport-holders
- you’ve worked for the UK government at any time during that tax year
You might also receive the allowance if it’s included in the double-taxation agreement between the UK and the country you live in. The best way to find out is to seek professional help from a specialist adviser who can give your guidance on your tax liabilities.
If you’re not a UK resident, you have to claim the Personal Allowance at the end of each tax year in which you have UK income. You will need to send form R43 to HM Revenue and Customs (HMRC).
There has been speculation that the rules may be changed in the future, with regards to the UK Personal Allowance, so it is best to take advice from a specialist who can assist with your own personal tax position.
Receiving rental income
Another point to bear in mind is that you may be affected by currency fluctuations. You are likely to receive rent in sterling, paid into a UK bank account. However, if you are living overseas, you will need to convert that into a different currency.
It is possible either to receive income in full and then declare it on a Self Assessment tax form which you will need to send to the Inland Revenue in the UK, or opt for your letting agent to deduct tax at source.
You can get your rent either:
- in full and pay tax throughSelf Assessment - if HMRC allows you to do this
- with tax already deducted by your letting agent or tenant
Although you may still own a UK property, this does not automatically make you a UK tax resident. If, however, you do become a non-UK tax resident when you move to live or retire abroad, then there are strict rules about how long you can spend in the UK when you visit, to continue to be considered a non-UK tax resident.
When you make the decision to leave the UK, you may not intend to return. However, people’s plans change, which is why it is so important to be flexible when putting together your financial plan.
With regards to your pension, you need to think about how and where you are going to want to draw your pension. It’s worth talking to a specialst about the potential benefit of transferring your pension to a QROPS . You also need to consider your personal tax position on emigration.
By taking advice from a specialist, you can select the right QROPS and plan how you will take your income from your UK assets and property, in order to reduce your tax liability and make the most of the flexibility available.
To discuss your tax position on emigration, whether it’s pertaining to your property or other assets, get in touch with the QROPS experts and financial advisers at bdhSterling.