Moving overseas? Don’t fall for these five financial myths about expat life

Published by Moira O'Neill on 12 July 2017.
Last updated on 12 July 2017

Moving overseas? Don’t fall for these five financial myths about expat life

When Britons move overseas it is usually an exciting life changing experience, but it can be fraught with complications when it comes to financial affairs.

Lack of knowledge regarding the financial and tax implications of moving overseas can land expats in hot water with HMRC and lead to unexpected tax bills, especially on death.

Here are five common financial myths uncovered by Old Mutual International*:

1. If I move overseas I will no longer be UK domiciled. FALSE

It is actually very difficult for someone to lose their UK domiciled status and acquire a new one, and often this isn’t finally decided by HMRC until someone passes away. Unfortunately, there is no easy way of determining when someone loses their UK domiciled status. Among the many conditions that HMRC lists, it states that all links with the UK must be severed and they must have no intention of returning to the UK.

Seven in ten (74%) UK expats who consider themselves no longer UK domiciled still hold assets in the UK, and eight in ten (81%) have not ruled out returning to the UK in the future*. This means HMRC is likely to still consider them to be deemed UK domiciled.

2. Once I leave the UK I am no longer subject to UK taxes. FALSE

People often think that just because they no longer live in the UK they don’t need to declare their income or capital gains from savings and investments or property held in the UK. However, all income and gains generated from UK assets or property continues to be subject to UK taxes.

One in ten (11%) UK expats with UK property did not know that UK income tax may need to be paid if their property is rented out, and almost three in ten (27%) were unaware that Capital Gains Tax may need to be paid if the property is sold*.

3. I will only pay UK inheritance tax (IHT) on my UK assets. FALSE

As most British expats will still be deemed UK domiciled on death, it is important they understand that this means their worldwide assets will become subject to UK IHT. A common misconception is that just UK assets are caught. This lack of knowledge could have a profound impact on beneficiaries. With UK IHT set at 40%, beneficiaries could receive considerably less than intended, and have no available funds to pay the IHT bill.

Eight in ten (82%) UK expats do not realise that both their UK and world-wide assets could be subject to UK IHT*.

4. Should anything happen to me, my spouse can sign documents on my behalf. FALSE

The misconception that a spouse or child or a professional will be able to manage their affairs should they become mentally incapacitated is leading people to think they don’t need a Lasting Power of Attorney (LPA) in place. This could result in families being left in a vulnerable position as their loved ones will not automatically be able to step in and act on their behalf. Instead, there will be a delay whilst they apply to the Court of Protection to obtain the necessary authority. This extra complication is all avoidable by completing a LPA form and registering it with the Court of Protection.

Four in ten (44%) UK expats wrongly believe their spouse will be able to sign on their behalf should they become mentally incapacitated*.

5. My will is automatically recognised in the country I am moving to. FALSE

It is wrong to assume a will or POA document is automatically recognised in the country in which you move to. Often overseas law is driven by where the person is habitually resident, and the laws of that country will apply. Therefore, people may require a UK will and POA for their UK assets and a separate one covering their assets in the country they live. The wills also need to acknowledge each other so as not to supersede each other.

Half (50%) of UK expats do not know if a will or POA is legally recognised in the country they have moved to*.

Rachael Griffin, financial planning expert, Old Mutual Wealth, says: “A lack of knowledge could lead to unexpected consequences, with the key trigger being around someone’s domicile status, and what that could mean from an inheritance tax perspective.

“People looking to retire overseas need to take extra care and seek professional advice. They will need to ensure they have plans in place to meet any future inheritance tax liability, and will need to ensure arrangements in place will be valid both in the UK and in the country they are moving to. Often this will mean having multiple wills and POAs, but this will be necessary to ensure complete protection.”

*Myths uncovered by Old Mutual International through a 2017 survey it conducted through Atomik Research. The survey targeted UK expats currently living overseas. There were 147 responses. 

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A lasting power of attorney

A lasting power of attorney is not necessarily recognised outside the UK either and, even if it is, it is going to be difficult and is likely to give rise to continuing problems overseas.