Do the years seem to go by quicker and quicker? US Tax Day is almost upon us, again. Monday April 15th 2019 is the deadline for filing your US tax return. US expats get an automatic extension to June 15th, but if any taxes are due, interest is calculated starting April 15th up to payment date.
The US is the only country in the world (along with Eritrea) to tax citizens and green card holders no matter how long they live outside the United States. The US tax code is also one of the most complex in the world. But there are ways to ensure you file correctly so as to avoid heavy fines and penalties, but also legally reduce the amount of tax you pay to the US and to your country of residency.
In the UK, an expat in international tax terms is someone who is domiciled in the UK but is non-resident, and therefore a non-tax payer on income generated outside of the UK. British expats are still liable for tax on income arising in the UK, and potentially in their country of residence.
Luckily here in the UAE, we’re not subject to income taxes or capital gains tax (CGT), or most other taxes we have to pay back home. However, the UK tax system, like others, operates on a worldwide basis. That means you have to be aware of your international tax liabilities at all times.
Take CGT, for example. Even though you may be deemed non-resident for income tax purposes, you are treated as temporarily non-resident for CGT purposes for up to 5 years. Certain gains made during that time are taxed in the year you return to the UK if within five years.
Or take Inheritance Tax (IHT). A deceased Briton’s worldwide estate will be subject to IHT. A British expat may also be subject to the inheritance tax laws of foreign countries in which they hold assets. UK IHT is paid on the value of the deceased’s estate, at the rate of 40% on the value above your available Nil Rate Band (NRB), currently GBP 325,000.
Taxes are often the biggest expense you will face in your lifetime. If you’re only out of the country some of the time, but normally tax resident, then things are pretty straight forward. But for expats and people with international assets, the situation becomes extremely complicated, with the need to manage ever changing tax laws of multiple jurisdictions, including your own domicile.
This is why international tax planning becomes crucial for expats.
Expats must ensure they’re compliant with international taxation laws, without overpaying.
Often, there are tax treaties or reciprocal taxation agreements between countries, or international tax credits can be issued, or expats can set up structures, such as offshore trusts to reduce the amount of international tax payable.
Expats also need to plan ahead to ensure their future tax affairs are legal, and affordable.
Do you need offshore tax advice?
Our consultants are qualified international tax advisers, experienced in helping expats with international tax planning and protecting their wealth.