WORKING OVERSEAS MAKES TAX AFFAIRS MORE COMPLICATED
More and more architects' practices are looking to broaden their horizons, and it is not uncommon for firms to be asked to tender for overseas projects, with many firms now having a presence in Europe. This requires the workforce to be more flexible and mobile than ever before.
It is now far easier to travel around Europe than 10 years ago, and this has opened up a number of options for the long-term overseas secondee. Should you simply commute on a weekly basis or look to establish a more permanent base overseas? And what about your family: should they move overseas as well or just visit on a regular basis? All these options have a different impact on your tax affairs and it is therefore important to spend some time considering your options before leaving for pastures new.
DETERMINING YOUR TAX RESIDENCY The first thing to consider is how long you plan to be overseas.
If you are to be abroad for a substantial period of time (generally at least three years, but it can be one complete tax year in some circumstances), you may lose your UK residency for tax purposes.
If you do lose your UK tax residency and none of your duties are carried out in the UK, you should not pay UK tax on your income but you will pay tax in the country in which you are working. It is important that your firm's payroll department is aware of the situation so that the correct arrangements can be made for PAYE.
If you have any income-producing assets in the UK, they will continue to be subject to UK tax. For example, interest earned on a UK bank account may still be subject to UK tax, albeit at a lower rate in certain circumstances (see below for relief from double taxation).
If you are simply commuting to an overseas post during the week but spending weekends in the UK, it is unlikely that you will lose your UK tax residence. In a recent case, the Inland Revenue held that an individual had spent few enough days in the UK to be considered non-resident under their published guidelines.
However, because his links to the UK through work and family were still fairly strong, he was considered a UK resident.
If you plan to be abroad for a shorter period, you may stay within the net of UK taxation. However, this does not prevent the country in which you are living also having taxing rights over your income.
TAKE LOCAL ADVICE Many countries have drawn up double-tax treaties with the UK to determine which country has the primary taxing rights, and to give relief for overseas tax to ensure that individuals and companies do not suffer tax twice on the same income.
In general, many countries in Europe have a higher rate of tax than the UK and therefore many firms will seek to offer some form of compensation so that you do not lose out by paying higher taxes. For larger firms with offices in many overseas countries, it is not uncommon to have a sophisticated taxequalisation policy in place to ensure that all employees/partners, wherever they are seconded, suffer tax at the same rate.
NATIONAL INSURANCE AND SOCIAL TAXES National insurance and overseas social taxes operate under a different regime, and if your secondment is for a period of 12 months or less it is possible to stay within the UK national insurance regime. This means that you will not lose any benefits such as pension or unemployment benefit rights. It is also possible to extend this for up to three years. However, if the contract is likely to extend beyond this, you will usually be required to start contributing to the local country's social tax regime.
Social taxes can be high, particularly in France and Belgium, for example, and it is therefore important to ensure that these costs are considered at the outset.
PLANNING FOR THE FAMILY HOME If the secondment is for an extended period, you may need to consider whether your family will also move overseas with you.
While this will impact on your partner's income tax status, there may also be ramifications for the capital gains tax position of the family home.
In general, your home is exempt from Capital Gains Tax (CGT) provided you live in it. Therefore a sale of the main home before, or shortly after, moving abroad should not give rise to a tax charge. Exemptions also apply if you are required to work abroad for certain periods of time, or if you let out the property during your absence. There are also exemptions available in certain circumstances if your employer bears the cost of you, and your family, moving and living abroad.
Working overseas will undoubtedly make your tax affairs more complicated and there are many pitfalls to be avoided (the rules are even more complex if you are a partner in a firm).
However, by taking some time before you go to plan ahead and consider your options you will be able to optimise your position and take advantage of tax-planning opportunities.
Karen Liddell is a senior tax manager and Richard Montague is a manager specialising in international taxation at BDO Stoy Hayward. They are the authors of 'Working Abroad - the complete guide to overseas employment', published by Kogan Page.