Hi all,

I am an EEA citizen, currently expatriated in London by an Australian company, and wanting to 'settle' permanently (or at least, less temporarily) after being here for 3 years - I know that my employer will want to keep me here for at least another 5 years, and I am in a stable relationship and want to buy a home.

My emplouyer has hinted at transferring me to a local contract, but since they do not really have a large UK structure, they have little expereince in doing so and I think I will get a much better deal out of them if I take the lead and propose conditions which are reasonable.

Currently, my expat contract provides roughly the following:
- an uplift on my base salary
- an accommodation allowance
- paid bills (electricity, gas, water etc.)
- "home" travel to Aus once a year

The overall effect of these is almost to double my 'package', however, I do believe that my base salary (based on Aus conditions) is quite a lot lower than the equivalent 'London market' salary.

Now, my questions are:
- if I refuse to 'go local', what is likely to be their view regarding my accommodation allowance (and bills) if I buy a home? E.g., would they (and can they, fiscally), pay both interest and downpayment on a mortgage? Would they argue that they should only pay half (since I am sharing with my partner?) or...?
- if I accept, can I only argue relative to the 'London market' salary, or will it be reasonable for me to argue relative to my current package?

I'd appreciate if anyone who has been through a similar process can give me some feedback on how this was done and what is/was/should be achievable.

Thanks in advance.

S.

OK, I'm coming at this from the accounting side (which is where your employer will be coming from). If you refuse to "go local" your employer is well within their rights to propose shipping you back home to Australia. Most expat packages are proposed for a limited period of time (like, 3 to 5 years) with the intent of keeping your ties back to the homeland solid. The housing allowance assumes that you have some sort of housing back home (like a house) that you need to maintain.

Should you buy a home in the UK while you're on your expat package, don't be surprised if your employer either discontinues the allowance altogether, or limits it to whatever it is currently and you handle your own mortgage, utilities and whatever. But don't expect them to do that forever. They may try to put a time limit on your expat package once you put down roots in the UK.

To go local, your best option is to argue for a salary relative to the London market you're in. An expat package is an admitted perk (and a very lucrative one, as you've found). Their option is to hire a local with less knowledge of their business, so paying you somewhat more than they would a new hire is certainly in their best interests. But that makes you responsible for your own accommodation costs and for any home visits (unless they are business trips for the company).

I think there might be tax considerations, too. In the US, if an employee is temporarily assigned to another location, their expenses are not deductible if they are assigned there for more than one year. This applies even if the employee has been returning home every week. It's known as 'going compensatory'. The IRS position is that if you are going to have an employee in the same place for more than a year, that is a permanent assignment, and the employees housing and food should not be deductible and therefore tax-free business expenses. Since the requirement for covering of housing expenses away from the employees base is that they pay only a couple of hundred dollars in rent at the base location, the employee is getting tax-free income.

I very much doubt any company is going to pay your utilites and mortgage payments for you. Localization should give you the same salary and benefits a local would get. So say farewell to the annual trip home unless you are going to pay for it yourself. If you left some possession behind in Australia, they should offer to pay for shipping those goods to you.

It will help you to figure things out if you work out exactly what your package is worth, item by item. Rent, utilities, that trip home, a car, insurance, everything that you get now. Remember that this is money you should be having replaced in your after-tax, not gross income. So if the company is paying GBP 1,000 in rent, and your marginal tax rate is 50%, you need to be paid GBP 2,000 in order to keep your current housing and not take a pay cut.

That said, they can offer you whatever they want, and if you don't like it, just ship you home.

Be careful here - I think you might be confounding a couple different features of expat packages and US tax law. Plus, there is the matter of the employee's living expenses being deductible by the company vs. by the employee him- or her-self on their personal tax return. (And the rules change when we're talking about an overseas assignment.)

Most expat packages pay housing allowance based on the notion that the employee has a home of some sort back "home" - and either they have to sublet their flat or rent out their house while they're gone, effectively maintaining two sets of residences. The market rate for jobs locally is supposed to factor in the cost of appropriate housing. On an expat package, you're generally way overcompensated for accommodation, particularly if you gave up your flat back home and if the company is paying for a fully or partly furnished flat while you're overseas.

But you are right, there is a heavy tax side to all this. Once the employee is "permanently" attached to the new location, his "tax home" may change and that changes the nature of all the various perks and allowances - for both the employee and the employer. Plus, most expat packages are "tax equalized" in that they are supposed to compensate the employee for any additional taxes they are being paid because of being overseas. (Mostly relevant to US citizens who have to continue paying taxes back home, regardless of where they reside.)

Thanks for your thoughts.
Although, of course, my employer could always tell me to pack my case and go back, that is unlikely in the current situation. But all things are relative :-)

It is clear that I would probably not be doing myself a favour by requesting to go local. I suppose that my main concern is that, if I allow myself a certain lifestyle based on my expat package, I will suffer a rude awakening when it ends - and I'd like to know how rude it will be.

Of course, in the meantime, I do not live my package 'to the full', but the temptation is there :-)

I will need to do some research and find out what my local 'market value' is and then use that as a guideline.

Kind regards,

S.

Hi Slartibartfast,

This is a complex issue, but I think the way to approach it is to break it down into component parts, and work on each in sequence. Start with this list:

LEGAL.
If my employer and I change the basis of my assignment, do I have legal entitlement to work here? Here's a link to a government website worth a read.

Edited - I can't post URLs to the site as a newbie but look up workingintheUK dot gov dot uk on google


COMMERCIAL

If your skill is quite unique in the industry in which your employer works, you should determine if you can obtain the right to work independent of your employer. A colleague of mine did this successfully whilst here for 8 months supervising assembly of a communications system destined for Azerbaijan. Though he never exercised his right to work here as an independent consultant, he did go to Sheffield to be interviewed as a standalone consultant, and was offered leave to remain to work independently due to his knowledge and background technical and management experience.

About sixteen years ago, I was in charge of around 30 expatriates in the Middle East, mostly from the UK, and I did some financial comparisons on the cost to the company, and the benefit to the individual, of adjusting the expatriate packages for those employees. Each case was different, so bear in mind that your employer will have fixed policies, none of which cater for each indivudual's particular circumstances or desires, but which on balance provide a good package for the expat, and a known and acceptable cost to the employer.

One avenue you should be pursuing is for your employer to take you on as a consultant (the UK industry refers to contractor or day-rater). There are risks to you, but the rewards could be amazing. The UK is a great tax jurisdiction for self employed persons, and it may be worth your while to operate as a Limited Company here in the UK, and bill your employer independently. About four years ago, I did a comparison for my UK employer of the cost to the company of maintaining a contractor versus maintaining a permanent member of staff for project related work. The specific comparison at the time showed that it was cost-transparent for an employer to pay an employee £50,000 salary, or to pay a day rate of £350 per day. I still have the spreadsheet if you want it. Just ask and I will attach it to the thread. Using the above example, the would-be contractor would be over 20% better off as a self-employed than as an employee, due to the UK tax treatment of the self employed using the most favourable allowances. Be aware, though, that self employment brings with it responsibility to report on a subject known as IR35. It would be important, therefore, to be able to demonstrate that your company was not set up purely to avoid taxation as an employee, even though billing as an independent company.

TAXATION
This is a specialist area in itself, but if you structure your deal correctly, you should not be paying more than 20% income tax. If you are a high earner, you are probably paying a proportion at 40% income tax (or your employer is paying this on the grossed up remuneration of your entire package)

A lot to think about, and good luck with it.



To motivate your employer to change your status, you must be able to demonstrate that they would save money too, so you should become familiar with the total cost to your employer of keeping you in your current contract (airfares, accommodation or allowance, vacation pay, insurances, compensation for illness, direct training cost and the total taxes they may be paying that you may not know about).