There’s a well known saying that goes something like “taxes are the price we pay for a civilised society”. It is attributed to the great American associate justice of the Supreme Court, Oliver Wendell Holmes, Jr.
His sincerity was bound in the genuine belief that without taxation, there can be no legitimate representation, and thus, society at large, though we may grumble, must accept that it is an inevitable part of life.
When it comes to moving overseas, the subject of taxes naturally becomes a lot more prevalent than it usually is. It matters not just because of the bureaucracy, of the need to adhere to the law both at home and the country people are heading to, but for the reason that getting your affairs in order can save you a lot of money.
Steve Wade, a director in the International Executive Services Practice of KPMG, suggests that expats seek professional advice from an expert before they head abroad. Consider immigration points, he says, as penalties and interest can be incurred if there are anomalies with financial arrangements.
The other important thing to note is that tax rules are not the same as they are at home. Mr Wade illustrates this point with a reference to property.
“I think most people in the UK assume that when you sell your home there is not going to be any tax liability,” he says. “This is only because you live in it and this exemption is not always true in other countries. If you go abroad and sell your UK home you could have a tax bill.”
Mr Wade, who has over 25 years’ worth of experience of advising multinational companies and their employees on the employment and personal tax implications of international assignments, highlights pensions as being a difficult area.
This is because any income growth on a pension scheme that relates to an expat can be taxable in the country they are relocating to. Again, the advice is simple: speak to a specialist.
“The point to remember is that just because you are leaving doesn’t mean that your tax affairs stop in the UK,” he expands.
“Another issue is national insurance. Whether you view it as a tax or not, the rules when you go abroad are different than for tax so you can go abroad and not be in the UK tax net but continue to pay national insurance.”
There simply are numerous variables at play. Take this case in point. Expats heading to Europe, Mr Wade says, that still contribute towards national insurance will not have to make a payment to social security in the country they are to be based in.
This is a more suitable approach to international movers who are only staying abroad for a short period of time. The longer people stay in a foreign country, the more likely it will be that they will be included in the native social security scheme. This, in effect, cancels membership to the equivalent system in their country of origin.
“However, social security doesn’t work in the same way as tax,” he cautions. “So, for example, if you went to a country where we didn’t have an agreement you could end up with two liabilities – social security in the UK and you could also end up with social security in the foreign country depending on how your affairs are arranged.”
It is fair to say that from this observation alone, sorting out taxes can be quite a complex endeavour, and in some instances will require the counsel of experts. Many companies sending their employees overseas will take care of this, but in instances where this is not possible; there are professionals out there that can take care of this.
For peace of mind, and clarity of being, it really is an invaluable exercise to perform. The last thing anyone wants to think about when arriving in some wonderful new country is taxes.