Posts Tagged ‘Ex-pats’
What’s on in the Murcia region?
If you live in Spain or are coming to Spain you may find this site of great use, it gives lots of information on a weekly news letter and tells you what is on and where in the Murcia region. You can subscribe to the weekly newsletter, it is FREE and gives much more information about places of interest, museums, ferias, fiestas, shows, concerts, entertainment and where to eat and drink . You can advertise or list goods for sale.There is something new to be learnt every week. Great ideas to get the best out the region.
Go to:- http://www.simplynetworking.es/index.php
Admin: 03 September 2010
Britons need to make a “distinct break” with the UK for non-residency status – employees excluded
Britons who move abroad to live need to be able to show that they have made a “distinct break” with the UK if they wish to ensure that they cannot be treated as UK tax resident after leaving UK shores. If you do not clearly sever ties with the UK, HM Revenue & Customs (HMRC) could argue that you are liable for tax in the UK, even though you live elsewhere. The exception is if you leave the UK for full time employment abroad.
It has been suggested that employees leaving Britain will have to cut their ties with the UK like selling their home, and not set foot in the UK for at least a year to become non-UK resident, but this is not the case.
The recent judicial decision involving Robert Gaines-Cooper and UK residency reaffirmed that in order to become non-UK resident it is not necessary for an employee to do anything other than be employed overseas full time for at least a full UK tax year.
Lord Justice Moses said: “It is not enough that the taxpayer has left the UK, he must have left to work full time. Absence is not sufficient; it must be absence while engaged on a full-time employment for at least a whole tax year. No more however is required. The absence need be neither permanent nor indefinite. Accordingly, … there is no requirement, for a taxpayer to demonstrate that he has severed family and social ties within the UK.”
The employment must be on a full time contract as an employee and not simply your own company set up to give you an employment.
When Gaines-Cooper moved to the Seychelles in 1975 he did not take up full time employment there and had to rely on HM Revenue & Customs’ (HMRC) guidance in its booklet IR20 (now HMRC6) on residency and non-residency. Under the heading “Leaving the UK permanently or indefinitely”, the booklet stated: “If you go abroad permanently, you will be treated as remaining resident and ordinarily resident if your visits to the UK average 91 days or more a year.”
Gaines-Cooper argued this meant that all he had to do was leave the UK and thereafter spend less than 91 days a year there. The Court of Appeal referred to the words “permanently or indefinitely” in the heading:
“The adverbs “permanently or indefinitely” make, as a matter of construction, all the difference. The extent to which a taxpayer retains social and family ties within the United Kingdom must have a significant and often dispositive impact on the question whether a taxpayer has left permanently or indefinitely.”
IR20 has since been replaced by HMRC 6 and HMRC is adamant that the information given is for guidance only. However, it is clear that if you are not an employee – eg, you are retired, even if below retirement age – and wish not to be treated as a UK tax resident after leaving the country you must demonstrate that you are leaving the UK “permanently or indefinitely”.
Ties to sever to establish UK non-residency
- Set up a new main home outside the UK. It is not strictly necessary to give up having a home in the UK altogether providing it is “consistent with” you moving abroad to live “permanently or indefinitely”. So if you retain a UK home it would be prudent for your home abroad to be larger than the UK one. However retention of a UK home available for your use is a factor that connects you to the UK, so to strengthen a claim to non-UK residence we would recommend you sell or rent it out to a third party.
- Move personal effects, cars etc to your home abroad.
- Your spouse and any minor children should move abroad with you. There is however no need to sever all family and social ties – it is not necessary for adult children or aged parents to move with you as has been suggested in the UK press.
- Resign membership of sporting and social clubs and cut all UK business connections.
- Notify your UK doctor and dentist that you have left the UK and register with different ones in your new country of residence.
- Dispose of UK investments and plan to re-invest abroad.
- Close UK bank accounts and credit cards and open new ones in your new country.
Once you have made a ‘clear break’ with the UK, it is still possible to visit, providing you keep well within the 91 day limit – i.e. spend less than 91 days or nights there per UK tax year taken on average over four years.
If you have not made a ‘clear break’ with the UK, you may be treated as remaining UK resident, regardless of the number of days you spend in there each year.
A tax and wealth management firm like Blevins Franks can advise you on tax and residency issues in the UK and many other countries, including advice on how tax planning can reduce your tax liabilities, even if eventually you return to the UK to live.
By David Franks, Chief Executive, Blevins Franks
Paying Tax in Spain – Exploding the Myths
Many British expatriates arrive in Spain to live without fully understanding the local tax situation or any obligations that may remain to the UK taxman. There are quite a few myths around and unless you are properly informed you may get your tax planning wrong. This article looks at some of the common misconceptions and separates fact from fiction.
I am resident in Spain but complete a full tax return in the UK
► You become resident for tax purposes in Spain if:
- you spend more than 183 days in one calendar year in Spain (the days do not have to be consecutive), or
- your “centre of economic interests” is in Spain, or
- your “centre of vital interests” is in Spain, or
- your spouse is resident in Spain unless you can prove you are resident in another country.
► As a resident of Spain you are liable for income and capital gains taxes on your worldwide income.
► If you receive a gift or inheritance as a Spanish resident, you may be liable to Spanish succession tax.
► You must complete a Spanish tax return in respect of your worldwide income.
► A UK tax return only needs to be completed in respect of certain non-exempt income, such as rental income from UK property.
I am taxed at source on my UK assets and therefore I am not liable to tax in Spain on these assets
► You are entitled to double tax relief if you have income subject to tax at source in the UK which is also taxed in Spain.
► You can usually make arrangements for tax not to be deducted at source in the UK on certain types of income. This income would then be received gross and taxed solely in Spain.
I am taxed at source on my offshore bank accounts under the EU Savings Tax Directive and therefore am not liable to tax in Spain
► Paying withholding tax on offshore interest payments does not mean that you have no further tax liabilities on the same income in Spain.
► You still must declare such earnings on your Spanish tax return.
► If you pay the withholding tax and declare the income in Spain you are unlikely to receive any tax credit in Spain and could pay tax twice.
I can withdraw 5% of my UK/offshore insurance bond per year for 20 years without any liability to Spanish tax
► The 5% rule only applies to UK residents.
► As a Spanish tax resident, your offshore insurance bond will be taxed according to the Spanish rules.
There is no tax to pay if I have not taken withdrawals from my insurance bond
► The taxation of insurance bonds in Spain depends on whether the bond is ‘qualifying’ (issued by an EU country and compliant with Spanish regulations) or ‘non-qualifying’.
► Non-qualifying bonds are valued at 31st December each year and any increase in value from 1st January is taxed in full as income, even if there has been no withdrawal. The taxable income is taxed as savings income, so at 19% on the first €6,000 and 21% on any balance. For example, if an investment bond increases in value by 10% from €200,000 to €220,000 in any one year, the tax payable in Spain is €4,080 (€6,000 x19% = €1,140, + €14,000 × 21% = €2,940).
► Any fund located in a ‘tax haven’ (eg Isle of Man, Jersey, Guernsey) is non-qualifying and will receive this unfavourable tax treatment.
A withdrawal from a qualifying offshore bond will be taxed at 19% on the first €6,000 and 21% on any balance
► There is no tax to pay until a withdrawal is made from qualifying bonds in Spain.
► The taxation is very favourable because only the growth in value element is taxed, not the whole withdrawal. Using the above example, if you withdraw €20,000 you will only need to pay tax on roughly 10% of it. The taxable income is therefore €2,000 and your tax liability (at 19%) is only €380.
UK investment bonds are tax free in the UK for Spanish residents
► A UK investment bond is taxed at source in the UK.
► The tax deducted can be set against your tax liability in Spain, so you do not pay tax twice on the same income.
► If you have either a non-qualifying insurance bond or a UK investment bond it will be advantageous to transfer it to a qualifying, non-UK, bond.
I am a UK national and not liable to Spanish succession tax (SST)
► SST is payable if the inheritor or recipient of a gift is resident in Spain, or the asset being gifted or passed on death is situated in Spain.
► The tax rate can be as high as 34% for inheritances or gifts within the immediate family or higher for more distantly related recipients.
► Depending on which region you live in, there are usually deductions available according to the closeness in relationship between the recipient and the deceased, and other exemptions may be available.
► SST can often be avoided through use of an offshore trust.
Contact an experienced international tax and wealth management adviser like Blevins Franks for advice on tax mitigation strategies in Spain.
Note that the tax treatment(s) detailed above are current at the time of writing and may change in the future.
By Bill Blevins, Managing Director, Blevins Franks
Offshore Banking Moves Further Towards Tax Transparency
Few expatriates used to think twice about opening an offshore account. They provide a means of keeping Sterling outside the UK (useful to help prove your UK-non residency status); you can usually open and use them from anywhere in the world; interest rates were often higher than their onshore counterparts and they have also been popular for ‘tax planning’ purposes.
While the first two benefits listed above still apply, offshore banks do not necessarily offer the same interest rate advantages that they used to, and from a tax planning point of view the situation is very different today, with more developments on the horizon.
Following the collapse of Icelandic banks in the Isle of Man and Channel Islands, savers also began to question how safe their savings were, even through the jurisdictions did then implement or improve depositor protection schemes.
As a result of these changes, more savers today are considering alternative homes for their wealth.
Offshore banks were often used by people to hide capital and interest earnings away from the taxman. While they were legally obliged to declare worldwide income, the taxman had no means of tracing their account so there was little pressure to report it. Interest was usually paid gross and as offshore banks were not bound by the laws of your country of residence it was a case of ‘what the taxman doesn’t know about he can’t tax’.
The introduction of the EU Savings Tax Directive in 2005 served to change this. All Member States are required to operate automatic exchange of information on interest payments on accounts held by residents of other States. However, Belgium, Luxembourg and Austria were allowed to operate a withholding tax system with a view to change to automatic exchange of information after a transitional period.
The Isle of Man and the Channel Islands also operate withholding tax with the option for exchange of information. The withholding tax option effectively maintains banking secrecy. Although the interest earnings now have tax deducted at source, it still falls to the owner to declare it in his country of residence.
By this time next year this will have changed. In June the Isle of Man parliament agreed that from 1st July 2011 it will withdraw the withholding tax option and only operate automatic exchange of information – there will be no more banking confidentiality for EU residents. This was an endorsement of the commitment it made at the Organisation for Economic Co-operation and Development (OECD) Forum in June 2009. It was the first offshore jurisdiction to do this and the decision will impact on all expatriates who have not declared their Isle of Man accounts in their country of residence. Anyone affected by this will need to ensure that they have reported all their interest to their local tax authority … or bear the consequences.
Following quickly on the Isle of Man’s heels, on 28th July Guernsey’s Chief Minister announced that the jurisdiction will introduce automatic exchange of information, thereby abolishing the current option to pay a withholding tax and avoid disclosure. A government announcement said that Fiscal and Economic Policy Group has recommended to the Policy Committee that institutions in Guernsey should move to automatic exchange of information from 1st January 2011, and no later than 1st July 2011.
Following the announcement, other European jurisdictions which operate the withholding tax option, eg Switzerland, could come under increased pressure to follow suit. In any case, the withholding tax rates jumps from 20% to 35% next July.
High interest rates a distant memory
Currently interest earned in offshore banks is not generally more beneficial than onshore banks. The days have passed when they were in a position to offer high returns to attract investors.
With the money markets expecting the Bank of England base rate to stay low for some time, many offshore banks have cut the rates they offer on fixed rate bonds. In June, Michelle Slade of Moneyfacts warned that now that demand for savers’ money has eased, rates are being cut as banks readjust back to more normal margins. “Banks do not want to pay more than they have to on savings, so once a few cut rates, others will invariably follow,” she said.
While a couple of banks did increase rates on fixed term bonds in July, there are still very few attractive rates available to those who do not want to tie up their money for too long.
Who owns your bank?
Do you really know who owns the offshore bank you may be using and in which jurisdiction it is based? Since the credit crunch more countries have set up depositor protection schemes but you would need to check with the bank exactly what protection they offer. Banks are no longer considered to be 100% safe and in the event of another failure it could take a long time to receive compensation.
Offshore banks closing
At any time and without much warning offshore banks are being closed down, leaving savers with less options. In June Northern Rock announced that it is closing down its operation in Guernsey on 2nd September and Irish Permanent said it was shutting its Isle of Man branch by the end of the year. Other banks may follow as they retrench and reduce peripheral arms of their business. For example the Yorkshire Building Society is deciding whether to keep Yorkshire Guernsey open or not.
More and more foreign banks are closing their doors to US citizens as the US authorities take ever draconian measures to trace and prevent tax evasion. France started to close branches of French banks in tax havens from March 2010.
Many of advantages that offshore banks used to offer investors are gradually being eroded. There are investment structures available which can reduce tax liability, and offer the potential for capital growth and higher rates of return. Speak to an experienced tax and wealth manager like Blevins Franks for the most suitable tax planning and investment strategy to meet your specific circumstances.
By Bill Blevins, Managing Director, Blevins Franks
Reduce Spanish and UK Inheritance Tax with A QNUPS
British expatriates living in Spain want to feel confident that their wealth will last them for the rest of their retirement and keep them in a comfortable lifestyle. Paying less tax is one way to protect your assets and legitimate tax planning methods can help with this. The latest arrangement available to British expatriates is QNUPS (Qualifying Non-UK Pension Schemes) which can reduce taxation in Spain –as well as UK inheritance tax (IHT).
Spanish tax savings which can be made with a QNUPS are:
- QNUPS can avoid succession tax in Spain as well as succession law.
- There is no Spanish tax on the transfer into a QNUPS.
- Funds within the scheme will grow free of Spanish income tax.
- If you make a withdrawal in the form of an annuity from the fund itself (as is usually the case), very favourable Spanish tax provisions may apply.
- There is no need to buy an annuity from an insurance company.
- You can withdraw up to 25% as a lump sum from a QNUPS. If a lump sum is taken Spanish tax is due, but is calculated only on the difference between the capital received and the contributions you made. The tax rate is 19% (on the first €6,000 of total savings income, including that from other sources) and 21% on the excess.
- The balance of your investment can pass onto your heirs on your death.
- A QNUPS can avoid wealth tax if a rate is reintroduced in the future.
No UK IHT with a QNUPS
If you are a British expatriate, you may be liable to UK IHT on your worldwide assets, even if you are Spanish tax resident. This is because liability to IHT is based on domicile and not residency.
Shaking off your domicile is not easy to do and usually takes at least three years and involves pruning your ties with the UK to the bare minimum. For example, you would need to sell your UK property or at least not have it available for use; close surplus bank accounts, credit and debit cards and other investments; sell your vehicles and cut down social and business connections in the UK. You need to be able to provide evidence that you do not intend to return to the UK, and establishing a permanent home in Spain and making a Spanish Will will help. Even if you do lose your UK domicile status, you would regain it as soon as you move back to the UK to live.
Many Britons who relocate to Spain do so without a thought of moving back to the UK. But the fact is that as the years go by many do for a variety of reasons, such as on the death of a spouse or partner or to be closer to grandchildren as they grow up. Returning to the UK means returning to a UK liability to IHT, currently at 40% above the nil-rate threshold of £325,000 per person or £650,000 for spouses and civil partners.
Investing in a QNUPS takes away the worry over whether or not you are still UK domiciled and liable to IHT, or whether you may later return to the UK. Assets in a QNUPS are immediately exempt for IHT – even if you are UK domiciled.
Other advantages of a QNUPS
- Investable wealth can be placed in a QNUPS. You cannot invest a UK pension plan directly into a QNUPS, although it is possible after you have been non-UK resident for five complete, consecutive UK tax years, as long as you go via the QROPS route first.
- There is no maximum age at which you can invest in a QNUPS.
- There is no maximum contribution.
- You do not need to have any earned income from an employment.
- Income and a lump sum can be taken from age 55, or can be deferred until the age of 75 (although if you take income earlier, the lump sum needs to be taken then).
- Assets can be invested and benefits taken in any currency of your choice, giving you the opportunity to remove currency risk.
- Income which is taken is drawn down from the fund, leaving your scheme assets invested and rolling-up free from tax.
A QNUPS provides an opportunity for flexible investing and choice. It doesn’t matter how old you are or how long you have been retired, investing in a QNUPS will give immediate tax benefits, especially for Spanish succession tax and UK IHT. Within QNUPS the funds will remain fully invested and will be subject to investment risk, in line with your investment objectives.
Blevins Franks is an established international wealth and tax management firm with full knowledge of the rules of taxation in both Spain and the UK. Contact an adviser such as Blevins Franks to learn how QNUPS can help you.
Note that the tax treatment(s) detailed above are current at the time of writing; these are based on our understanding of current UK and Spanish legislation and taxation practice, and may change in the future.
By David Franks, Chief Executive, Blevins Franks
Britons missing out on £101M each year on international money transfers
Poor bank rates and high charges for foreign exchange transactions mean individuals need to be savvier when transferring money overseas. Research by Moneycorp reveals that Brits are potentially losing over £101m a year by not shopping around for the best deals when transferring money abroad. Furthermore, uncompetitive exchange rates and high bank charges are costing individuals a lot of money, despite a concerted effort by most to reduce their outgoings on luxury and even staple items.
David Kerns, Head of Personal Clients at Moneycorp, comments:
“While many individuals are visiting comparison websites more frequently, checking voucher code sites and consulting online consumer forums before purchasing goods in order to save money, this mindset doesn’t seem to have extended to foreign exchange. As a result, individuals are missing out on a very large sum of money they could be saving, by transferring funds overseas through a foreign exchange specialist rather than a bank. Not surprisingly, high street banks are cashing in as a result of this surprisingly apathetic approach.”
People buying or selling property overseas and people emigrating or repatriating will be particularly affected, though this issue will affect all Brits who are transferring money overseas.
People who own additional properties abroad and make regular mortgage and/or utilities payments will also be badly affected, as every transfer is open to individual transfer charges, in addition to exchange rates.
Data from the UK’s number one property website, Rightmove Overseas, reveals that the average house price in the Costa del Sol in Spain is currently €369,860.68. With a deposit of 10% (€36,986), using a high street bank rather than Moneycorp would cost an individual, on average, an extra £558 on their deposit alone.
An individual who wants to transfer a lump sum of £100,000 to an account in Europe would lose out on an average of €1,690 by using their bank for the transfer into euros.
David Kerns concludes: “Despite the UK coming out of recession recently, individuals shouldn’t be lining the pockets of their bank managers and it’s in their best interest to maximise their investments. Prior to making any overseas payments, we always advocate that people shop around to get the best rates possible.”
Credit: Moneycorp – commercial foreign exchange – www.moneycorp.com
Note:- Follow our link for more information: -
http://www.moneycorp.com/affiliates/microsite/index.cfm?agentid=10082123
Spanish Capital Gains Tax Relief on the Main Home
Does It Apply On Overseas Properties?
The Spanish gains tax regulations can provide relief on the sale of the main home for Spanish tax residents whose property qualifies as their habitual main residence. If you are 65 years or older the gain is tax free even if you do not buy another property. If you are under 65, the exemption only applies if you reinvest the proceeds of sale into a new main residence within a four year period, starting from two years before the sale. There is some confusion about whether this relief applies if your new main home is located outside Spain, so this article looks into this issue.
How does the relief work?
For the property you are selling to qualify as your main home, you need to have lived in it for a continuous period of at least three years from the date the property was bought or construction was completed. If you have to sell earlier because of a change of job, marriage, separation or death of a partner, the tax relief can still apply.
The relief is based on the proportion of the total sales proceeds reinvested in the new home. If it costs more than the sale price of the old home, the full gain is exempt. If only half of the sale proceeds are reinvested, then only half of the gain is exempt and the other half is taxable in the year of sale.
If the property being sold has a mortgage on it, it is the net sale proceeds (after deducting the mortgage) which need to be fully reinvested to escape capital gains tax.
The taxpayer must declare the gain on his Spanish tax return together with his intention to reinvest the proceeds into a new main home, or the relief will not apply.
Location of the properties
While the tax relief is only available to Spanish tax residents (as the property cannot be your main home if you are not Spanish tax resident), the properties themselves do not need to be located in Spain – either the residence you are selling or the new one you are buying.
So, if you move to Spain and sell your main home in your former country of residence (eg the UK) after you become Spanish resident, you may be able to avoid Spanish capital gains tax under these provisions. You have to purchase your Spanish home within the two years preceding the date of sale of the UK property or within two years following the sale. The purchase price of the Spanish property should be at least the net sale proceeds of your UK property for full relief to apply.
If the Spanish property costs less than the amount you received from the sale of your UK property, you will be charged tax in Spain on a proportion of the gain equivalent to the sale proceeds not reinvested.
Similarly, if you sell your main home in Spain and move to another country, reinvestment relief can still apply to the former Spanish home even though the new home is not located in Spain, provided that you and your family make this property your new main home. The purchase of the new home must take place within the relevant time limits and the full sale proceeds must be reinvested for full relief to apply. If the family members move overseas to the new home, but the taxpayer remains in Spain, the relief will not apply as the property has not become the taxpayer’s new main home.
An example of relief applying in such a case is given in a formal response to a query submitted to the Spanish tax administration.
Furthermore, it would be a clear breach of EU law if Spain did not allow the relief for reinvestment in a new home situated within another EU country. This situation arose in Portugal, and so the European Commission took action, as below:
“In July 2004 the European Commission invited Portugal to change its rules which prohibit the capital gains tax relief where the new main home is situated outside Portugal. The European Commission considers these rules to be discriminatory and contrary to the EC Treaty rules on the free movement of people, etc.
“Portugal did not amend its legislation within the 2 months time limit given by the Commission, so in January 2005 the Commission decided to refer Portugal to the European Court of Justice.
“On 26 October 2006, the European Court of Justice ruled that the restriction of the relief to the purchase of a primary residence located in only Portugal was an infringement of the fundamental freedoms guaranteed by the EU Treaty.
“As a result of the European Court decision, taxpayers should be able to benefit from the main residence relief in Portugal, provided the proceeds are reinvested in another primary residence within the European Union.”
By David Franks, Chief Executive, Blevins Franks
Testing Times For The Euro
Over the last three years, the currency story for British expatriates has all been about the Pound Sterling and its fall from grace – it lost around a third of its value against the Euro and a fifth against the US Dollar.
This year the focus is shifting to the Euro. Uncertainty over Greece’s financial viability, not to mention concerns over other European economies, is plaguing the single currency. Some analysts have even queried whether it can survive.
The problems of sharing a single currency across countries with divergent political priorities and economies has been brought sharply into the spotlight, as have the difficulties of getting 16 Eurozone States to agree on a solution.
At the end of March Eurozone leaders reached agreement on a rescue fund for Greece, if needed. The Euro briefly strengthened as a result, but the sketchy details of the fund could not sustain the gains.
Eurozone finance ministers then took further steps to support Greece and prop up the Euro, announcing a €30 billion loans package on 11th April. The IMF is also expected to offer financial aid if needed.
At the time, Jean-Claude Juncker, head of the Eurozone group of finance ministers, said: “This is the step of clarification that markets are waiting for – it shows there is money behind this.”
The loans are available should Greece need them. Payments would only be made if all 16 Eurozone countries agree – and countries could potentially veto it.
The Euro hit a one-month high on the announcement, but it has dropped again since. Following the news that Greece’s budget deficit is worse than expected, and of another credit rating downgrade for the country, the Euro continued to slide towards a one-year low against the US Dollar.
The outlook is looking very challenging for the Euro. With 16 different nations involved, there are both political and legal restraints to fixing the single currency. Economists warn that the Eurozone still looks divided and little has been done to address the longer-term underlying problems it is facing.
Most British expatriates holding Sterling assets would be pleased to see a stronger Sterling and/or a weaker Euro. The lowest currency risk option for an individual is to match assets (bank deposits, investments etc) and liabilities (day-to-day expenditure) in the same currency. However, many British expatriates tend to retain a significant amount of assets in Sterling, including private pension arrangements, making them subject to the vagaries of currency exchange rate movements.
It is impossible to predict future currency movements with any certainty. However, in my opinion there is a strong possibility that the Euro could weaken further in the short to medium term while the Eurozone problems exist. I do not subscribe to the worst case scenario of the Euro failing, or of a Member State reverting to their original currency.
As a UBS Bank article reporting on research by its economists says, “Perhaps it would have been better for a number of countries if they had never joined the Euro. Nevertheless, the European Monetary Union is certainly not about to break up; at this stage, the costs would far exceed the benefits.”
Uncertainty about the fate of the Euro may be around for a while. What can you do to protect your assets? Swapping all your Euros to Sterling or another currency is not the answer. For a start you should have enough assets in Euros to meet your spending liabilities for a few years, and also there is no guarantee that Sterling or the US Dollar won’t fall more than the Euro. What you need to aim for, as much as possible, is diversification and flexibility.
When it comes to your savings and investments, you could diversify them over two or three currencies. Much depends on your individual circumstances, including whether you are likely to live in the Eurozone for the rest of your life, if there is any possibility that you will return to the UK and if you expect to leave an inheritance to heirs in the UK.
If you invest within an insurance bond choose one which allows currency flexibility, so you can switch currencies if the need arises. If you are waiting to invest, you could invest now in Sterling and if or when the exchange rate improves, switch some to Euros then.
The same goes for your UK private pension funds. If you were to, for example, transfer them into a QROPS (Qualifying Recognised Overseas Pension Scheme), this allows you to choose the currency for the underlying funds and the income. You can usually set it up in Sterling and switch to Euros later, or, if it is in Euros, have the option to convert to Sterling at a later date if your circumstances (or the fate of the Euro) change. However you should keep in mind the fact that, exchange rate movements may affect the value of your funds.
There are testing times ahead for the Euro. What happens to it is out of your control, but you can usually control your choice of savings, investment and pension structures so as to give yourself currency diversification and flexibility. Ask an experienced international wealth manager like Blevins Franks for advice.
By Bill Blevins, Managing Director, Blevins Franks
Opportunities For British New Tax Planning Expatriates – QNUPS
On the 15th February 2010, a new UK HM Revenue & Customs (HMRC) statutory instrument came into force, the implications of which create significant opportunities for British expatriates to save local taxes in Spain as well as UK inheritance tax (IHT).
The UK legislation has now created a new type of trust known as Qualifying Non-UK Pension Schemes (QNUPS) – which should not be confused with Qualifying Recognised Overseas Pension Schemes (QROPS).
As pension schemes are one of the key ways that most governments incentivise their citizens to save for their retirement, the tax rules are generally more favourable than other investment structures.
The problem for most retired expatriates is that they believe that their days of being able to put money into pension schemes are behind them; however QNUPS may significantly change many retired expatriates’ view on this.
Firstly, there is no maximum age at which you can invest in a QNUPS.
Secondly, you do not need to have any earned income from an employment in order to make a contribution.
Thirdly, there is no maximum contribution that can be made into a QNUPS.
The rules are sufficiently flexible to allow someone who is 85 years of age and has been retired for 25 years to put large investments into a QNUPS and immediately create significant tax advantages for themselves.
So what benefits do QNUPS give to retired British expatriates?
The main thing to remember is that a QNUPS is a pension scheme trust and as such you are entitled to take a cash lump sum and income during your lifetime, with the remainder of your fund being able to be passed to your spouse or heirs on your death free from all taxes.
The following advantages are available to you through a QNUPS:
- As a pension scheme, a QNUPS is very tax efficient in most countries as it can avoid both local wealth taxes during your lifetime and succession taxes on your death.
- A QNUPS also avoids local succession law, so that you are free to choose exactly who inherits your money and in what shares.
- Income can be taken from age 55 (after 6th April 2010) or it can be deferred as it does not need to be taken until age 75. In certain countries it can be paid in a manner where a significant portion can be paid to you tax free.
- When income is taken it is drawn down from the fund, thus leaving your scheme assets invested. Otherwise the assets grow free from tax.
- On death the value of the QNUPS will be exempt from UK inheritance tax and local succession taxes.
- A QNUPS offers considerable investment flexibility and choice. Furthermore your assets can be invested and any benefits taken in a currency of your choice, giving you the opportunity to remove currency risk.
- The trustees of a QNUPS have no reporting obligations to HMRC unless the scheme also holds any assets transferred from an authorised UK pension scheme. You can have both a QROPS and a QNUPS.
In essence QNUPS allow retired British expatriates to put their investable wealth into a pension structure and significantly improve their personal tax position as a result.
Solving the UK inheritance tax conundrum with a QNUPS
The only way to avoid UK inheritance tax is to become a non-UK domicile, which is NOT the same thing as becoming a non-UK resident. It can be very difficult to shrug off your UK domicile even though you may have lived overseas for many years and so your estate on death can be liable for tax of 40% (or probably more if a Labour Government is re-elected).
QNUPS immediately solves this problem even if you were to return to live in the UK. In fact, it avoids the tax even if you never left the UK to live overseas in the first place. You do not have to wait seven years to avoid the tax (which is the case under the PET or potentially exempt gift rules), and you do not have to give the assets away either. You and your spouse or partner can continue to benefit from the assets. It couldn’t be better!
By David Franks, Chief Executive, Blevins Franks