A guide to financial planning for UK expats considering returning home

If you’re coming back to the UK after living abroad, then you’ve probably got lots of questions around incomes, taxes, property, and general financial planning.

To help plan your UK return, we’ve put together this guide that covers all the main things you should pay attention to as an expat.

Although this guide is a good place to start, the rules change frequently and everyone’s situation is unique. That’s why it’s best to get one-to-one advice from an expert in the field before making any major financial decisions.

START PLANNING ASAP
We know it’s not always possible, but try to give yourself at least 12 months to prepare for your repatriation, preferably a full UK tax year.

Residency and tax rules are complicated. Starting your planning early gives you time to:

• Clarify your non-resident status and ensure it’s airtight before you leave.
• Plan your residency timing to minimize tax liabilities, especially if there’s overlap in tax years or income sources.
• Claim financial benefits such as capital gains exemptions.
• Sort out property, investments, and pensions and how those assets will be taxed.
• Explore UK-resident financial products like SIPPS pensions or ISAs

If possible, aim to coincide your UK return with the beginning of the tax year, which is on 6th April.
This means your tax residency will start cleanly on day one, so you don’t have to worry about complex split-year tax treatment on income from abroad and the UK.

HOW TO PLAN FOR UK TAX RESIDENCY CHANGES
In April 2025, the current non-dom system will be scrapped. It’s going to be replaced with the new Foreign Income and Gains system (FIG). Under the FIG system foreign income will be swept up into the UK tax fold for all UK residents.

Under the new FIG regime, you get a four-year grace period to sort out your foreign holdings before the new taxation system kicks in. During that period it’s worth considering the following.

• Asset Sales: Selling off foreign investments like rental properties or shares now, during the grace period, to bring in income without triggering immediate UK tax. This is important for avoiding hefty capital gains taxes later.
• Portfolio Rebalancing: Moving funds from income-heavy investments, like dividends, to ones that will be more tax-efficient under UK rules once the grace period ends.
• Trust Distributions: If you have offshore trusts, now is the time to draw income or make distributions that won’t face UK tax during these four years.

INHERITANCE TAX (IHT) CONCERNS
Another change to the tax rules is that after 10 years of UK residency, all your worldwide assets will be subject to inheritance tax (IHT). That’s a potential 40% tax on anything above the thresholds.

If you have property and investments abroad, it’s worth revisiting your estate planning to see if trusts can still offer protection. Passing assets to your spouse is exempt, but planning for your kids’ inheritance is critical, especially now that long-term UK residency locks you into the tax net.

ANNOUNCING YOUR RETURN TO HMRC
When you left the UK you would have declared your departure to HMRC. Now you’re planning to come back, you have to reintroduce yourself to the system.

• If You’re Employed:
  You’ll need to fill out a Starter Checklist (used to be the P46). This lets HMRC know about any income you’ve earned abroad and taxes you’ve already paid. It’s their way of figuring out your tax code so you’re not double-taxed or stuck on an emergency tax code.
• If You’re Self-Employed or Not Employed:
  If you’re planning to work for yourself or have no employment lined up, you’ll need to register for Self Assessment. You’ve got until 31st January to file for the previous tax year, so if you return mid-year, you’ll still need to report what you’ve earned up until that point.

CAREFULLY PLAN YOUR INVESTMENTS, PENSIONS & QROPS
If your investments are in a foreign currency, exchange rate fluctuations could affect the value when converted into pounds. It’s something to keep an eye on and plan for long-term returns.

Pensions are another big area of focus, and they can be complex depending on the types of plans you’ve accrued while living abroad.

• Foreign Pension Schemes
  If you’ve paid into a local pension scheme while abroad, you’ll have to work out whether it’s compatible with UK rules. Some foreign pensions are taxable under UK law once you’re back, even if they were tax-free or tax-deferred when you paid into them.
• Double Tax Treaties
  The UK has agreements with certain countries, especially European ones, to prevent double taxation. However, the rules aren’t always straightforward, so you need to research how they apply to your specific circumstances.

QUALIFYING RECOGNISED OVERSEAS PENSION SCHEME (QROPS)
A QROPS is a popular option for expats who’ve been working abroad long enough to build up a pension pot. The benefits of a QROPS are as follows.

• More Tax Efficient
  QROPS allow you to transfer your UK pension to an overseas scheme, often with tax benefits if you remain abroad. Once you return to the UK however, the tax advantages may no longer apply so you need to check with your pension provider.
• Currency Flexibility
  If your pension is in a foreign currency, a QROPS gives you better control over exchange rate risks. This is especially true for long-term withdrawals.
• Avoiding Lifetime Allowance Charges
  A QROPS transfer might help mitigate or avoid going above the UK’s pension lifetime allowance. If you do exceed it, you might end up with bigger tax charges than expected.

Transferring to a QROPS isn’t always easy, as they’re heavily regulated and the tax implications when you return to the UK can vary.

With tax reforms happening left, right, and centre at the moment, you should aim to stay updated on how it will affect pensions. For example, there might be more restrictions on foreign pensions or additional taxes on QROPS transfers in the future.

That’s why it’s always worth consulting a specialist before you make any financial decisions related to your UK return.