New British budget effects on expats

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New British budget effects on expats 
Bangkok Post: 29 Mar 2010
British budget effects on expats

On Wednesday last week, Alistair Darling, the UK Chancellor of the Exchequer, made budget proposals that he said would steer Britain back on track to recovery after the recession. Some say it was a budget designed to capture votes for the coming election slated for May. The balance between attempting to gain popularity and doing the right thing was probably something he would have found difficult to achieve.

So, why should the UK budget affect us all as expats living in Thailand?

Firstly expats, as citizens of the world, are always affected by events in the most influential economies of the world. Remember it was the sub-prime collapse in the US that sparked the recessions that occurred all around the world. When Britain and other European countries owned up to having similar problems in their financial systems, the contagion spread. Therefore global events will produce consequences for all expats sooner or later.

Many British citizens living as expats all around the world today have vested interests in what happens "back home". This may result in many aspects of their financial lives changing, including continuation of payment of national insurance contributions; drawing of state pensions and, for example, the recent case centred on whether and where increments are paid; inheritance tax (IHT); rules and regulations on capital gains tax and what may happen if they decide to repatriate to the UK.

Mr Darling's budget last week featured only a minor change to IHT, in that the nil-rate band was frozen at its current level for the next five years. Many British expats do not realise that, although they do not pay income tax and capital gains tax resulting from activities outside the UK, while they are abroad, their worldwide assets are subject to IHT when they pass away. Discovering this hard truth can come as quite a shock. There are ways to mitigate IHT through careful planning with help from a professional adviser. Meanwhile, some may be disappointed at this freeze, but not as disillusioned as they might have been had the nil rate been changed to a 10% rate.

Lifetime allowances for private pensions have also been frozen at 1.8 million. This is the amount you are allowed to transfer from your private pension pot to an alternative arrangement, including qualified recognised overseas pension schemes (QROPS), without paying tax on the transfer amount. QROPS seem to have remained intact as they are with no proposed changes being made.

While QROPS comply with the European regulations to allow all citizen freedom of movement of capital, the UK government loses tax on income paid from schemes once they are moved offshore. Tax would be collectible had the pension remained onshore as the income would be generated in the UK.

The UK government also seem to be following the lead of President Obama in its stated desire to crack down on tax-evasion arrangements in offshore tax havens. While this may concern some British expats, if you are genuinely living offshore and following the rules you should not have any fears about falling into the classification as an illegal tax evader. These rules are intended for people living in the UK with their own, often illegal, arrangements in tax havens to evade tax.

So why would British and other expats feel that they can relax more than their American counterparts?

The fact remains that for all American citizens there is an obligation pay tax on worldwide income and capital gains, no matter where they live. This means that if you are an American citizen and you have generated income on which you have not paid tax in the US, you could be targeted for investigation and possibly assessed for unpaid tax and the penalties and interest that go with it.

It is a fact that many well known investment institutions are now beginning to question whether they are willing to accept American citizens as clients because of possible retribution by US authorities. However, there are still tax-efficient investment solutions available to American citizens while they are expats. A good professional adviser can counsel you on these aspects.

For all other expats there are specific rules that will affect you when you are an expat.
Most global citizens in this class are able to earn while living offshore without the burden of home taxes and are thus offered a very good opportunity to make good use of tax-free and high-growth investment options.

Questions to the author can be directed to PFS International on 02-653-1971 or e-mail to enquiriesthailand@fsplatinum.com

http://www.bangkokpost.com/business/economics/35238/british-budget-effects-on-expats
 

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UK expatriates face tax bill changes 
Bangkok Post: 5 Apr 2010
British expatriates face higher tax bills

British expatriates who still have connections with their homeland may face a challenge over their residency that could put them at the mercy of the taxman, say international accounting and consultancy firms.

‘‘If you are not prepared to change your life, then the thing you might need to change is your entire tax planning,’’ says Mr Gambles.

Under the new guidance, UK tax authorities will scrutinise more closely the non-resident status of British citizens living overseas, said Paul Gambles, managing director of MBMG International Co.

Until last year, British expats could claim non-residency status if they spent no more than 91 days a year in the UK.

"Any UK expats could be affected [by the new rules]. The number of days spent in the UK is only one factor now. They're going to look at all other things about the way you arrange your life and decide whether the UK is the centre of your life," said Mr Gambles.

The new guidelines from Her Majesty's Revenue and Customs (HMRC) require British nationals claiming non-resident status to prove they do not retain connections with the UK.

These links include having a property, holding sports or social club memberships, keeping a mobile phone contract and having family there or children going to schools or universities in the UK. A Briton who makes regular visits home could also be liable for UK tax.

UK residents are required to pay British taxes on their worldwide assets and income, whereas generally non-residents only pay UK tax on income that originates from UK sources.

The changes in UK tax practice followed the case against Robert Gaines-Cooper, a British business tycoon who lost his appeal in February this year to HMRC. Mr Gaines-Cooper, who has established a business empire since the 1970s in the Seychelles, claimed to be wrongly denied non-resident status since he complied with HMRC guidance. He is now facing a tax bill estimated to be in the region of 20 million.

Mr Gambles advises British expats to make three checks. The first is to ensure they really are clearly non-resident under the new UK rules. If they could be seen as UK residents, the second step is to decide whether they want to change their lifestyle to sever the connections, which may mean not flying back to the UK every summer to visit their family and friends. Third, they might need to change their approach to tax-planning:

"If you are not prepared to change your life, then the thing you might need to change is your entire tax planning," he said. "You might need to think about planning your affairs from the point of view of being a UK resident, which is a very different outlook to planning your affairs as a non-resident."

John Andes, a partner at KPMG Thailand, said British expats with property offshore should take the necessary steps to convince UK authorities they are not UK residents. "If you are leasing out your home, make sure you have a lease contract to support the lease," said Mr Andes. "If you are working overseas, ensure that you have a proper employment contract at a minimum."

But there are many remaining grey areas to be investigated, such as whether full-time employment is required or how regularly one needs to work.

Transferring a British company pension outside the UK, disposing of non-investment property as well as holding an offshore bank account are also recommended as ways to indicate non-resident status.

With more than 50,000 British expats living in Thailand, the new UK tax rules are expected to have an immediate and long-term impact on Thailand's economy.

"Any UK expats who felt they were non-residents but who are now classed as UK residents may not spend and invest as much in Thailand as the money will be spent on paying UK taxes," said Mr Gambles.

In the long term, the ruling could also affect people planning to retire in Thailand, he added.

"It's going to make a big difference on their views of the cost and benefits of living in Thailand. Maybe they thought they're going to be 40% or 50% better off by living in Thailand or on investment income, but it might not be the case now."

It will also be harder to set up businesses in Thailand and elsewhere as companies in the UK may have to bear the rising costs in sending British nationals overseas, he said.

The rule change could also herald a host of measures from Western tax authorities seeking to boost their tax revenues from nationals overseas.

"The big concern is that the next step by the UK and all the other indebted Western governments will be to move to an American-style tax basis, where all citizens are liable to tax on worldwide gains and income, irrespective of their residence status. This could affect millions of expats worldwide and have a huge impact on the economy of countries such as Thailand," said Mr Gambles.

http://www.bangkokpost.com/business/economics/35617/british-expatriates-face-higher-tax-bills