Expat Tax Planning & Expat Tax Havens

You’ve been abroad, hopefully made some money, and now you’re returning to the UK to enjoy the fruits of your labour. But, as Andrew Coyne explains, some careful planning is needed if you are not to be out of pocket

Thinking about what you need to do to prepare for your return is not usually the first thing on the mind of those setting out on an international adventure.

Expat Tax Planning - Thinking Ahead

But for UK citizens intending to work and live abroad for a period of time before returning to Britain, it is imperative that forward planning of this kind is close to the top of the ‘things to do’ list. Not least of the perils of being unprepared are unexpected tax hits and/or problems of having to convert currencies at an unfavourable rate.

Expat Tax Planning - Worst Case Scenario

The key to planning your return from an offshore trip successfully is to know what the worst case scenario is as far as repatriating your finances is concerned and then trying to do everything you can to avoid it.

Timing is the crucial factor here, but if you are on a short-term contract, or in an international ‘fire fighting’ role, you may be called back to the UK at relatively short notice.

If this is likely then even more pressing is the need for you put some sort of contingency plan in place before you even leave Britain.

With this in mind, a number of the larger offshore banks - or to be more accurate the offshore arms of large UK banks - offer ‘out and back’ services for would-be expatriates.

Expat Tax Planning - Main Players

HSBC Bank International and Lloyds TSB Bank (Jersey) are two of the larger players in this area. The idea is that they will build a relationship with you before you go abroad and maintain that with you while you are overseas, as well as after you return.

The benefit to the banks of offering such a service is obvious. They can build up a large base of customers - some 111,000 Brits left the country in 1998 according to the government’s latest Labour Force Survey, so there’s no shortage of business - and hold on to that relationship for an extended period. Expatriates tend to have a higher net worth than ordinary bank customers and may be interested in the more sophisticated add on services - investments and so on - which these banks can offer.

Expat Tax Planning - Benefits

Before we become too cynical, however, there are also benefits for an expatriate in using a service of this kind. Building up a relationship with a bank with international reach before you go abroad means that you don’t have the hassle of doing it when you get there and you will also get advice on a number of areas - including taxation - under one roof. The tax advice usually comes at a cut-price rate from a tie up the bank has arranged with a leading accountancy firm.

Neville Benbow at HSBC Bank International in Jersey stresses that the time to seek advice is before you leave the country.

“There are lots of things you don’t necessarily think about. One of the most important elements of being an expat is planning your finances before you move abroad,” he says.

“If you live overseas for more than one UK tax year, you will be recognised as non-resident by the Inland Revenue. You will be able to utilise your income from UK savings. You don’t want to repatriate your money to the UK.”
Going aboard is relatively easy, as long as you take expert advice before you go, because you will have a definite leaving date. Coming back may be more problematic.

Expat Tax Planning - Foreign Currency Exchange

Firstly, there’s the currency question. It is essential - as far as is possible - for expatriates planning to return to the UK not to get caught in the currency conversion trap.

You need to make sure that assets held in currencies other than the home or destination currency - in this case sterling - are converted back in good time.
The reason for doing this should be obvious. It is important to convert when the exchange rate is favourable. You may be lucky and convert at a favourable rate even if you have to switch currencies at short or no notice, but luck shouldn’t really play a part in family finances.

It would be depressing indeed to see gains made or savings accumulated while you are abroad being severely dented on your return because of a poor exchange rate.

The US dollar is the international currency of choice and many expatriates are paid in this currency. The continued strength of the dollar makes it favourable to switch back into sterling at present, but don’t take it for granted that this situation will stay the same.