Inheritance
Tax.
1) If you have a UK Domicile of Origin it is very difficult to change it, simply
living in another country, no matter for how long, does not work.
2) If you have a UK Domicile then your estate is liable to inheritance tax
on your worldwide assets unless you plan correctly. As a matter of
additional interest, even non-UK Domiciled persons are liable for UK
Inheritance Tax on assets that are
UK
based e.g. property.
3) Even retiring to
Cyprus
and declaring that you will live the rest of your life
in
Cyprus
does not necessarily remove your estate from the UK
IHT net.
In 2001/2, the Inland Revenue collected more than 2.3 billion pounds
Inheritance tax more than doubled over the previous ten years and set to
double again by 2005.
Although the inheritance tax nil rate band has risen in line with inflation
– £268,000 for 2004/5 after the UK budget on the 17th March 04 - up
from £255000 the previous year and from £243000 in the last four years this
is a drop in the ocean compared to the rise in property prices in the UK
property worth £ 243000 in 1999 would probably be worth closer to £500000
than £268000 today, and probably not much different in Cyprus.
Considering that IHT on any amount beyond the nil rate band is at 40% just
that alone anyone with a £500000 property will leave their heirs not just
the property but an IHT bill of £92800 which will have to be paid before
probate is granted and the property passes to the beneficiaries! What is of
great concern is that many people are not only unaware they may have a
liability but that there are options available to them to protect their
wealth for future generations. The nil rate band as at
6th April
2008
is £312000 for the latest
information go to http://www.hmrc.gov.uk/rates/iht-thresholds.htm
EU Savings Tax Directive
On
3rd
June 2003
, the European
Finance Ministers agreed to new tax measures aimed to collect tax revenues
across members of the EU. Known as the EU Savings Tax Directive this
agreement is due operate from
1st January 2005
. After that all non-resident personal Deposit accounts
by held EU residents, in EU member state countries, will automatically have
details of interest earned passed to the individual’s home tax
jurisdiction.
Austria
,
Belgium
and
Luxembourg
, have elected instead to levy a withholding tax at
source on the interest earned by EU residents at an initial rate of 15%. On
the
1st July 2011
this will
increase further to 35% where it will remain until an agreement is reached
for automatic exchange of information.
The directive will only affect individuals who are resident within the EU.
It will not apply to accounts held in a company name (For example Acme
Products Ltd) or under the name of a trust. You should be aware that if you
hold a personal bank account in a participating jurisdiction details of
interest earned on your account will automatically be shared with the
revenue in the country in which you are ‘tax resident’ from 1st
January 2005. Again excepting
Austria
,
Belgium
or
Luxembourg
or any of the other co-operating territories also
adopting this withholding tax policy (IOM, the
Channel Islands
,
Switzerland
,
Andorra
,
Monaco
and
Liechtenstein
)
Of course, if you are currently making full disclosure, implementation of
the directive will have no impact on you. Information regarding interest
earned will simply be shared with your home tax jurisdiction enabling it to
check the details you give on your annual tax return.
You need take no action the directive this will just happen in the
background and involves matter of one tax jurisdiction talking to another
about you, but not with you.
It is probable that before
1st January 2005
if you bank in any EU or otherwise participating
territory then your bank will require details of your country of residence.
The deposit-taker must then decide if you are deemed to be within the scope
of the directive, depending on where your account is held, details of your
interest earned will automatically be returned to your home tax
jurisdiction from
1st January 2005
or your interest will be taxed at 15% at source.
Provided you are tax compliant however, you should not be concerned about the
directive.
What are the implications of moving savings to another location? First,
there is the time and trouble involved in sourcing a suitable alternative
– comparison of interest rates, jurisdiction, reputation of the
institution, gathering all the identification documentation required and so
on.
What can be done?
The key in reducing the IHT bill and EUSTD solutions is to take action in
good time, there are options and they need to be considered very much on an
individual basis.
Trust and corporate structures enable you to hold a variety of assets in a
secure and tax efficient manner and help preserve your wealth for future
generations.
The potential tax savings using trust and company structures can often
outweigh the cost in creating such vehicles.
New
Anti-Money Laundering Requirements
In practice the changes will have very significant on their relationship
with their professional advisers back in the
UK
. Tax evasion is a crime and all UK professionals
including financial advisers, accountants, second hand car dealers,
currency traders, any bank employees, solicitors, antique dealers, estate
agents, art dealers and stockbrokers in fact anyone involved in large
financial transactions now must report every suspicion of tax evasion. They
may also have to report any suspicions from prior knowledge they have. If
they do not report it, they can go to jail for up to five years. It is a
crime not to report any suspicion– no proof is required. Crime
includes tax evasion, tax fraud, fraud, theft, incorrect tax returns,
corruption, price fixing, as well any more obvious crimes such as burglary,
soliciting, product piracy etc.
Final
Points
The Savings Tax Directive will impact every account held under an
individual name (not company or trust) by an EU resident.
Mitigating schemes include using corporate and trust structures. Investors
who are declaring all interest received have no cause for concern the
information they send to their residencies will just be cross-checked.
Any and all dealings with virtually any institution in the
UK
will by law be required to be reported to the UK
Revenue and shared by them with the Inland Revenue in the (EU) country of
residence of the individual concerned.
Ross
Pays is the Chairman of The FAA based in Cyprus. FAA offer advice on wills,
tax registration services, home, health and car insurance, investment
services and tax planning, including Inheritance Tax Planning, together
with full accounting services.
Visit Ross Pays website at www.rosspays.com, Telephone 00 357 25 82 58 76, Fax 00 357 25 33 35 93 or
e-mail ross@rosspays.com
Initial consultations are free and no obligation and
fee quotations will be provided in advance for all services.
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