Leaving UK Tip 8 UK Tax Free UK Usually Taxable Overseas

Published / Last Updated on 12/09/2023

If something is tax free in the UK, this does not necessarily mean it will be tax free in the country that you move to.

  • In UK, ISAs are tax free.
  • In UK, your 25% (or more) pension lump sum is tax free.
  • Profits when you sell Government bonds (gilts) are capital gains tax free.
  • Profits when you sell your main UK home are capital gains tax free.
  • Personal possessions (chattels) e.g., a valuable jewellery item worth below £6,000 are capital gains tax free.
  • Selling UK trading business assets and reinvesting the proceeds in another UK business asset within 3 years attract “Business Asset Rollover Relief” i.e., usually capital gains tax deferred.
  • Transferring assets between spouses or civil partners are capital gains tax free.
  • 5% of originally investment (and rolled up) withdrawals from insurance investment bonds are tax deferred for up to 20 years.
  • There are many other tax breaks such as yearly allowances that may make many other transactions tax free in the UK and/or if you are a British Citizen.

Tax free and tax deferred in the UK does not necessarily mean they are tax free or tax deferred if you live overseas.  For example:

  • Some UK pension lump sums are tax free (for British Nationals) at a Federal Taxes level if you live in the USA, but local state taxes may or may not apply.  Indeed, pensions lump sums may or may not be taxable at a Federal level too depending upon how you take your pension income (the taxable part in UK).
  • In many countries, all pension funds including the UK 25% tax free lump sum are taxable.
  • ISAs grow tax free in the UK.  ISAs dividends and interest are also tax free in the UK.  This is usually not the case overseas.
  • Leaving growth or deferred income inside an investment i.e., not withdrawing it may still give rise to an immediate liability to tax in the country that you live in.

Taxation will depend upon local tax national and local tax laws where you live and the tax treaty (if any) that exists between the UK and the country that you live in or are moving to.  Whilst most tax treaties follow a similar pattern, there are significant numbers that have both subtle and major differences.

Take specialist expat financial and tax advice before you leave the UK or indeed if you are already overseas.

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