What happens when life as an expat loses its appeal? Returning to the UK

The description of each case sounds simple, but in practice the underlying requirements are complex and notoriously difficult to get agreed by HMRC, and if you fail to qualify then the whole of your income for the tax year in which your return takes place will be subject to UK tax.

In all cases, if you have paid tax overseas, subject to the terms of any tax treaty in place, you may be able to claim double tax relief either in the UK or overseas.

Temporary non-residency

Even if split year is not in question, if you return to the UK and you have not been UK tax resident for at least five full tax years, you may be deemed to be only temporary non-resident, and this can bring certain income and more particularly capital gains, back into the UK tax net with UK tax being paid by reference to the year of your return.

Some income, for example, foreign employment income, will usually escape UK tax for periods when you were not UK tax resident.

But dividends from both UK and overseas close companies (and now, even when these relate to profits arising post departure) received in a period of temporary non-residence will be subject to tax when you return to the UK. Similar rules apply to flexible draw down and some lump sum pension payments, so care must be taken to account for these and to understand what you UK tax exposure could be.

In the case of capital gains, if the asset was owned prior to departure and sold whilst you are overseas, if you come back within 5 years, then UK CGT will become payable. It is not uncommon for people to leave the UK immediately prior to exiting from their businesses in the hope of escaping a UK tax liability as a result of the gain, but if for some reason it is not possible to remain non-resident, the tax liability must be paid.

Exceptional circumstances

HMRC understands that sometimes things change which mean that someone ends up spending more time in the UK than they had planned to and which means they cannot meet the requirements for non-residency in a particular year.

In very specific circumstances, the additional UK days may be ignored if they are deemed to be “exceptional”. However, a day is usually only considered exceptional if the individual is prevented from leaving the UK – for example because they are taken unexpectedly ill whilst they are here and not able to travel, or the boarders are closed for national emergency, as in the global pandemic, preventing departure. Even then, there are still restrictions on how many additional days you can spend here, and you must still leave as soon as it is practically possible to do so.

More importantly, if you elect to come to the UK, for example for treatment or to be with a sick family member, the time you spend here will almost invariably not be treated as exceptional and HMRC have won a number of cases of this type, leaving the taxpayer with significant tax bills.

What to do?

If you are thinking about coming back to the UK, then you should consider taking advice first – not to try to change your mind but to ensure that you understand what the implications will be, to avoid any surprises.

You may ask, who will ever know if I do not report my income/gains for the period I was away? Well, firstly the UK operates on a self-assessment basis, and to knowingly under declare your taxes is viewed very dimly by HMRC, with heavy penalties applying when unpaid taxes apply to overseas income. Furthermore, the UK has agreements with most other countries to exchange information, so the chances are,  it will become apparent at some point that there is additional tax due, and if HMRC realise this before you do, the penalties will be far greater than if you notify them yourself.

Reporting UK taxes in years of departure and upon your return is complex and you should always seek help from a professional. If you are thinking about returning to the UK and wish to discuss the potential tax liabilities this could result in, please contact the Gravita Tax Consultancy team who will be happy to discuss your options with you.