When it comes to tax, pensions, investments and estate planning, there are things you can control to your benefit, whatever happens around us.
They say the only certainties in life are death and taxes; at times like these, this has never seemed more true! As the UK enters unchartered waters with Brexit looming large, there is much we do not know about what the future will bring.
However, when it comes to tax, pensions, investments and estate planning, there are things you can be sure of and that you can control to your benefit, whatever happens around us.
Taxation of assets
Taxes in your country of residence
Double tax treaties, such as the ones the UK has with Portugal, Spain, France, Cyprus and Malta, are independent of the EU. So if you are resident in one of those countries, your existing tax treatment will not change with Brexit or other external influences.
Something that can make a significant difference to the way you are taxed is how you structure your assets and wealth. You can usually find locally-compliant investment opportunities that can offer significant tax benefits while also providing additional benefits like currency and income flexibility.
Meanwhile, expatriates who favour UK-centric assets and investments are more likely to see increased taxation with Brexit, as some non-EU/EEA assets are treated differently.
For example, if you are resident in Portugal or Spain and sell a home there to buy a British property once the UK leaves the EU/EEA, you may no longer be eligible for capital gains tax relief. Or if you are French resident, you may find that UK life assurance policies, such as investment bonds, no longer qualify for the full beneficial tax treatment given to assurance-vie and EU capital redemption bonds once they become non-EU/EEA assets.
Taxes in the UK
Don’t forget that the UK can potentially increase the tax burden for non-residents at any time, as has happened recently with property. 2015 brought new capital gains tax liability for non-residents on UK residential property; from 5 April 2019 this also applies to commercial property. And in 2017, UK residential property owned through certain offshore structures became liable for UK inheritance tax alongside other worldwide property. See more about recent tax changes for UK property
Tougher tax rules are also possible following a change in UK government, even including the possibility of a new wealth tax on higher-value UK assets.
Talk to a locally-based adviser about asset protection and how you can take advantage of tax-efficient opportunities for your country of residence.
Taxation of pensions
A similar threat hangs over UK pensions. Today, UK pensions can potentially be accessed by Britons abroad without paying any UK tax (under the double tax agreements). Brexit will not change this, but the government may take steps to recoup more taxes from expatriate pensions.
The 25% ‘overseas transfer charge’ introduced in 2017 may indicate things to come. Currently, EU residents are only affected if transferring UK pension funds to Qualifying Recognised Overseas Pension Schemes (QROPS) outside the EU/EEA, but the scope may increase after Brexit.
Once you no longer live in Britain, you may find fewer advantages to keeping UK pensions where they are, but it is essential to take regulated, personalised pensions advice to establish the most suitable approach for your personal circumstances and goals.
If you are considering transferring, review your options now, before the tax-free window potentially closes.
See some pros and cons of transferring UK pensions to a QROPS
It is not just Brexit that can disrupt investment and currency markets today. At any given time, external influences and events can unexpectedly shift the direction of markets.
Diversification is the key to minimising risk. A portfolio made up of a mixture of asset types – including cash, equities and bonds – from different countries, regions and market sectors is best placed to ride out turbulence.
This approach reduces exposure to under-performance in any single area and enables the opportunity to produce positive returns over time.
Conversely, if you mainly hold UK assets, your returns will be more vulnerable to the fortunes of sterling and the British economy during these uncertain times.
Of course, you need to make sure your investments offer the right balance of risk and return for your peace of mind. An experienced financial professional can use the appropriate tools to create a clear and objective risk profile for you.
See more about investment planning for expatriates
While we cannot avoid death, with good estate planning we can control who receives our legacy and when.
Even after Brexit, you can override local ‘forced heirship rules’ by applying the law of your nationality to your estate instead through the EU regulation, ‘Brussels IV’. While this would ensure your legacy is distributed according to your written wishes, beware this can have tax implications.
If you are seen as UK-domiciled – as many expatriates are – your estate is liable to UK inheritance tax as well as local succession taxes in your country of residence (where applicable) and wherever you own assets. More about UK domicile
However, it is possible to restructure your wealth to reduce tax liabilities at the same time as ensuring your chosen heirs receive your gift when you want them to.
See more about estate planning
With careful tax, pensions, investments and estate planning, you can steer your financial future in the right direction. Cross-border financial planning is complex and needs to be designed around your specific circumstances and wishes, so take specialist advice for the best results.
Make an appointment with your local Blevins Franks adviser
Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; individuals should seek personalised advice.