CASE STUDY
The Newly Moved Expat
Personal status:
Couple in their 30s with young children
Expat status:
just arrived Dubai on a three-year contract renewable
Financial status:
income of around £90,000 plus bonuses; spouse not working
Current investments/savings:
minimal
UK commitments:
mortgage, covered by rental income
He is working fulltime abroad so will be non-resident in the UK as long as he doesn’t return for more than 90 days a year.
Ordinarily, the day count is just one factor in determining when a UK resident has become non-resident, as some have found to their considerable cost. But in this case, the full-time employment contract means he can rely on day count to establish non-residency, so it should be relatively easy for him to ensure that he will be Dubai-resident for tax purposes throughout his stay.
If he can avoid spending more than 90 days in the UK he will pay only Dubai tax and the rate of tax in Dubai is a very lenient zero. If he can save money from his salary and bonuses he would benefit from paying those into a Qualifying Non UK Pension Scheme (QNUPS). QNUPS are particularly useful when no deduction against personal tax is required.
He will not be suffering personal income tax while in Dubai, so there would be no benefit in paying monies into a registered scheme which would generally give him a tax deduction. A QNUPS would provide greater benefit than the alternatives because the amounts built up within it escape the normal 55pc Member Payment Charge which would apply to the fund on his death. This charge is really an inheritance tax payable by funds belonging to UK domiciled persons.
The QNUPS will act as a tax-free savings vehicle for when he returns to the UK. There would be no tax payable on the capital gains and income made within the QNUPS until paid out. This means that when he returns to the UK his savings can be invested tax-free by his pension trustee. This is very advantageous. If he pays higher rate tax his returns should double, if made tax free, compared with the same returns made and taxed in the UK.
If the UK property is his main residence he would not pay capital gains tax (CGT) on resale, irrespective of his tax residency, as long as he correctly applies for principle private residence relief (PPR).
If it is an investment property, ordinarily he would pay CGT on resale but only if he was UK-resident at the time of sale. The UK is unusual in not charging CGT on a sale of UK assets if the owner is not UK-resident. If it is an investment property he would do well to sell it while in Dubai taking the gain tax free. He could reinvest into the UK property market, rebasing his acquisition cost. His CGT bill on the eventual sale if he went back to the UK would be reduced this way.
Or he could transfer investment property to his QNUPS. The transfer to the QNUPS would be tax free due to him being non-resident and any subsequent sale, irrespective of whether he was in the UK or not, would escape CGT because it would be made by his non-resident trustee.
Irrespective of his residence, the rental income generated by the property would be taxable in the UK because it is UK-source income. He would be allowed to deduct interest on loans secured on the property as long as they were taken out to purchase the property.
This is a point which many miss. If a property is remortgaged the new loan is not to purchase the property and relief from tax on the interest may be denied. He can also deduct all other costs of the maintenance of (but not improvements to) the property, including flights home to inspect or manage the property. In practice this normally means that there is little or no tax due.
Howard Bilton is chairman of The Sovereign Group and a barrister at law
Showing posts with label expat. Show all posts
Showing posts with label expat. Show all posts
Thursday, January 17, 2013
Thursday, March 8, 2012
The financial impact of considering residency abroad
It may seem that I have written nothing but doom and gloom stories – the state of the global economy or the crisis in the eurozone – during the past few months. And we have all seen government announcements across many of the industrialised countries about increased rates of personal taxation or savage cuts in public spending.
As just one example, our neighbours in Spain are going to have to get used to a top income tax rate of 55% - one of the highest in Europe. And it’s not much better in the UK – we are told that the highest income tax rate of 50% is likely to stay until at least 2015 and a recent study showed that up to a third of the population has, at one point or another, considered leaving the country.
Whilst accurate information is difficult to obtain, it was estimated in 2010 that some 200 million people were living as expatriates around the world. Of course for most people, leaving their home country is just not economically or politically viable but, for those who are in a position to do so, the financial impact of any such move is likely to be the most critical factor in any final decision.
In my day job -–when not penning magazine articles, that is – I have to deal with these issues on a regular basis; in recent months it is noteworthy how much more frequently I am being asked for advice and practical help. So for readers who might be considering Gibraltar as one of the places where they could live, what suggestions could I make from a financial perspective? And indeed, what are the alternatives?
It’s no secret that I am an avid supporter of Gibraltar and of course I moved here myself more than seven years ago. So how does Gibraltar compare to other jurisdictions around the world seeking to attract new residents? It’s not all about tax and the other financial implications of moving of course, but that’s the area where most people require advice.
Most people probably daydream about just “upping sticks” and moving somewhere else. After all, the grass is always greener. But how practical is it and what must be taken into consideration? As always, the answers will depend on the personal circumstances of the individual concerned, as well as what they are trying to achieve.
In recent years, we have seen an increasing number of predominantly younger people moving abroad for work reasons. And once the initial break with a home country is made, it is so much easier to remain abroad. We all know people who have made the “expat life” a permanent feature of their existence. Indeed having left my home island of Jersey over 25 years ago and lived in several countries since, I am a prime example – although if my boss is reading this, I should emphasise that I am very settled here in Gibraltar!
But there are also many people who are not just considering their next career move. They could be retired and looking for a different lifestyle or, having enjoyed commercial success in their home country, they may be seeking new challenges, markets and horizons. There is clear evidence that more people in their forties and fifties are now looking at where they want to live in a different way and it is generally people in this demographic that I am called upon most often to assist.
What is driving this and how do I advise such people when they start making enquiries? Without doubt, TV and other media play their part. The 24-hour news culture tends to focus on the negative aspects of social and economic landscape, while at the same time programme makers churn out endless programmes on travel and overseas property. All of this whets the appetite of the northern European who may well be seduced by images of 365 day-a-year sunshine, sangria and a low tax existence. Add to that the seemingly inexorable rise of low cost flying, especially here in Europe, and one can easily believe that moving abroad is easy. Everyone else seems to be doing it, so why not take the plunge?
The fact is that uprooting one’s life and moving abroad is just not for everyone and the reality is often very different from the media images. It’s one thing for the super rich who can simply globetrot from one of their homes to another as the mood suits, but for most of us a serious reality check is normally to be prescribed.
But when it becomes more serious and someone really wants to take the idea forward, what should they consider? It’s tempting to say that the tax rate is so high in one’s home country that they are being “forced” to move overseas but there is much, much more to it than that – family, work, assets, income, healthcare, pensions, language, culture, living costs, banking and legal systems, and the ever present currency risks, will all need to be carefully considered.
European law permits EU citizens to live in any one of the 27 countries that make up the Union. With a combined population far greater than the US, Europeans tend to forget that despite the EU’s problems we do all enjoy these rights – unparalleled in the rest of the world – to live in any of the diverse nation states that make up our continent. But in fiscal terms, there is often little to choose between them so other factors must come into consideration.
Instead, let us consider a couple of countries that actively encourage inward immigration by using specific residency rules. In Gibraltar high net worth residents – defined as those with assets of at least £2 million – can apply for a special “Category 2” status. In addition those with special skills not commonly available may also live here under the HEPSS rules, again where taxation is capped.
Other countries in Europe offer alternative solutions including the Channel Islands and the Isle of Man. Malta’s residency rules were tightened up during 2011 but remain attractive. It is possible but becoming more difficult to take up residency in Switzerland, whilst property prices in Monaco put that principality out of reach of most ordinary folk. Both in Europe and further afield, there are many other places one might consider.
For example, tempting alternatives exist in the Caribbean. St. Kitts & Nevis offers citizenship with a passport to incoming residents who invest a minimum amount into the economy. Depending on personal circumstances this can be extremely useful. Moving across oceans rather than within Europe won’t suit everyone, but such opportunities exist across the world.
Readers will expect me to conclude that there is nowhere better to live than Gibraltar. I happen to think that might be true, especially for British expatriates. After all we have the sun, familiar legal and banking systems, a common language and, compared to other European countries, very low taxes (or none at all) on succession, capital gains etc. – and there’s no VAT. But the Rock may not be for everyone and there are many alternatives available, as I have set out above.
As always though, it’s the overall picture that counts and professional advice should be sought at the outset. Although the rewards can be outstanding, moving to a new life overseas can also be extremely challenging and potential émigrés should always proceed with caution. However, given the current state of the world this might very well be the time to consider taking the plunge.
As just one example, our neighbours in Spain are going to have to get used to a top income tax rate of 55% - one of the highest in Europe. And it’s not much better in the UK – we are told that the highest income tax rate of 50% is likely to stay until at least 2015 and a recent study showed that up to a third of the population has, at one point or another, considered leaving the country.
Whilst accurate information is difficult to obtain, it was estimated in 2010 that some 200 million people were living as expatriates around the world. Of course for most people, leaving their home country is just not economically or politically viable but, for those who are in a position to do so, the financial impact of any such move is likely to be the most critical factor in any final decision.
In my day job -–when not penning magazine articles, that is – I have to deal with these issues on a regular basis; in recent months it is noteworthy how much more frequently I am being asked for advice and practical help. So for readers who might be considering Gibraltar as one of the places where they could live, what suggestions could I make from a financial perspective? And indeed, what are the alternatives?
It’s no secret that I am an avid supporter of Gibraltar and of course I moved here myself more than seven years ago. So how does Gibraltar compare to other jurisdictions around the world seeking to attract new residents? It’s not all about tax and the other financial implications of moving of course, but that’s the area where most people require advice.
Most people probably daydream about just “upping sticks” and moving somewhere else. After all, the grass is always greener. But how practical is it and what must be taken into consideration? As always, the answers will depend on the personal circumstances of the individual concerned, as well as what they are trying to achieve.
In recent years, we have seen an increasing number of predominantly younger people moving abroad for work reasons. And once the initial break with a home country is made, it is so much easier to remain abroad. We all know people who have made the “expat life” a permanent feature of their existence. Indeed having left my home island of Jersey over 25 years ago and lived in several countries since, I am a prime example – although if my boss is reading this, I should emphasise that I am very settled here in Gibraltar!
But there are also many people who are not just considering their next career move. They could be retired and looking for a different lifestyle or, having enjoyed commercial success in their home country, they may be seeking new challenges, markets and horizons. There is clear evidence that more people in their forties and fifties are now looking at where they want to live in a different way and it is generally people in this demographic that I am called upon most often to assist.
What is driving this and how do I advise such people when they start making enquiries? Without doubt, TV and other media play their part. The 24-hour news culture tends to focus on the negative aspects of social and economic landscape, while at the same time programme makers churn out endless programmes on travel and overseas property. All of this whets the appetite of the northern European who may well be seduced by images of 365 day-a-year sunshine, sangria and a low tax existence. Add to that the seemingly inexorable rise of low cost flying, especially here in Europe, and one can easily believe that moving abroad is easy. Everyone else seems to be doing it, so why not take the plunge?
The fact is that uprooting one’s life and moving abroad is just not for everyone and the reality is often very different from the media images. It’s one thing for the super rich who can simply globetrot from one of their homes to another as the mood suits, but for most of us a serious reality check is normally to be prescribed.
But when it becomes more serious and someone really wants to take the idea forward, what should they consider? It’s tempting to say that the tax rate is so high in one’s home country that they are being “forced” to move overseas but there is much, much more to it than that – family, work, assets, income, healthcare, pensions, language, culture, living costs, banking and legal systems, and the ever present currency risks, will all need to be carefully considered.
European law permits EU citizens to live in any one of the 27 countries that make up the Union. With a combined population far greater than the US, Europeans tend to forget that despite the EU’s problems we do all enjoy these rights – unparalleled in the rest of the world – to live in any of the diverse nation states that make up our continent. But in fiscal terms, there is often little to choose between them so other factors must come into consideration.
Instead, let us consider a couple of countries that actively encourage inward immigration by using specific residency rules. In Gibraltar high net worth residents – defined as those with assets of at least £2 million – can apply for a special “Category 2” status. In addition those with special skills not commonly available may also live here under the HEPSS rules, again where taxation is capped.
Other countries in Europe offer alternative solutions including the Channel Islands and the Isle of Man. Malta’s residency rules were tightened up during 2011 but remain attractive. It is possible but becoming more difficult to take up residency in Switzerland, whilst property prices in Monaco put that principality out of reach of most ordinary folk. Both in Europe and further afield, there are many other places one might consider.
For example, tempting alternatives exist in the Caribbean. St. Kitts & Nevis offers citizenship with a passport to incoming residents who invest a minimum amount into the economy. Depending on personal circumstances this can be extremely useful. Moving across oceans rather than within Europe won’t suit everyone, but such opportunities exist across the world.
Readers will expect me to conclude that there is nowhere better to live than Gibraltar. I happen to think that might be true, especially for British expatriates. After all we have the sun, familiar legal and banking systems, a common language and, compared to other European countries, very low taxes (or none at all) on succession, capital gains etc. – and there’s no VAT. But the Rock may not be for everyone and there are many alternatives available, as I have set out above.
As always though, it’s the overall picture that counts and professional advice should be sought at the outset. Although the rewards can be outstanding, moving to a new life overseas can also be extremely challenging and potential émigrés should always proceed with caution. However, given the current state of the world this might very well be the time to consider taking the plunge.
Tuesday, February 28, 2012
Seeking financial reassurance
It is always reassuring to discover that these ramblings of mine are being read – at least by a couple of people. One of my regular correspondents told me that she had read last month’s article on residency and some of the key points to bear in mind when choosing one country over another. Since my article appeared, the result of a survey of British expats conducted by Lloyds TSB International has been published. It appears that 46% of those questioned cited missing the British countryside as their chief regret about moving abroad – although the same study quotes 68% as saying they are happier abroad.
As my friend is considering her own residency plans at the moment, she asked if I could expand on the topic this time. What she wanted to know was how she could be assured that life would be as she expected if and when she took the plunge and moved country. I misheard her and thought she had said “insured” and off I went on one of my tangential monologues. She stopped me just in time and reminded me she was looking for some overall comfort although she realised an important part was to sort out her various insurance policies.
The conversation got me thinking. Actually insurance of one type or another is one of the vital components in setting up home in a new country, be it here in Gibraltar or elsewhere. But so is that overall comfort level – the “assurance” expatriates seek that overall the right decision is being made. As this is the Gibraltar Magazine’s finance column I thought I should restrict myself to some of the more important financial choices to be made when moving abroad – wherever abroad may be – concentrating on insurance in general and a word on pensions.
There are several types of insurance that should be considered when looking at setting up home in a new country, of which private health cover is without doubt the most important. Now that winter is in full swing and people are coughing and sneezing all around me, health care is the first insurance issue I wanted to consider. This is an increasingly competitive area and several articles have been published recently in the local media on the subject.
But in a prosperous place such as Gibraltar, is private health insurance really needed? After all, we have a health authority that provides good general care based on the UK NHS model and a state of the art hospital at St. Bernard’s. In 2010, my partner needed a few days as an inpatient and we were impressed with both the level of care offered, professionalism of the staff and the facilities available. But as in the UK, publically funded health care has its limitations. For specialist care, waiting lists can be an issue, together with the need when necessary to obtain treatment elsewhere, maybe in nearby Spain or perhaps in the UK. For incoming expats, the position can be even more serious as it is often the case that their terms of employment only allow for emergency treatment. This leaves the individual at risk of not being able to access important, albeit non-emergency, treatment when it may be required.
There are a number of options available on the market that might cover an incoming new resident in their new country. However it is generally true that someone becoming an “expat” is likely to require health cover in other places too. One only need look at our own existence here in Gibraltar. It would be a most badly advised expat resident who did not consider being covered should they happen to cross the border into Spain – or perhaps when they go even further, maybe by driving home to the UK. The sheer common sense of having an international private medical insurance (IPMI) plan becomes self-evident.
The cover available is very wide and will of course need to be considered along with the relevant premium. Issues to consider are not just the overall insured amount but also whether out-patient and chronic conditions are covered together with evacuation and repatriation and so on. As I noted earlier, there has been a spate of articles on this subject locally and not without good reason. In one of them, my colleague Geoff Trew of Sovereign Insurance Services reported that local demand for such IPMI cover is growing. “Gibraltar is attracting increasing numbers of businesses from the UK and the rest of Europe. Their employees expect relocation packages and benefits that include giving them and their families the most comprehensive healthcare insurance protection available in the market,” he said.
But in seeking the same type of assurance you feel in your home country, your car and valuables must also be insured. This is not such a subjective area as health care where one gets to choose the level of cover required. One’s car is either insured or it is not, so price becomes a very important factor. Here in Gibraltar we are well used to the cross border issues – whether one is allowed to drive a “G” registered vehicle, or if one can come into Gibraltar with a Spanish hire car etc. Drive further afield to Portugal or perhaps even Morocco, and choosing the right international insurance becomes that much more important.
Home contents insurance is another area that needs to be considered carefully when moving abroad – particularly if another language is involved. It surprises me how lackadaisical people can be, especially in regard to holiday homes that might be left for weeks or months unattended. Of course there are no such language difficulties here in Gibraltar and home contents are insured in the same way as Britain. But there are some things to think about. Until I moved here nearly eight years ago, I had not come across the use of salt water for flushing. A great idea I thought – until my first leak. Water damage however it is caused creates problems but when the water is salty they escalate. “You’ll soon find out there’s nothing as bad or damaging as salt water” said my plumber cheerily as I looked at the mess and contemplated the bill. Some policies will cover you for damage caused by the water damage but not the costs involved in finding the trouble. Caveat emptor indeed. You might be very happy with the cover but it’s worth reading the small print at the outset so you know in advance what to expect should a claim arise.
Lastly and moving away from insurance but still rather ensuring the security of one’s financial future, the question of pension provision must be considered. Given the reduced value of the euro against the British pound in recent years, expats all over Europe have found their spending power significantly reduced through no fault of their own. In recent weeks, the pound has recovered somewhat but the days of GBP1/€1.60 are probably long gone (although don’t quote me). Moreover, not a day seems to go by without some new scare story about the latest pension scheme closing and so on. As always, the best thing to do is seek professional advice as soon as possible in order to exploit the options available to an expatriate. The English language press in Spain and Portugal are full of adverts and articles relating to QROPS, where someone leaving the UK may transfer their pension into an overseas version offering significant benefits. Less well known are QNUPS which relate to assets that have not received UK tax relief. Again this is another product that offers great potential but the area is complex so seek the right advice every time.
I concluded last months’ article with my normal suggestion that potential émigrés should always get the right advice and be careful etc. I went on to say that the rewards of an expat life can far outweigh the disadvantages – for people with the right mind set. My lady correspondent who started me off on this article is right to be concerned – she needs that assurance – but things won’t be the same as back home and I think that’s part of the attraction. Provided one is aware that areas such as insurance and pensions differ once you’ve gone through passport control, all will be fine. Assurance brings peace of mind and lets you get on with the important bit away from all that finance talk – simply enjoying the new life you have chosen.
As my friend is considering her own residency plans at the moment, she asked if I could expand on the topic this time. What she wanted to know was how she could be assured that life would be as she expected if and when she took the plunge and moved country. I misheard her and thought she had said “insured” and off I went on one of my tangential monologues. She stopped me just in time and reminded me she was looking for some overall comfort although she realised an important part was to sort out her various insurance policies.
The conversation got me thinking. Actually insurance of one type or another is one of the vital components in setting up home in a new country, be it here in Gibraltar or elsewhere. But so is that overall comfort level – the “assurance” expatriates seek that overall the right decision is being made. As this is the Gibraltar Magazine’s finance column I thought I should restrict myself to some of the more important financial choices to be made when moving abroad – wherever abroad may be – concentrating on insurance in general and a word on pensions.
There are several types of insurance that should be considered when looking at setting up home in a new country, of which private health cover is without doubt the most important. Now that winter is in full swing and people are coughing and sneezing all around me, health care is the first insurance issue I wanted to consider. This is an increasingly competitive area and several articles have been published recently in the local media on the subject.
But in a prosperous place such as Gibraltar, is private health insurance really needed? After all, we have a health authority that provides good general care based on the UK NHS model and a state of the art hospital at St. Bernard’s. In 2010, my partner needed a few days as an inpatient and we were impressed with both the level of care offered, professionalism of the staff and the facilities available. But as in the UK, publically funded health care has its limitations. For specialist care, waiting lists can be an issue, together with the need when necessary to obtain treatment elsewhere, maybe in nearby Spain or perhaps in the UK. For incoming expats, the position can be even more serious as it is often the case that their terms of employment only allow for emergency treatment. This leaves the individual at risk of not being able to access important, albeit non-emergency, treatment when it may be required.
There are a number of options available on the market that might cover an incoming new resident in their new country. However it is generally true that someone becoming an “expat” is likely to require health cover in other places too. One only need look at our own existence here in Gibraltar. It would be a most badly advised expat resident who did not consider being covered should they happen to cross the border into Spain – or perhaps when they go even further, maybe by driving home to the UK. The sheer common sense of having an international private medical insurance (IPMI) plan becomes self-evident.
The cover available is very wide and will of course need to be considered along with the relevant premium. Issues to consider are not just the overall insured amount but also whether out-patient and chronic conditions are covered together with evacuation and repatriation and so on. As I noted earlier, there has been a spate of articles on this subject locally and not without good reason. In one of them, my colleague Geoff Trew of Sovereign Insurance Services reported that local demand for such IPMI cover is growing. “Gibraltar is attracting increasing numbers of businesses from the UK and the rest of Europe. Their employees expect relocation packages and benefits that include giving them and their families the most comprehensive healthcare insurance protection available in the market,” he said.
But in seeking the same type of assurance you feel in your home country, your car and valuables must also be insured. This is not such a subjective area as health care where one gets to choose the level of cover required. One’s car is either insured or it is not, so price becomes a very important factor. Here in Gibraltar we are well used to the cross border issues – whether one is allowed to drive a “G” registered vehicle, or if one can come into Gibraltar with a Spanish hire car etc. Drive further afield to Portugal or perhaps even Morocco, and choosing the right international insurance becomes that much more important.
Home contents insurance is another area that needs to be considered carefully when moving abroad – particularly if another language is involved. It surprises me how lackadaisical people can be, especially in regard to holiday homes that might be left for weeks or months unattended. Of course there are no such language difficulties here in Gibraltar and home contents are insured in the same way as Britain. But there are some things to think about. Until I moved here nearly eight years ago, I had not come across the use of salt water for flushing. A great idea I thought – until my first leak. Water damage however it is caused creates problems but when the water is salty they escalate. “You’ll soon find out there’s nothing as bad or damaging as salt water” said my plumber cheerily as I looked at the mess and contemplated the bill. Some policies will cover you for damage caused by the water damage but not the costs involved in finding the trouble. Caveat emptor indeed. You might be very happy with the cover but it’s worth reading the small print at the outset so you know in advance what to expect should a claim arise.
Lastly and moving away from insurance but still rather ensuring the security of one’s financial future, the question of pension provision must be considered. Given the reduced value of the euro against the British pound in recent years, expats all over Europe have found their spending power significantly reduced through no fault of their own. In recent weeks, the pound has recovered somewhat but the days of GBP1/€1.60 are probably long gone (although don’t quote me). Moreover, not a day seems to go by without some new scare story about the latest pension scheme closing and so on. As always, the best thing to do is seek professional advice as soon as possible in order to exploit the options available to an expatriate. The English language press in Spain and Portugal are full of adverts and articles relating to QROPS, where someone leaving the UK may transfer their pension into an overseas version offering significant benefits. Less well known are QNUPS which relate to assets that have not received UK tax relief. Again this is another product that offers great potential but the area is complex so seek the right advice every time.
I concluded last months’ article with my normal suggestion that potential émigrés should always get the right advice and be careful etc. I went on to say that the rewards of an expat life can far outweigh the disadvantages – for people with the right mind set. My lady correspondent who started me off on this article is right to be concerned – she needs that assurance – but things won’t be the same as back home and I think that’s part of the attraction. Provided one is aware that areas such as insurance and pensions differ once you’ve gone through passport control, all will be fine. Assurance brings peace of mind and lets you get on with the important bit away from all that finance talk – simply enjoying the new life you have chosen.
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