Expat Financial Planning
Alex Kavanagh explores tax minefields that expatriates should be
aware of when planning life assurance and pensions
Working abroad at some point is now considered par for the course
for those who work for a multinational company. But if you combine
the complexities of expatriate tax planning with the difficulties
of UK pensions, it is quite easy to see where the difficulties lie
when it comes to retirement planning.
The term expatriate covers a multitude of sins, particularly when
it comes to pension planning. Not all of those working abroad are
considered expatriates - if they are on secondment for short periods
and are not paid in local currency, for example. Here the situation
is straightforward, as such individuals will be able to continue
tax and national insurance contributions as if they were in the
UK.
Expat Financial Planning & Inland REvenue's
The arbiter is the Inland Revenue’s booklet IR20, which states
that a UK taxpayer should be present in the UK for less than 183 days,
and fewer than 91 days on average, in any tax year in order to qualify
for non-UK tax status. Tax treatment of pension saving plans
varies across the world. UK tax-exempt personal pensions and US-style
401k plans are mostly not in evidence, so residents abroad will
have to say goodbye to such familiar tax-beneficial products as
personal pensions, ISAs and venture capital trusts.
Expat Financial Planning & The European Union
In the European Union alone there are 15 different tax regimes,
some closer to that of the UK than others. Expatriates working in
a European country and who are domiciled in that country for tax purposes
will be confronted with a retirement tax situation quite different
from that in the UK. If employed, individuals will have to pay tax
on any contributions to a retirement fund, while the income is often
free of tax, in contrast to the UK. In Britain, along with the
Netherlands, Switzerland and the US, contributions to pension funds
are freed from tax as a retirement saving incentive, while income
from the fund is taxed. The rest of Europe is moving towards that
model, but it is taking its time. Until it adopts the model, conventional
pension-saving products are, as such, rendered unnecessary.
Expat Financial Planning & Robert Ollenshaw
Robert Ollenshaw, Paris regional manager at the Luxembourg-based
financial adviser European Business Network, emphasises that most
expatriates discount their company plan and foreign social security
payments when it comes to calculating retirement income. The sums
are simply not meaningful for those working abroad for periods
less than about five, or even ten, years. “Most people regard
it as dead money,” Ollenshaw says.
For tax-planning purposes, most wealthy individuals need to take
advantage of as many tax concessions as possible without expecting
too much in the way of state tax concessions or employer contributions.
Expat Financial Planning & Non Tax-Advantaged Situations
For those in a non tax-advantaged situation, Ollenshaw points
to the advantages of a Hansard Financial Trust regular or single premium
Assured Security Plan, a life assurance contract that is compliant
with the system both in the UK and other countries, like France. Contributions
can be made in sterling or dollars. Others, such as Royal &
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