Reducing tax on overseas income if returning to the UK

Actually avoiding income tax on overseas income after you return to the UK can be difficult. You could of course ensure that you did not have the 'income' in the first place. One option could be to gift the overseas investments/cash cash to a close and trusted family member. Any interest that arose would be their income, and you could use capital transfers to fund your living expenses in the UK. By using this method you do not have any overseas income and are just spending your savings that you acquired before you became UK resident. Another option could be to invest a significant portion of your funds into a a non (or low)-income paying fund before you arrive in the UK. Any interest earned on the fund would still be taxed but if the investment was in a high capital growth fund which paid little income return the tax charge in the UK would be minimal. In this case you'd be looking at realizing profits in the form of capital gains, rather than income. As such although there would be no (or low) income tax a large gain would arise on the disposal of the investments in the future. Capital gains are however given preferential treatment. You would for example be taxed at 18%, instead of the income tax rates at up to 40%. If the gain was substantial and you were a non UK domiciliary you could also take advantage of the remittance provisions to retain proceeds overseas and just pay the £30,000 flat rate tax charge. The best option though would be to ensure that you were non UK resident when you disposed of the investments or realized the capital return. You could then avoid any UK CGT in full, and the tax deferral would effectively become a tax exemption. A popular option would be to consider establishing an offshore trust and settling the cash/investments into that. It's essential that you are non UK resident at the date of the transfer and if you were UK domiciled you would need to ensure that the trust had non resident trustees so it was itself non resident. If you were a UK domiciliary there is also anti avoidance legislation that can apply to tax the income of the trust on you where you can benefit from the trust. Therefore in this case unless you could transfer cash to the trust and ensure you had no interest in the settlement this would not be a viable option. As from April 2008 many of these provisions will also apply to non UK domiciliaries unless they are taxed on the remittance basis (in which case amended provisions may apply the remittance basis to the overseas income as well).