Maximising starting rate for savings before leaving UK permanently

pecunianonolet

Hi there,

Looking for some advice to maximise tax free interest income and got some questions and hope I can get this clarified or at least be pointed in the right direction.

Assumptions: 

PAYE income from employment 54k p.a.
Expected departure date leaving UK permanently 1st of June or 1st July

Starter rate for savings: £5000
PSA: £1000
Tax free allowance: £12570
-----------------------------------------------------------------------------------------------------------------------------
If I have income from interest only when the new tax year starts on 6th April I would be able to generate £18570 of interest and would not pay any tax on it.

Now, if I am still employed and my employment would cease on 30th May I would still have employment income for April & May of £9000 combined (54k/12=4500)

My assumption would be 

£12570 tax free allowance - £9000 of income = £3570 of tax free income available from any source
PSA as 0% tax band = £1000
Starting rate for savings = £5000

So in total I could earn £9570 in interest without paying a penny between 6th April and 31st May by using this example?
-----------------------------------------------------------------------------------------------------------------------------

If leaving the UK on 1st July and earning for April, May, June a salary (3 x £4500 = £13500). I would pay 20% tax on earnings of £930, which would be £186 in tax.


£12570 tax free allowance - £13500 of income = £930 of tax taxable income
PSA as 0% tax band = £1000
Starting rate for savings would reduce to = £4070

So in total I could earn £5070 in interest without paying a penny between 6th April and 30th June by using this example? With a P85 some tax might even be refunded but no idea if this is the case.
------------------------------------------------------------------------------------------------------------------------------

In addition, I can open an ISA on 6th April and put £20k in and have time to do so, even if no longer a resident in UK, until 5th April 2026. Interest would be tax free in UK but subject to the tax rules in the new jurisdiction. 

Is the above correct, can anyone confirm, please? This would allow to open and fund many reg savers, which can just be closed when required and I can already start building up funds outside my flexible ISA to generate higher gains. 

spreadsheeterapple

Other points to consider first
1.
not all financial institutions offer savings accounts to non-UK residents; often the T&C state a combination of any or all of the following
- can only open if UK-resident,
- can only open if UK-tax-resident,
- must tell the institution of you cease being UK-resident and/or UK-tax-resident
This is going to hamper which savings account you can keep and/or open ongoing.

2.
not all banks offer savings accounts at all if you do not hold a main current account with them
- not all banks offer UK-based current accounts to non-UK residents
- and any accounts already held before you move abroad, the banks reserve the right to close. Many UK banks have done so, closing many people's bank accounts on fairly short notice. Not even people who still had a property in the UK, and hence had some UK bills to pay, were allowed to keep their UK bank accounts.

2.b.
You may wish to check out specific bank accounts for Ex-Pats
- there may be criteria for minimum income or minimum assets, and some accounts may charge fees, but it's worth checking out in advance what is available so you can open something before leaving UK.

3.
those financial institutions which do offer savings accounts to non-UK residents may be the ones not offering good rates.
bummer.

4.
Paying into your UK savings accounts, including monthly deposits to regular savers; possible problems
- savings account providers often specify in T&C that all deposits must be made from your UK main current account
- same goes for withdrawals, must go to your UK main current account (a bank)
- see above, not all banks will allow you to keep your UK bank account open if you are no longer a UK resident.
- some savings institutions, especially building societies, do not offer paying withdrawals or maturity funds to your bank abroad; they do not offer international payments in either direction, nor in another currency.

5.
re. ISA, I appreciate you're talking about funding it with the maximum 20k for the coming tax year, so paying more in during 2025/26 wouldn't apply to you, (providing you've done that before leaving UK). But for the sake of information completeness & other readers, then -
- in your scenario, you would have to both open the ISA before leaving UK, AND you would have to fund it the entire £20k before leaving UK
- If you open an ISA in the UK then move abroad & become a non-UK resident, you cannot put more money into it. - You cannot pay in, and nor can anyone else pay into it.
- (there are exceptions for Crown employees, and possibly for armed forces.)
- You must inform the ISA provider as soon as you stop being a UK resident.
- However, you can keep your ISA open, and you still get UK tax relief on money and investments held in it.
- You can transfer an ISA to another provider even if you are not resident in the UK, subject to those financial institutions which will accept your application to open an ISA account with them.

6.
Exchange Rate Risk
- if and when you wish to get hold of your UK money, in order to spend it or pay bills in the country you have moved to, you are going to have to make international payments which will convert your money from UK Sterling to whatever currency.
- Currency Exchange Rates are subject to being quite volatile, especially so in the new era of global military & political tensions, and everyone doing 'trade tariffs". Nobody knows what is going to happen, a whole set of new things are starting to happen globally. Global economies are going to change potentially dramatically, in comparison with the stability we have seen in the past few decades, and even during that 'stable' period of time currency exchange rates have moved up & down in big spikes. The particular currency your new country uses may fare quite well in its exchange rate from GB Sterling, or it might go completely against you. For example it's not so long ago (2007, living memory) that US Dollars were 2 to the Pound, now it's 1.25 if you're lucky, and it got down to about 1.1 when we were all having an economic financial mini-crisis in Autumn 2022. Moving GB Sterling to USD in 2022 compared to 2007, the worth of your money would have halved.
- international payments generally have fees on top, and there may also be fees charged by the receiving bank in your new country.
- basically this is going to dent the net income you gain in UK savings interest.

7.
It wouldn't be unusual to suddenly/unexpectedly need your UK savings at short notice, and I'm thinking here of medical bills or care bills if horrible things happen to you or your family. It's as well to keep these possibilities in mind when thinking of tying money up in the UK.

8.
You might check out savings in your new country; what financial providers there are, what interest rates they pay, what taxes & tax reliefs etc etc. You may be pleasantly surprised, I don't know.

spreadsheeterapple

re. your Tax on Savings questions
- some of this depends on whether you are a British Citizen and remain so.
- and whether you already have Citizenship for another country, and/or obtain a new Citizenship for your new country.
- it is also not so simple as splitting your tax year precisely on the date you leave the UK.

There is more info on this link, but also I would advise speaking to at least the HMRC Helpline if not an actual tax specialist. Do you perhaps have an adviser you are using for your emigration.....
https://www.gov.uk/tax-right-retire-abroad-return-to-uk


ALSO:

Personal Allowance

You’ll get a Personal Allowance of tax-free UK income each year if any of the following apply:

• you’re a British Citizen
• you’re a citizen of a European Economic Area (EEA) country
• you work for the UK government at any time during that tax year
• You might also get it if it’s included in any 'double-taxation agreement' between the UK and the country you live in.

Claim the Personal Allowance

If you’re not a UK resident, you have to claim the Personal Allowance at the end of each tax year in which you have UK income, by sending "form R43" to HM Revenue and Customs (HMRC).

spreadsheeterapple

re. "If leaving the UK on 1st July and earning for April, May, June a salary (3 x £4500 = £13500). I would pay 20% tax on earnings of £930, which would be £186 in tax"
= NO

On PAYE, tax would still be deducted for April/May/June in accordance with your Tax Code, because the system doesn't know you intend to leave UK on 1st July.
- so you would likely pay a PAYE tax deduction of £752-66 per month if you have a standard tax code, making about £2258 for the first 3 months of the new tax year.
- this includes some at 20% and some at 40% in the normal way; you would still be a Higher Rate Tax Payer as far as PAYE is concerned for the months you receive your UK salary.
- possibly more tax if you are given holiday pay in your final salary payment, for example.
- I haven't accounted for any pension plans you might have. (You need to think about stopping these, and how pension payment tax relief will work in your final UK year, and how to keep track of the pension plan ready for later life when you come to retire).

As you've indicated, your total salary earned in UK will be just over the annual Personal Allowance by £930 on your figures.
- but you won't get the difference between £2258 and £186 refunded straight away, you will have to apply to HMRC for a refund. They may say you have to wait until you put in a tax return for the full tax year after 5th April 2026. Again, advice from HMRC Helpline is probably needed.

pecunianonolet

spreadsheeterapple said:

Other points to consider first
1.
not all financial institutions offer savings accounts to non-UK residents; often the T&C state a combination of any or all of the following
- can only open if UK-resident,
- can only open if UK-tax-resident,
- must tell the institution of you cease being UK-resident and/or UK-tax-resident
This is going to hamper which savings account you can keep and/or open ongoing.

Less of a problem as cash will most likely be exchanged entirely, some institutions let you keep your account so I guess I'll find one out of my portfolio of accounts.

2.
not all banks offer savings accounts at all if you do not hold a main current account with them
- not all banks offer UK-based current accounts to non-UK residents
- and any accounts already held before you move abroad, the banks reserve the right to close. Many UK banks have done so, closing many people's bank accounts on fairly short notice. Not even people who still had a property in the UK, and hence had some UK bills to pay, were allowed to keep their UK bank accounts.

As above, not of particular concern.

2.b.
You may wish to check out specific bank accounts for Ex-Pats
- there may be criteria for minimum income or minimum assets, and some accounts may charge fees, but it's worth checking out in advance what is available so you can open something before leaving UK.

Might be a short term option but my oversees destination will most likely have enough banks offering currency accounts.

3.
those financial institutions which do offer savings accounts to non-UK residents may be the ones not offering good rates.
bummer.

Not of great concern and would only be short term, if even.

4.
Paying into your UK savings accounts, including monthly deposits to regular savers; possible problems
- savings account providers often specify in T&C that all deposits must be made from your UK main current account
- same goes for withdrawals, must go to your UK main current account (a bank)
- see above, not all banks will allow you to keep your UK bank account open if you are no longer a UK resident.
- some savings institutions, especially building societies, do not offer paying withdrawals or maturity funds to your bank abroad; they do not offer international payments in either direction, nor in another currency.

All regular savers will by the departure date have either matured or will be closed to materialise interest in 25/26 tax year. --> Key question, how much interest can I generate before a tax liability is created? See initial post.

5.
re. ISA, I appreciate you're talking about funding it with the maximum 20k for the coming tax year, so paying more in during 2025/26 wouldn't apply to you. But for the sake of information completeness & other readers, then -
- If you open an ISA in the UK then move abroad & become a non-UK resident, you cannot put more money into it. - You cannot pay in, and nor can anyone else pay into it.
- (there are exceptions for Crown employees, and possibly for armed forces.)
- You must inform the ISA provider as soon as you stop being a UK resident.
- However, you can keep your ISA open, and you still get UK tax relief on money and investments held in it.
- You can transfer an ISA to another provider even if you are not resident in the UK, subject to those financial institutions which will accept your application to open an ISA account with them.

ISA account(s) will be opened on 6th April for 25/26 funds until departure. Funds are either kept in the wrapper after moving abroad (depending on which institution will let me keep an ISA) or if no institution will let me keep it in a wrapper, it will be taken out and exchanged or kept wherever possible short term until invested. 

6.
Exchange Rate Risk
- if and when you wish to get hold of your UK money, in order to spend it or pay bills in the country you have moved to, you are going to have to make international payments which will convert your money from UK Sterling to whatever currency.
- Currency Exchange Rates are subject to being quite volatile, especially so in the new era of global military & political tensions, and everyone doing 'trade tariffs". Nobody knows what is going to happen, a whole set of new things are starting to happen globally. Global economies are going to change potentially dramatically, in comparison with the stability we have seen in the past few decades, and even during that 'stable' period of time currency exchange rates have moved up & down in big spikes. The particular currency your new country uses may fare quite well in its exchange rate from GB Sterling, or it might go completely against you. For example it's not so long ago (2007, living memory) that US Dollars were 2 to the Pound, now it's 1.25 if you're lucky, and it got down to about 1.1 when we were all having an economic financial mini-crisis in Autumn 2022. Moving GB Sterling to USD in 2022 compared to 2007, the worth of your money would have halved.
- international payments generally have fees on top, and there may also be fees charged by the receiving bank in your new country.
- basically this is going to dent the net income you gain in UK savings interest.

Indeed a risk but the exchange rate has been moving in my favour over the last 2 years specifically and is at a 5y high. All the risks you described and the volatility and unpredictability makes me nervous indeed. 

7.
It wouldn't be unusual to suddenly/unexpectedly need your UK savings at short notice, and I'm thinking here of medical bills or care bills if horrible things happen to you or your family. It's as well to keep these possibilities in mind when thinking of tying money up in the UK.

Great point but state provided health care is much better compared to UK, which to be fair isn't too difficult, and private medical is affordable and budgeted for.

8.
You might check out savings in your new country; what financial providers there are, what interest rates they pay, what taxes & tax reliefs etc etc. You may be pleasantly surprised, I don't know.

Interest rates are currently at around 3.5%, which is around the same as inflation so minor real term losses. It's a minor concern as cash deposits may only be short term at a higher level, depending on how long I may be able to hold on to more favourable above inflation rates in UK, and before any other investments. Very favourable tax situation, a key reason for moving and, of course, the much better weather and relatively warm winters.

spreadsheeterapple said:

re. your Tax on Savings questions
- some of this depends on whether you are a British Citizen and remain so.
- and whether you already have Citizenship for another country, and/or obtain a new Citizenship for your new country.
- it is also not so simple as splitting your tax year precisely on the date you leave the UK.

There is more info on this link, but also I would advise speaking to at least the HMRC Helpline if not an actual tax specialist. Do you perhaps have an adviser you are using for your emigration.....
https://www.gov.uk/tax-right-retire-abroad-return-to-uk


ALSO:

Personal Allowance

You’ll get a Personal Allowance of tax-free UK income each year if any of the following apply:

• you’re a British Citizen
• you’re a citizen of a European Economic Area (EEA) country
• you work for the UK government at any time during that tax year
• You might also get it if it’s included in any 'double-taxation agreement' between the UK and the country you live in.

Claim the Personal Allowance

If you’re not a UK resident, you have to claim the Personal Allowance at the end of each tax year in which you have UK income, by sending "form R43" to HM Revenue and Customs (HMRC).

Yes, dual citizen of the UK and another EU country but not the one I intend of moving to but will have automatically the full right to remain there under EU law. Nothing will change to that. Form R43 may or may not be needed but probably only in many years time when I start to get UK state pension, if I will ever see anything.

spreadsheeterapple said:

re. "If leaving the UK on 1st July and earning for April, May, June a salary (3 x £4500 = £13500). I would pay 20% tax on earnings of £930, which would be £186 in tax"
= NO

On PAYE, tax would still be deducted for April/May/June in accordance with your Tax Code, because the system doesn't know you intend to leave UK on 1st July.
- so you would likely pay a PAYE tax deduction of £752-66 per month if you have a standard tax code, making about £2258 for the first 3 months of the new tax year.
- this includes some at 20% and some at 40% in the normal way; you would still be a Higher Rate Tax Payer as far as PAYE is concerned for the months you receive your UK salary.
- possibly more tax if you are given holiday pay in your final salary payment, for example.
- I haven't accounted for any pension plans you might have. (You need to think about stopping these, and how pension payment tax relief will work in your final UK year, and how to keep track of the pension plan ready for later life when you come to retire).

As you've indicated, your total salary earned in UK will be just over the annual Personal Allowance by £930 on your figures.
- but you won't get the difference between £2258 and £186 refunded straight away, you will have to apply to HMRC for a refund. They may say you have to wait until you put in a tax return for the full tax year after 5th April 2026. Again, advice from HMRC Helpline is probably needed.

Correct, taxation would be as you say as HMRC won't know and tax is split evenly over the full tax year until a P85 is handed in so any over paid tax would be refunded at some point in this example calculation. Holiday pay would not be an issue as I would just take all accrued holiday before. 

Pension plans are a very different topic to deal with. Pension advisor will know ;-)

Tried to simplify the example and perhaps wasn't clear enough.

I have current accounts with each major UK high street bank and credit cards too. I also have many savings accounts and regular savers with many building societies. 

My key aim is to maximise returns between 6th April 2025 until ceasing to be a tax resident in UK and before becoming a tax resident overseas.

Thank you for your comprehensive write up!

spreadsheeterapple

pecunianonolet said:

Thank you for your comprehensive write up. ........ but think you have missed to answer the main point. 

My key aim is to maximise returns between 6th April 2025 until ceasing to be a tax resident in UK and before becoming a tax resident overseas.

ah well, yes I did avoid specifying how much savings interest you can earn tax-free during that period, or during that tax year.
!

I don't feel fully qualified in tax, especially where dual citizenship or dual-residency might be the case, nor how UK tax might interact with tax in your destination country.

Your arithmetic looks ok, but I can't assume you would still be eligible for the £5000 Starting Rate for Savings as a non-UK resident, because I could only find Personal Allowance in my notes as still being allowed to British Citizens. I'm not saying you lose that £5k worth tax-free, but I can't categorically say you do keep entitlement.
- so I didn't want you relying on me saying yes/no either way on that aspect.
I'm only confident of what I DID write, from my previous employments in banking (40 yrs) and in accountancy (less than 10 yrs of which most of it was management accounting not personal taxation).

re. ISA
you did put "In addition, I can open an ISA on 6th April and put £20k in and have time to do so, even if no longer a resident in UK, until 5th April 2026"
- which no you can't; you have to open it before leaving UK, AND you have to pay into it all of what you wanted to pay in before leaving UK; you cannot pay any more in after becoming non-UK resident. But The ISA Rules (set by government) do say you can keep the ISA open and still get its tax relief, and you can do an ISA-Transfer to another ISA provider, it's just that you cannot pay any new money in.

I hope someone else happens on this thread with answers.

spreadsheeterapple

spreadsheeterapple said:

re. your Tax on Savings questions

- it is also not so simple as splitting your tax year precisely on the date you leave the UK.

pecunianonolet said:

My key aim is to maximise returns between 6th April 2025 until ceasing to be a tax resident in UK and before becoming a tax resident overseas.

Feeling a bit bad that I didn't answer your question & that nobody else has happened on this thread, and also I was a bit wary as I said above that "it's not so simple as splitting your tax year precisely on the date you leave the UK".
- so, happened to be talking to a past colleague of mine, I snuck it past them.

1.
They clarified that being tax-resident does not at all usually cease at the date you board your plane or sail off into the sunset. Instead 'tax residency' for the UK normally applies for a whole tax year, there are only some circumstances in which 'split year treatment' would be applied by HMRC. This is even the case where you are only physically resident in the UK for less than 91 days, i.e. approximately one quarter of the year.

Your new country will have its own tax rules, which may differ in how they define tax residency and split year treatment. Potentially you could be tax resident in both countries for 2025/2026, and be taxed twice, but check whether UK & your new country do have a 'double taxation agreement' to reduce your overall tax.

In the UK, HMRC has a set of 'tests' to determine whether you would be tax resident or not, "Statutory Residence Test", and it might seem irrelevant as you thought it merely counted upon leaving UK soil, but it can depend on such things as spouse/partner/children and accommodation you use. Suggested link, have a look at "the sufficient ties test", and you might also google using those keywords, and also check out your new country's way of testing residency.
  https://www.bdo.co.uk/en-gb/insights/tax/private-client/leaving-the-uk  


2.
They didn't think we had discussed ISAs sufficiently well. 
- what was said in the thread above centred on the UK treatment of your proposed 2025/26 Cash ISA, i.e. opening it and funding it before you left UK, not able to pay into it after leaving UK, all that.
- but they wanted me to clarify that is only how the UK would treat your Cash ISA tax-free status; ISAs are only a UK tax-incentivised product. The same product would not be viewed as tax-free in another country; they have their own tax regimes, so it would just be savings on which you earned interest.
- I should explicitly state that ALL your interest income and employment income, all income of any type, would be totted up by your new country, and they will apply their tax rules to all that income. UNLESS they have a "split year treatment" and which considers your ISA interest as having been earned & paid to you before you left UK. That would also depend on the dates you are paid your interest; it isn't sufficient to have stepped your feet off UK soil, if your UK interest is paid to you on a later date.

Hope that helps, but fear it lands you more work to check into it and get advice.

spreadsheeterapple

1.
Statutory Residence Test FLOWCHART (bit easier to fathom by using a flowchart)
https://www.bdo.co.uk/getmedia/1ebbb039-6e55-48c0-a5a4-1c76ccbd1203/PCS-SRT-flowchart.pdf


2.

"Split year treatment: When will split year treatment apply"

https://www.gov.uk/hmrc-internal-manuals/residence-domicile-and-remittance-basis/rdrm12030


3.
Dates of the Tax Year
- in the UK, the Tax Year starts 6th April, ends 5th April following year
- unique, it's a quirk of British history; other countries don't have these dates !
- most EU countries have Tax Year starting January
- lots of other countries have different dates again.

pecunianonolet

@spredsheeterapple thank you very much and seems like there is a lot more to it as I thought. The new country has a lot of ties with the UK so double taxation agreements are in place. I need to read through all of this first and seems like I need to engage a specialist asap.