Tax doesn’t have to be taxing – so they say. Avoid the pitfalls with our guide
Once you’ve packed your bags and boarded the plane for your new life, you might think that now you’ve left your home country, you no longer need to pay tax.
But just because you’ve made a home somewhere new, it doesn’t mean your tax liabilities end, and making money mistakes can be costly.
“Most people make the same big mistake, and that’s doing nothing,” explains James Marks, wealth manager at Global Eye.
“That will come back to haunt you. The more of a footprint you have in your home country, the more you need to disclose – and it’s better to do that on day one rather than further down the line.”
In many cases, the first step is alerting your home tax authority that you’re leaving, and be sure to disclose any businesses, properties or revenue that you own.
UK citizens need to inform Her Majesty’s Revenue and Customs; for Americans, the Internal Revenue Service is their port of call, and for Canadians, it’s the Canada Revenue Agency.
“Everything to do with tax is proving what you’ve got, what you’ve done, what you’ve earned and what you’ve paid,” notes James.
“You need to be proactive and be transparent.” Financial adviser Keren Bobker agrees, adding: “People need to remember that even if they’re overseas, if they have income in their home country then it is generally still subject to the tax laws of that country – and that could be the case whether it’s rental, business or investment income.”
After filing your paperwork to leave, the next step is being diligent about filing your yearly tax return, if applicable. Deadlines and requirements will vary by country, so be sure to check with your authority and mark your calendar.
For UK citizens, tax is calculated on any income from businesses, properties, interest and investments, whereas US citizens will be liable for tax on all personal income earned outside of the country over a certain threshold.
Sounds simple, right? But there are some potential pitfalls that can hamper a conscientious taxpayer’s progress: “Issues that can come up include things like which point during the tax year someone might leave – and these vary in each country,”
“Another issue is how long you’re planning to be out of your home country. Many people come out for short periods and then return assuming they don’t need to pay anything.”
But after moving abroad, scrambling for your documents to complete your return can be stressful – what if you miss the deadline?
“Don’t panic – the people at the tax office are still human beings after all,” laughs Keren.
“If you realise you’ve made a mistake, you need to go to a professional if it’s a large sum. For smaller sums, ask your tax authority for help.”
Voluntary state contributions such as the UK’s National Insurance programme are another facet of expat life that can provide confusion for many expats.
For Keren, the issue is simple: “Voluntary contributions depend on the individual and whether or not you’re going to return – but it’s not mandatory.”