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Time apportionment tax relief is a benefit available to UK expats who may return to the UK in the future. Capital gains made from life assurance portfolio bonds can be liable to a significant tax. However, certain investments, made by UK expats who have returned home, are entitled to a reduction in capital gains tax. This tax relief is calculated in proportion to the time spent as a resident outside of the country. Time apportionment tax relief will also apply to any additional investments made into the policies or bonds, even if made when classed as resident in the UK again.
The calculations are quite simple. The number of days spent resident outside of the UK is taken as a percentage of the total number of days which the policy or bond is held. Any capital gains realised can then be reduced by this percentage to show the taxable amount.
As a very simplified example:
A UK expat in Asia invests in an offshore bond. She works for exactly three more years and then returns to the UK. Any additional investments she makes into the bond are considered to have been made at the start of the investment. Three years later she cashes in the bond and the gain made on her bond was £30,000. She was resident outside of the UK for exactly half of the six year investment period. Therefore only 50% of the capital gain, £15,000, is liable to UK tax.
Setting up the policies or bonds correctly may not be quite so simple. A professional adviser will ensure that additional investments can be made to suit your particular needs. A bond established with a lump sum could continue to receive additional investments over a long period of time. This creates a tax efficient savings solution for any expat returning to the UK. Savings can continue to be invested whilst still looking forward to time apportionment tax relief.
UK expats working away from the UK for as short a period as one tax year may still be able to take advantage of time apportionment tax relief.
If you are a UK expat who may be returning to the UK and need to clarify your eligibility for time apportionment tax relief, please feel free to contact us at Infinity. One of our experienced advisers will be happy to discuss your situation.
Disclaimer: Infinity is not licensed or qualified to give tax advice.
This article is intended for information only and does not constitute tax advice. If you are in any doubt about your tax status please contact a qualified professional.
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