A panel of expat experts answer your financial questions
How To Make UK Capital Gains Tax Disappear
I’m moving back to my apartment in the UK for a while and may wish to sell it. As it has gone up in value will I have to pay tax on the proceeds of any sale?
If you are moving to the UK for a temporary period, or returning permanently after time away, becoming UK resident must be carefully planned, say experts at The Fry Group.
Planning ahead will mean that you can take advantage of your expatriate status before you return and you should be able to minimise your liability to income tax and capital gains tax (CGT) prior to your official return to the UK.
For example, if you decide to return permanently to the UK and own a property you may face a sizeable CGT bill if you decide to sell your house and it has never been your main home. There are factors which might reduce the liability, but the most tax-efficient is to transfer the property into a Short Term Trust. This is set up in the tax year prior to your move and therefore requires some forward planning.
The scheme works by gifting the property into a trust, enabling any gain to be realised. You are not taxed on that gain, and the trust acquires the property at its then market value. After 12 months or so the trust is wound up and the property is returned to you. If you subsequently sell it, its cost for tax purposes is the value at which you received it from the trust. This is a particularly attractive option for those who want to live in a property that has accumulated gains or who want to keep hold of a particularly good investment.
This case study shows how it works:
Chris Smith currently lives in Singapore and paid £180,000 for an apartment in the UK which is now worth £300,000. Chris is considering a move back to the UK and is unsure what to do with this property. He does not intend living there but wants to retain some exposure to property in the longer term. He may want to sell this property shortly after his return once his circumstances settle down.
Chris does not want to sell now while he is still not UK resident and so can’t crystallise the gain tax free before he moves. If he sells after his move back to the UK, given that Chris would be a higher rate taxpayer, his liability would be £30,632.
Setting up a Short Term Trust cost approximately £5,000, and this was done in February 2013. It allowed enough time to get the property settled into the Trust before the 5 April 2013 deadline for this tax year. Chris is now free to move back to the UK. The Trust will subsequently automatically terminate and the property will revert back into Chris’s name. Chris can now sell whenever he feels it is appropriate, with no impact from the historic CGT problem.
Will the Taxman Track Me Down?
I have been in and out of the UK for many years but have never filled in a tax return. Will the UK taxman want to examine my finances?
They may well do. HMRC has various ways of collecting data. As expat advisers at Blevins Franks note, there is a large flow of information these days, both internally between different government agencies and globally from exchange of information treaties. It has also received information from stolen bank data.
It uses sophisticated data mining techniques to look for anomalies between the income individuals declare and their lifestyle indicators. For example, it can identify people who own overseas property, and then apply risk assessment tools to highlight those who do not appear to be able to afford it.
The Regulation of Investigatory Powers Act 2000 allows HMRC to authorise its own surveillance requests. It is increasingly examining records of emails, text messages, phone calls and websites visited, as part of their investigations into suspected tax evasion.
Last year the tax authority piloted a scheme that used credit reference agencies to cross check people’s declared income against their spending patterns. This identifies individuals whose income and wealth do not match what they have declared. This will now be introduced nationally, and around two million people could be scrutinised under the programme.
This is likely to target self-employed individuals who under-declare their income, but could also target those with hidden offshore accounts or who receive inheritances or bonuses.
Paying for Financial Advice in the UK?
I want to use a financial adviser when I head back to the UK, but I’ve heard they all now charge fees. Is this true?
A financial adviser can help you make the most of your money but you need to be confident you are getting advice that is right for you. To try to help make sure this happens the UK’s Financial Services Authority (FSA) has made changes to the way you get financial advice. These come from the Retail Distribution Review (RDR) which took effect on 31 December 2012 - but what has actually changed?
Firstly, you’ll now know how much advice costs. Advice has never been free. If you received financial advice before these changes you were probably paying commission to your adviser. Commission was usually a percentage of your investment – typically 1% to 8%, or sometimes more on a lump sum. So for an investment of £10,000, your adviser could have received between £100 and £800 commission.
Instead of you paying commission on new investments your adviser now has to clearly explain how much advice will cost and together you will agree how you will pay for it.
This can be a set fee paid upfront or you may be able to agree with your adviser that they can take their fee from the sum you invest.
This way you know exactly what you are paying and that the advice you receive is not influenced by how much your adviser could earn from the investment.
Secondly, you now know what you are paying for. Financial advisers can either advise you on all products that may be right for you or focus on certain areas, such as pensions.
Following the changes, financial advisers that provide ‘independent’ advice now have to consider all types of investment areas. They can also consider products from all firms across the market.
An adviser that has chosen to offer ‘restricted’ advice can only consider certain products, product providers or both. Your adviser has to clearly explain what they can advise you on.
Thirdly, you now get improved professional standards. Some investments can be hard to understand. So the minimum professional standard of qualification that advisers have to meet has been increased, to ensure their knowledge is up to date.
* To find a list of financial advisers to suit your circumstances in your UK location, go to www.unbiased.co.uk, click on ‘Find a financial adviser’ and enter your UK postcode. Under ‘Advice area’ you can specify the type of advice you require.
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