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Beware the reach of Her Majesty's taxman, Brexit bankers told
[LONDON] Financial workers weighing up offers to move to Europe after Brexit may find out that relocating is financially more complicated than they bargained for thanks to the long arm of Her Majesty's Revenues and Customs (HMRC).
Accountants and wealth planners say they are encountering widespread confusion about UK tax obligations among Britons thinking of moving abroad - many for the first time and not necessarily as their first choice - as employers put plans in motion to move jobs after Britain voted to leave the European Union.
It's not just Britons who are affected. EU nationals who have built decades-long careers in Britain's thriving financial services industry, accumulating properties and stocks in the UK, have similar concerns.
"Those who move abroad for work along with those who move by choice need to remember that just because they've crossed the border, it's not a clean break from the UK tax system," said Rachael Griffin, tax and financial planning expert at Quilter.
Global banks such as Goldman Sachs, Morgan Stanley , BNP Paribas, Deutsche Bank, Citigroup, UBS and JPMorgan have said they will likely relocate hundreds of jobs to rival financial centres in the EU after March 2019.
A Reuters survey of 199 firms conducted in March indicated up to 5,000 finance jobs could be shifted, depending on the final terms agreed by Brexit negotiators.
Old Mutual International, part of Quilter, and Atomik Research surveyed 147 British expatriates across the world to gain insight into the most common misunderstandings about UK tax law.
Nearly three-quarters of those surveyed said they wrongly assumed they would no longer be UK-domiciled after moving, which would free them from taxes levied by the HMRC such as UK inheritance tax, which at 40 per cent is the fourth highest in the world, according to policy adviser, the Tax Foundation.
Shedding domiciled status, which has roots back to 1799, is very difficult to achieve, however, requiring individuals to sever all links and pledge never to return to live in Britain, among other strict criteria.
People who were born in the United Kingdom are generally deemed domiciled and as of April 2017, so are people resident in the UK for at least 15 of the last 20 tax years.
"We have seen occasions where an individual believes leaving the UK will break the domicile position and thereby negate UK inheritance tax," said Mitch Young, head of UK Tax at DeVere Tax Consultancy. "Having informed them of the new rules they have had to reconsider."
For those who are domiciled, the tax code can also catch out those who seek to claim non-residency while on secondment to an overseas office, for example.
Non-residents have to pay tax on any UK income, such as rental income from a British property; residency could trigger HMRC taxes on worldwide earnings and capital gains.
A managing director at a US investment bank who moved to Milan from London earlier in 2018 said many of his peers believe they can keep their families in London and return on the weekend.
Overstaying the permitted tax year allowance of 90 days or working from the UK on more than 30 of those days could trigger residency and a hefty bill, however, he said.
After weighing up the personal stress as well as the financial risks, he said he decided to sell his home and "cut all ties with Britain". But it has not been easy.
"At the end of the day this is not about money. It's about life and not just about your own life. Your family has to come with you and a new balance has to be found," he said, asking not to be named talking about his personal finances.
Travel between the UK and the new country of residence has to be carefully managed and logged in case the HMRC requests evidence to support the individual's new non-resident status.
"Whilst we cannot recall a specific example of where a client actually changed their mind about leaving the UK entirely, we have seen clients become very frustrated by day count limits minimising their time in the UK," said Christine Tuckerman, partner at wealth planner Bishop Fleming.
Workers also need to review insurance policies, wills and other documents transferring power of attorney (POA) which could be rendered worthless after leaving the UK, said Nimesh Shah, a partner at accountancy firm Blick Rothenberg.
"Certain life insurance policies may not be effective in the other country, and the terms may not be altered easily, so portability can be an issue," Mr Shah said.
Half of the respondents to the Old Mutual/Atomik survey admitted they had no idea whether their wills would be legally recognised outside Britain.
"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," Ms Griffin said.
Individuals may also have failed to consider the tax implications for the money they bring back into the UK for expenses or when they return home for good, the advisers said.
Clients may make financial decisions that were favourable in the country of residence but not in the United Kingdom, in which case they may face "a large and unexpected tax bill in the year of return", DeVere's Young said.