Make working abroad tax efficient

coloured drawing pins in a black and white map working abroad tax efficient

Tax

MoneyPlus Features Team

28th September 2015 at 1:40pm

Back in the day, according to ‘The Cambridge Illustrated History of the British Empire’, the empire was built and fuelled on waves of migrating British people.  And while there’s not as much empire building going on these days, it would appear there’s still that compulsion in our genes to seek foreign shores to live and work.

The number of Britons living and working abroad has soared in the last decade to top 5 million for the first time. That’s a rise of 23% from 4.1 million in 1990 and for many of these it will be because of their employment.

But landing that dream job abroad doesn’t just mean a move to another city, it’s a move to another country and there’s a lot to consider.

A dream move

So you’ve been given your dream job, a chance to travel and to take your family with you to experience other cultures for the next few years. It’s likely that your employer will help to support you in the physical move and also explain how you’ll be taxed on your earnings in your new country of residence. However, you also have to think about your existing assets back home in the UK.

Shifting base

The family home could be a relatively straight forward asset to deal with – you can simply sell it or rent it out. If linked to a mortgage please make sure you check with your mortgage provider first before deciding as not every provider will allow the property to be let. Renting out could also mean a hike in your mortgage rate. If you do decide to do this, appointing an agent to look after the property whilst you are away may be a worthwhile cost to avoid issues like tenants defaulting or damaging the property. It’s likely that you’ll need to keep a UK bank account open to cover costs like the agent’s fees, buildings insurance and to receive the rental income.

Be prepared

However, you do need to give more thought to your other assets, particularly if you plan to make further payments into them whilst you are abroad. If you’ve moved abroad because the package you are getting is better than in the UK you’ll likely want to save some of that extra money for a rainy day. There are rules around what you can pay and when and these differ depending on the product. There may also be local tax implications as you are now paying into what is considered to be an overseas asset!

ISAs

As an ISA brings tax advantages, HMRC only allow UK residents to take them out and pay into them. Once you go abroad, you can keep the ISA running and you can switch funds, but you can’t put any further money into it until you come back to the UK.

Bonds

A bond doesn’t have the same restriction, however, it will depend on the bond provider whether they will take top-ups. You’ll probably also need to keep a UK bank account open to make payments in as foreign payments take a lot longer to clear and will have additional charges.

Pensions

Pensions differ depending on the type of pension you have. If something like a personal pension, there is a rule that allows you to carry on paying for up to 5 tax years after you leave the UK and still benefit from tax relief. However, not every pension has that flexibility so please check with your pension provider.

Be tax savvy

Living abroad also doesn’t mean that you are totally exempt from UK tax, particularly where that tax relates to an asset still in the UK. If you rent out your home and keep a UK bank account open which earns interest, then you will have a tax liability. However, equally you may have the UK personal allowance (currently £10,600) to offset against that liability.

Shop local

Depending on the jurisdiction you move to, you may find there are products you can source locally which you’re eligible for and bring tax advantages – perhaps your new work colleagues will be able to help in this area. If considering then remember to look at aspects like investor protection and the ability to bring the product back to the UK with you.

Or just save

But if all else fails, you can save that money and simply pay it in when you come back to the UK – this may involve drip-feeding in over a number of tax years because of subscription limits, but at least you’ll be confident about what the product can offer you.

In summary

So 4 things to think about:

  1. Check with your provider before you go that you can do what you want to do whilst abroad
  2. Check out the local tax implications of paying into the UK product whilst you are abroad
  3. Look out for local tax advantaged products, but remember that you may want to bring them back to the UK so watch out for exit charges etc.
  4. If in doubt save the money until you come back to the UK as you can then play ‘catch-up’

Remember the gov.uk site has lots of useful information on what you need to do in these circumstances.

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This information is based on our understanding of taxation legislation and regulations in September 2015. The legislation and regulations can change. Your personal circumstances also have an impact on tax treatment.