Beating the tax man when moving overseas

I think you will agree with me when I say that, on planning to move abroad, keeping the taxman happy can be very important. Recently a good friend of mine left South Africa without actually going through the emigration process - and therefore the final tax process too. His wife has a British passport so there was no problem when it came to moving to Britain, but the problem has arisen now that his mother has died and he wants to transfer the balance of his inheritance to the UK.

If he had officially emigrated this process would have been comparatively easy and much more tax-friendly but, since he did not do so, it has become a highly complex process. Plus of course, there is the added problem of trying to get things done from a distance. It took me a full month of visits and endless phone calls to tax and government offices in America before I finally had all the papers I needed to formally emigrate – I don’t want to think of the frustration and the cost of trying to do this from abroad. Quite apart from anything else, it was a personal relationship that I forged with one of the people in the tax office that finally ‘cracked the case’!

You obviously need to make sure in your own mind that you intend to remain abroad, but once you are absolutely sure of this – as I was – you need to go into all the tax implications of your move in order so that you get the most possible value from your savings.

You may be surprised to hear that many Brits end up actually paying more tax than they need to when they emigrate. It’s all down to exactly when you leave the country. I was surprised to learn that you may even be owed a refund: it has something to do with unused allowances and varies by the month, peaking for lower income earners in July and higher earners if they leave in August. You need the input of a good IFA (independent financial advisor) to make sure that you time your move correctly.

I am not a tax expert and you need to take good professional advice, but did you know that there is a completely legal way to save on Capital Gains Tax (CGT) when you come to sell your property/properties? If you have rental or holiday properties as well as the home you live in, the real saving comes if at some stage you have used the property as your Principal Private Residence or PPR. Principle Private Residence relief means you don't pay CGT on gains you make when selling your main home - and you can also make use of it for other properties you own too.

You can still benefit from PPR by using your rental or holiday properties as your main home at some point before you sell it. This will give you the last three years worth of growth free from CGT as well as the period in which you live there. HM Revenue and Customs does not specify how long you need to have lived there, but may ask for proof such as phone and utility bills, electoral address etc.

If you let the property out at some stage you will be entitled to up to £40,000 letting relief against your capital gain and this is available for each owner - so if it is in joint names, this doubles to a maximum £80,000. However, letting relief is only applicable to properties which have at some point been your main home.

Legal fees and stamp duty count as part of the cost of buying a property, as do selling costs such as estate agent fees - and these can be offset against any gains. In other words, any costs incurred in the buying of the property (lawyer’s fees, surveys etc.) plus in the selling of the property such as agent’s fees are taken off your capital gain before taking any CGT allowances into account. This can be further lowered by calculating the costs of any capital improvements.

If any significant alterations have been made to the property while you have owned it, the cost of these can also be taken off the gain. Minor things like painting and fixing a broken window do not count though. Again, expert advice would be welcome here: the rule of thumb is keeping every receipt!

Also, remember that if you have let your property as a corporate rental to a trading company or business, you may qualify for the much more generous business asset taper relief, giving you a 75% discount on your capital gain after only two years.

I know that much of this may be ‘slamming the stable door after the horse has bolted’, but if you are taking a long term view of moving abroad you may still be able to use this info. Once again, it’s all down to planning and homework. Not a minute of the planning I did was time wasted and, in the end, it allowed me to move seamlessly and with the minimum of trouble.

Before moving overseas it’s important to prepare! Start the emigration process off on a solid footing – get your Emigration Guide today at: http://www.emigrationguide.com/guide.htm. The Overseas Guides Company, is dedicated to helping people make educated and safe decisions when buying overseas property and moving abroad.

Kim Brown
The Overseas Guides Company
Visit my website at: http://www.emigrationguide.com/