YOUR FINANCIAL QUESTIONS ANSWERED
Below we have published a selection of your questions to our financial experts. We have more Financial Clinic Q&As to browse through at Financial Clinic 1, Financial Clinic 2 and Financial Clinic 3. The comments below do not however constitute advice but guidance. A proper consultation should always be undertaken before acting on any comments below. If you wish to submit a question to one of our experts, please contact us.
Q. JH from Portugal asks: I have just inherited a house in the UK which I sold for £110 000. I am a British citizen and have lived and worked in Portugal for 30 years. Could you suggest the best place for this money? An offshore account, as I understand it, frees me from paying tax in the UK on any interest earned. I need to have access to the money without having to pay bank transfers or cash withdrawal fees at ATMs if this is possible, though am happy to invest £50,000. I have a Flex account with Nationwide at the moment which charges me every time I withdraw money from my account.
A: Stephen Tucker, Chairman and Managing Director, The Fry Group, answers: Terms offered by banks both as interest paid to you and the costs and charges they impose vary continually. You might be best to split the money, holding a deposit in an account paying the best interest you can find and a smaller sum in a local account to access via an ATM. You could then top up the local account with one transfer, say annually, to keep charges to a minimum. However cash will lose its value as inflation eats into its real spending power over time. Generally, therefore, you should only hold sufficient cash to meet short-term cash-flow needs. If you are retaining it long term as part of a balanced investment strategy, dependent on your appetite for investment risk, other assets might offer a better return. EMC adds: Offshore accounts are not necessarily tax free, they are tax deferred. Any income on savings must be declared and details of interest earned are passed to the account holder’s relevant tax authority/ies in accordance with established Tax Information Exchange Agreements as well as the EU Savings Tax Directive. The benefit lies in the tax deferral as the tax that would otherwise be automatically deducted stays in your account for longer, which can help to boost your overall returns.
Q. RP from Vietnam asks: It is now possible for a non-domiciled spouse to elect to be UK-domiciled for inheritance tax purposes thereby qualifying for unlimited transfer from the deceased spouse. After four years of not living in the UK the election will be cancelled and the non-domiciled spouse will no longer be subject to IHT on non-UK assets. My wife has never been resident in the UK and probably never will be. If she elects to be UK-domiciled will she qualify as above? And if so when does the four year period begin?
A: Donald Simpson, Partner with Turcan Connell answers: Where an expat has been non-UK resident for many years, they could still retain their domicile back in the UK and be caught by UK inheritance tax. If a UK domiciliary is married to a non-UK domiciliary special inheritance tax rules apply on transfers from the UK domiciliary to the non-UK domiciliary in lifetime or on death. Spouse exemption is limited to £325,000 on such transfers. The inheritance tax nil rate allowance also applies, which is also presently £325,000, so a total of £650,000 of assets could pass tax free to the non-UK domiciled spouse. From 6th April 2013 it is also possible for a non-UK domiciliary married to a UK domiciliary to elect to be UK domiciled for inheritance tax purposes. Such an election must be made within two years of the death of their UK domiciled spouse or within seven years of a lifetime transfer from their spouse (and they must still be married to that spouse). Where the election is made, unlimited spouse exemption would apply for inheritance tax purposes and eliminate any UK inheritance tax liability on assets they receive or inherit from their spouse. The election to be UK domiciled cannot be revoked, and it would only lapse if the surviving spouse is non-UK resident for four complete successive tax years in the future, beginning any time after the election has been made. The election would cease to have effect at the end of the fourth such tax year. The UK tax year runs from 6th April. There is no requirement in the rules that requires the spouse to be UK resident in order to elect to be UK domiciled. So in the situation outlined in the question, it would be possible for the spouse to exercise the election to be UK domiciled. The four year period of non-UK residence would then commence from 6th April following the death of her husband if she remains non-UK resident. While the election remains in place, the surviving spouse’s worldwide assets would be subject to inheritance tax on their death. Previously, as a non-UK domiciliary, it would only be their UK situated assets which would have been liable to UK inheritance tax. Consequently, making the election could result in a larger overall inheritance tax bill in the future. In many cases it will be attractive to implement lifetime planning arrangements to take advantage of the non-domiciled spouse’s special status and implement structures which will retain assets permanently outside the scope of UK inheritance tax. Back to top
Q. BH asks: I’m planning to retire to France permanently next September. I plan to rent out my UK home and live off the rental income in France. Is there a French tax obligation on that rental income received in France?
A: Trevor Wilkes, Tax Adviser, International Division at The Fry Group answers: If you are planning on retiring to France permanently next September and therefore presumably leaving the UK as a result, you need to ensure that your UK tax position to your point of departure is correctly established with HM Revenue & Customs and that you comply under the statutory residence test, initially for split-year tax treatment in the year of your departure and that you are able to become fully non-resident in your first complete tax year away from the UK. Equally, in spending a period in excess of six months in France each year you will become tax-resident, but you will also need to establish yourself with the French tax system and seek advice locally through an adviser, to ensure that you do not unnecessarily overpay tax in France. Quite possibly, you may be due a tax refund to your point of departure from the UK, but this does depend on your income sources and the point of year at which you leave the UK. If you will be letting your UK property then your letting agent or tenant will have a legal obligation to withhold tax from the gross rental income at a rate of 20% until such a time as they receive the necessary letter of approval from the UK tax man advising them not to withhold any monies under the Non-Resident Landlord Scheme. Applying under the Non-Resident Landlord Scheme to have your rental income paid gross will mean an annual obligation to complete a UK tax return. If it is clear, having submitted your first year’s return, that you do not have a tax liability you may find that you are no longer asked to file UK returns but may be asked in future to complete them on a periodic basis. Being resident and potentially fully taxable in France is likely to mean tax return completion. There is a Double Taxation Agreement between France and the UK which aims quite clearly to ensure that the same source of income is not taxed twice. If your rental income is not taxable in the UK then it will fall as a reportable income source in France, and a French tax adviser would be able to calculate what tax, if any, you would need to pay there. Back to top
A. Dean Power FFTA - Assistant Tax Manager Tax Technical Coordinator at The Fry Group answers: our entitlement to a UK state pension is dependent on your national insurance contributions, if you have made payments in the past this may give you some entitlement. Expatmoneychannel adds: Government information on your rights to claiming a UK pension when living abroad is available here Back to top
Q. KR from Australia asks: We run a UK based company but will be returning to Australia shortly. My partner will travel between the two countries and work as and when required. I will be based in Australia but will continue to work for the UK company online. I am not planning on returning to the UK. I assume after this tax year that my status will become non-resident? Anything we need to know to avoid huge tax issues? Anything we should do to make it work as smoothly as possible? I may have to work in Australia as well - what implications will this have?
A. Dean Power FFTA - Assistant Tax Manager Tax Technical Coordinator at The Fry Group answers: There are new rules to determine residence for UK tax purposes and you would need to ensure that you were confident of your position within these new rules and that you were indeed non-resident. Expatmoneychannel adds: HMRC has produced an online tool to check your residency status, which you can access here. Back to top
Q. MH moving to Brunei asks: My wife and I will be moving from the UK to Brunei end of Feb 2014. I have heard of some horror stories regarding the new tax rules. Is it true that we can only return to the UK for a maximum of 16 days per annum for the first 3 years? Also, as we are moving midway through the tax year, do I stop paying income tax the day we leave the UK or do I have to continue paying up until the end of the tax year then claim it back?
A. Dean Power FFTA - Assistant Tax Manager Tax Technical Coordinator at The Fry Group answers: The new residence rules are indeed complex, particularly for splitting the tax year between resident and non-resident. It is difficult to provide general advice as the outcome of the new legislation is very much dependent on individual circumstances. Part of the rules do state that to be conclusively NR you would need to visit the UK for fewer than 16 days each year, however this is just one part of the test and non-residence could be achieved via another part of the test with more than 16 days spent in the UK, dependent on your circumstances. Expatmoneychannel adds: HMRC has produced an online tool to check your residency status, which you can access here. Back to Top
Q. J Row asks: I have located a 3 bedroom property in Ibiza Spain that is a repossession for £105,000 that is currently unfurnished. I have £75,000 in my SIPP. Is it possible to purchase the property in my SIPP as I believe I could get in excess of 10% per year in rental income along with circa 6% per year capital growth?
A: Rex Cowley of Newdawn Consultancy answers: Currently the HMRC excludes residential property from the permitted investment types under a UK SIPP. But this might change but don’t hold your breath.You could hold the property in an offshore company and have that held in an international pension scheme which takes it out of your name and is very UK IHT friendly but doing this does not come cheap and is complex. Sometimes there is a lot of merit in keeping things simple. Back to top
Q. DH from France asks: I am 60 and live in France. I am presently in receipt of a teachers pension. I have an AVC in the UK which I would like to convert to a drawdown policy to enable me to buy a house back in England. A financial adviser has told me that I must have a UK address before I can do this. Is there a way around this? back to top
A. Aidan Bailey BA Hons DipPFS - Operations Director at The Fry Group, answers: You can have drawdown as a non-resident, but you would need to find a specialist adviser to assist you and not all pension companies will deal with expatriates. Again, theoretically, if your teacher's pension is over £20,000 per annum you could take a Flexible Drawdown and take the entire AVC as cash, only paying tax in France. Back to top
Q. JB from Malta asks: I now live in Malta. Before leaving the UK I checked that I qualified for a UK pension once I got to pension age. I have 8 years to go and am currently self employed in Malta and paying tax and SS/NI into the Maltese system. I have been told I will be able to claim a UK pension and a Maltese pension. Is this correct?
A. Dean Power FFTA - Assistant Tax Manager Tax Technical Coordinator at The Fry Group answers: If your payments into the Maltese system give entitlement to a pension there, there is nothing to stop you eventually being in receipt of both a UK state pension and a Maltese pension. Back to top
Q. LW from Dubai asks: I am UK domiciled and have resided in Dubai for the last 10 years. During my time in Dubai I took out an Offshore Investment Bond with a provider in the Isle of Man. If I surrender the bond whilst in Dubai I presume I will not pay any income tax on my gain? However, I am soon to move to Spain. If I surrender my bond in Spain will I be liable to pay Spanish income tax on my gain and if so will time apportionment apply for my time in Dubai?
A. Karen Marks international tax and trust planning specialist at New Quadrant Partners answers: To determine whether there is any UK tax liability on the surrender of your offshore investment bond, your residence status should be checked to ensure that you are not treated as being UK resident and that the bond does not create any UK tax liability on you. If the bond was taken out at a time when you were not UK resident and it is with a non UK provider and treated as a non UK asset and you have not been resident during the period of ownership and you are not UK resident when you encash the bond, no UK tax liability should arise. You will need to seek Spanish legal advice in respect of the Spanish tax aspects. Back to top
Q. SW from Thailand asks: I wish to cancel my UK domicile. I lived in Hong Kong from 1990 - 1994, then Philippines 1994 - 2001, and in Thailand since then. I am married to a Thai national and we have a son who was born in Thailand. I have no property or other interests in UK, other than an offshore Jersey bank account. I do receive an army pension and a war disability pension in to that account. I recently stopped paying voluntary NI contributions as I have paid 30 qualifying years already. I have no plans ever to return to live in UK.
A. Karen Marks of New Quadrant Partners answers: Domicile is a difficult subject and the specific facts need to be analysed. You cannot cancel your UK domicile as such. You should seek UK advice as to whether you have lost your UK domicile of origin by virtue of your residence in Thailand and your plans not to return to the UK. In order to have acquired a domicile of choice under English law, one must be resident outside the UK with an intention to be settled in that other jurisdiction. You should draw up a statement with expert advice to record life history and your intentions in order to evidence any change in domicile. Back to top
Q. MR asks: Would you be able to advise us as to how to find out what the present status of domicile would be for my husband? He was born and raised in the UK, holds a UK passport plus a second nationality by choice. His mother passed away recently and we are going through the IHT issues, etc. The question which came up was the following. If ever my husband will pass away, and he is still considered as UK domiciled, would I, as his spouse, have to pay IHT on all of his assets? Not only in the UK but where we live? My husband left the UK 30 years ago and I am a non UK subject, never lived in the UK either. How does one apply to be non-domiciled in the UK?
A. Karen Marks of New Quadrant Partners answers: Domicile from a UK perspective is all about where your roots are and the ties you have with your domicile of origin. The domicile of origin is the strongest domicile a person can have and to lose it a person has to show that they have left the UK and taken up residence in a country with the intention of settling there permanently or indefinitely. Without a great deal more information it is impossible to say whether your husband has a domicile of choice in another jurisdiction and how he should go about asserting this - nationality does not necessarily indicate a shift of domicile. If your husband is treated as retaining his UK domicile and there is no estate tax convention to override general prrinciples, then his worldwide estate will be liable to UK inheritance tax and the spouse relief available will be restricted if you are not UK domiciled.
A. Rex Cowley of Newdawn Consultancy answers: As a UK resident there are no restrictions to the kind of assets a UK citizen can hold in their personal name. Hence Australian debt instruments can be owned. However, consideration needs to be given to the taxation of the investment which will become complex as the asset will likely be subject to taxation on interest / coupon income possibly in both the UK and Australia. A clear understanding of the enquirers UK tax position including implications re domicile, the Australian tax position and any double tax treaties or right to tax credits should be undertaken first as tax could reduce the attractiveness of the investment. Back to top
Q. VS from Italy asks: I hold dual nationality (British and Italian) and therefore dual citizenship. I was born in the UK, studied in the UK and opened a savings student bank account during my university years back in 1998. I then moved back to Italy 10 years ago but retained my UK account which was at some stage converted to an overseas account. My question is: is there a limit on the amount of money I can transfer to my UK account without needing to pay taxes? Or do I need to declare any amount over a certain threshhold? I phoned my UK bank and then HMRC who did not really give me any useful information. I was very confused by what I was told, basically along the lines of... I am not required to pay any taxes on the money I put into my account, although 20% may be witheld at source by my bank in relation to any generated interest above £ 9,000 approx. I could also claim to have a refund. The margins of all this are unclear to me.
A. Karen Marks of New Quadrant Partners answers: If you are not resident in the UK, there is no cap on the amount of cash you can transfer to your UK bank account. There should be no UK income or capital gains tax liability when you transfer funds providing you are not a UK resident. Depending on amounts you may have tax may be withheld at source which you may be able to reclaim. You will need to assess your UK souce income. The HMRC website has some useful links and worksheets. If you are not UK domiciled holding funds in the UK may increase your UK inheritance tax (IHT) exposure on death. If you are UK domiciled your worldwide assets will be subject to UK IHT in any event. There is a convention covering death taxes between the UK and Italy and you should seek advice to determine under which jursidiction you are most likely to be treated as being domiciled. You may well have Italian tax to pay on the UK source income. Back to top
Q. SB from Israel asks: I was a director of a limited company which I sold at the end of April 2012. I have actually been living in Israel for almost 4 years but paid tax and NI in the UK until end of April 2012. Since then I have been in the UK for a few days in total. I never declared to HMRC I had left the country. Now I am seriously considering opening a business in Scotland. It is my intention to be there while I set it up but not to live there, ie to keep living in Israel. I want to declare to HMRC that I live abroad. If I follow the 90 day rule on average over the next 4 years and will be self employed in the UK am I exempt from paying income tax?
A. Karen Marks of New Quadrant Partners answers: If you have UK source income from self employment you will need to pay tax in th UK even if you are not resident for UK tax purposes, unless there is a double tax treaty which overrides the general position. Leaving the UK to take up residence elsewhere requires the individual to demonstrate that they have left the UK by severing ties with the UK. The 90 day rule is no longer applicable under the new UK statutory rules - other factors need to be taken into account as well as time spent in the UK. From your query, you are still treated as resident by HMRC so it will be difficult to claim to no longer be resident now without reopening your previous years of residence and explaining why you did not tell HMRC when you originally left. It may be worth fully explaining your position, but you will also need to confirm your residence status with the Israeli tax authorities. You may have Israeli tax to pay if you were resident there during the period and did not pay tax in Israel. You should seek full professional advice on your position. Back to top
A. Dean Power from The Fry Group answers: Presumably this is referring to claiming a UK state pension. Your entitlement would be dependant on the number of qualifying years national insurance contributions you have made. Expatmoneychannel adds: You will generally need 30 years NI contributions to claim a full state pension from the UK. More information on state pension eligibility rules. Back to Top
Q. AM in Canada asks: I was born and worked in the UK until I emigrated to Canada. I have 4 qualifying years for a UK pension and was advised I could pay in additional years. I have paid an additional 12 years and was considering paying more years. My question is when I apply for my UK pension, Form IPC BR1, Part 7 asks for info on if I paid in to the social security system of Canada and for my Social Insurance Number. I wasn't aware of this when I made the 12 years of additional payments as I thought I would receive a UK pension independent of my Canadian pension.I want to hold off making any more payments to the UK pension plan until I understand the impact. I will be eligible for a full Canada Pension Plan (CPP) Is there any benefit to me paying in more years towards my UK pension if the more I was eligible for from the UK only served to reduce my CPP?
A. Dean Power of The Fry Group answers: The UK has a reciprocal national insurance agreement with Canada. The reason the form would be asking for Canadian payments would be because the agreement can allow for payments made in Canada to be taken into account for your entitlement to the UK state pension, in certain circumstances. This mainly applies when there is no entitlement to a Canadian Old Age Security Pension. You should be entitled to pensions in both UK and Canada based on your contributions in both countries, without restriction. Back to top
Q. KL in Spain asks: If I (British) and my partner (Spanish) live in England for two years and pay into the state pension system then return permanently to Spain can the money we have paid into the British state pension be transferred to our Spanish state pension? We are many years off retirement age.
A. Dean Power of The Fry Group answers: National insurance will be paid in the country where you are working. When reaching retirement age the contributions you have made to the respective countries will then be assessed. Contributions made to the UK can then go toward you qualifying for a Spanish pension.
Q: DH from Spain asks: On a recent visit to the UK my grand-daughter who is two (born in Spain has a British passport) was ill with an ear infection but the two doctor surgeries refused to see her. I was just wondering as I have visited the doctors in the UK before as a temporary resident if they are at fault in not seeing my grand-daughter and what our rights are as expats living in Spain when it comes to accessing medical care in the UK. Can a doctor refuse to see us and would we have to pay for treatment as we still pay tax in the UK? Back to top
A. Katrina Osman, IHC International answers: For those living outside the UK it is possible to access treatment in the UK when returning on a temporary basis but is up to the discretion of the GP practice as to whether new patients are accepted or not. Further information can be sourced from the following NHS website link. Alongside this the NHS is a residence based healthcare system and therefore the payment of tax does not necessitate that full access to the NHS is available. ExpatMoneyChannel adds: It's worth noting that if you do need to go to A&E (accident and emergency department), a minor injuries unit or walk-in centre for emergency treatment then this is free of charge. Although if you were subsequently admitted to hospital or needed further treatment then charges may apply. Back to top
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