Government figures revealed in a House of Commons debate in January 2014 showed that around 2.2 million Brits emigrated to the EU since 2010. There are just as many UK citizens living in the EU than EU migrants coming to the UK, which proves that immigration is not a two-way street, contrary to a popular misconception. Real numbers could be even higher as many expats do not register with the British consulate in their new country of residence.
If you are planning on emigrating abroad, what steps should you take to ensure that you do not overlook your tax obligations and fall foul of Mr Taxman?
An estimated 400 Britons emigrate every day. Australia has consistently been the most popular destination country for British emigrants over the last 20 years. Other favourite destinations for British emigrants include Spain (where over a million Brits have taken up residence), the USA, France, Germany, Canada and New Zealand.
The Home Office’s 2012 “Emigration from the UK” report identified the main reason for Britons emigrating overseas as to “take up a definite job”, with most UK migrants “planning to be away for four years or more”. Another key finding in this report is that “the majority (89%) of British people emigrating abroad are of working age”, which contradicts another popular belief – British migrants are mostly retirees.
Your obligations in regard to tax when emigrating abroad
First and foremost, tell HMRC that you are leaving; it’s actually easier to start the ball rolling while you’re still in the UK (rather than having to deal with HMRC from a different time-zone). You can do this by completing a P85 form “Leaving the UK – getting your tax right” and stating your new overseas address. Depending on your personal circumstances and if you will be receiving any income from the UK or not while living abroad, HMRC may also (or subsequently) request that you fill in a self assessment tax return.
Here are a few common scenarios, see which one applies to your particular situation…
I’m emigrating and I will be working for an overseas employer
Assuming that you will not be receiving any income from the UK while living abroad, a P85 form “Leaving the UK – getting your tax right” should be the only document you need to send to HMRC. There is good news here, too. You could very well be entitled to a tax rebate if you haven’t used up your tax-free personal allowance in the year that you are leaving the UK.
I’m emigrating and I will be receiving an income from the UK
Whether you are going to work for a UK employer or you are retiring under a sunnier climate, if you receive any income from the UK, you need to initially complete a P85 form “Leaving the UK – getting your tax right”. The chances are that HMRC may subsequently request that you also complete a tax return via self assessment. This is because you need to declare the profit on any income that you receive from the UK, even if you live overseas. In some cases (say, you’re already registered via self assessment), completing a P85 form will not be necessary but a tax return will definitely be required from you.
HMRC know that many British emigrants receive rental income from one or several properties they might own in the UK, or earn interest on savings, dividends or other UK assets. Even when living overseas, if you do receive a notice from HMRC requesting that you need to complete a tax return, don’t just ignore it as you may be slapped with financial penalties of up to £1,600 per tax year for non-submission of tax return! HMRC takes a dim view of taxpayers ignoring their requests to submit a tax return and they will not hesitate to impose severe penalties on anyone who does not comply – or on time. Be warned, excuses for not completing tax returns on time normally fall on deaf ears, barring some exceptional circumstances (like severe ill health or the death of a close relative; then again, this is subject to the officer’s discretion and should not be construed as a rule). If it looks like that HMRC’s request from you to complete a tax return is unfounded (and let’s not fool ourselves, from time to time they do make mistakes), the best course of action is to contact them as soon as possible to rectify the situation.
Lucky you! If you don’t receive any income from the UK while living abroad, filling in a P85 form “Leaving the UK – getting your tax right” would usually be all is required from you.
If you are going to receive a UK pension, it is advisable that let your pension provider know your new address so they can send you the annual statements. These will be needed when HMRC requests from you to fill in a tax return, which they will if you are in receipt of any income from the UK while living overseas. Besides a UK pension, other types of income that you should declare on your tax return are interest on savings; any dividends from the UK; and any income from property or other assets that you own in the UK, such as rent.