Portugal, a popular destination for many Brits looking for sun, sea, and more recently, tax breaks, is about to change its welcoming tune.

Portugal has a tax scheme for those who aren’t originally from there but decide to make it their home. If you lived in Portugal for over half the year, or 183 days to be exact, you could get some generous tax perks. This scheme is called the non-habitual resident regime.

In simple terms, if you had a job there in roles often seen as quite skilled, like being a professor or architect, you’d only have to pay 20% on your income. Not bad, right? But it gets even better. Those moving from abroad also had to pay only a 10% flat tax on foreign pensions. Plus, if you earned rental income from a property you owned in another country, you wouldn’t be taxed on that in Portugal if you were already paying tax on it back home.

This deal wasn’t just for foreigners either. Even Portuguese folks who’d lived abroad for five or more years could hop onto this deal when they returned.

Change on the Horizon

However, the Prime Minister of Portugal, Antonio Costa, has come out to say, “Enough’s enough!” The tax breaks will finish in 2024. But if you’re already in Portugal and making the most of these benefits, don’t pack your bags just yet. You’ll still get to enjoy them.

The reason behind the change? Prime Minister Costa thinks this tax setup is unfair and isn’t needed anymore. He points out that this scheme was introduced after the 2008 financial crisis to give Portugal’s economy a boost. But now, it’s causing some issues.

What’s the Fuss?

This tax perk has brought a lot of well-off individuals into Portugal, and a side effect of that is soaring property prices. When many wealthy people want to buy homes, it can make houses too expensive for the average Portuguese person, especially in popular areas like Lisbon, Porto, and the sunny Algarve.

According to some smart people at the University of Munich, house prices in Portugal are expected to climb by more than 8% every year for the next decade. And with about 42,000 Brits living in Portugal (they’re the second-biggest group of expats there!), you can see why there might be some concern.

Big Picture

It’s worth noting that this isn’t just about making life fair for locals versus newcomers. The Portuguese government also stopped their ‘golden visa’ scheme for foreign property buyers earlier this year, aiming to make housing more affordable. By the end of 2020, the tax scheme had cost Portugal about £1.3 billion in lost tax money because of all the foreign income that was untaxed.

The decision to end these tax perks has raised a few eyebrows. Bruno Andrade, a tax expert at the accounting firm PwC, expressed his surprise. We can expect to hear more details on what this means for Portugal’s finances in their national budget announcement next week.

Finally, while Portugal is making headlines with this move, other places are having similar debates. Andorra, a small nation between France and Spain, has gone a step further and temporarily stopped foreigners from buying properties there, all to help locals stay in their homes.

In conclusion, if you were eyeing Portugal for its tax breaks, it might be time to think twice or rush to make the move before the changes kick in!

As the UK grapples with high inflation and stagnating living standards, many British professionals are beginning to glance overseas for better income prospects. With tax burdens at their highest since WWII due to the planned freezing of income tax bands, this yearning for greener pastures is growing. But with scores of potential overseas destinations, where should you consider moving for a higher disposable income?

Rocketing Costs, Stagnant Wages, and Frustrating Taxes

To give it some context, let’s take a historic peek at the UK’s economic climate. Recent data from the Office for National Statistics revealed astonishing figures. Approximately 557,000 Brits decided to move abroad last year, with many high earners and entrepreneurs among them. This figure is only expected to rise, with projections indicating that around 3,200 millionaires will depart the UK this year, which is double the number seen in 2022.

Labour has made assurances not to introduce a wealth tax or increase the top rate of income tax should they come into power, according to Shadow Chancellor Rachel Reeves. However, even if these policies remain intact, freezing tax bands by the current government will still push us towards the highest tax burden experienced since the Second World War.

Abundance Beyond Our Borders: But Where to Go?

It’s important to remember that potential salary isn’t the only factor to think about when considering a move abroad. The cost and quality of life, as well as the tax you’ll pay on income earned, are important elements to take into account.

Now, United Arab Emirates (UAE) — particularly Dubai — is growing in popularity among British expats. Yes, living in Dubai does involve paying for items such as medical insurance, but the lack of income tax means you will retain more of what you earn. Also, consider Australia and Switzerland. Australia is drawing in a multitude of millionaires, with its attractive minimum wage and salary prerequisites for expats. Switzerland, regarded as Europe’s costliest country, offers the highest salaries in its continent and arguably the world.

A Closer Look at the Top Choices: UAE, Australia, and Switzerland

Let’s dissect the three choices mentioned.

In the United Arab Emirates, there’s no tax on income. Rent may be high, but there are visa options available for skilled workers, investors, and freelancers among others.

Switzerland works within a state and federal tax system. Here, accommodation rents and living costs are generally high. Working in Switzerland usually requires sponsorship from a company unless you’re self-employed.

Australia works on a blend of public and private healthcare and offers the highest minimum wage globally. Membership to Australia’s Medicare system grants you access to free or reduced-cost medication, doctors appointments, and hospital treatment. To work in Australia, you usually need a job on the list of eligible skilled occupations.

A Nod towards the USA

Outside of these three, the USA could also be a potential destination for UK expats with its favourable graduate starting salaries. Living costs vary largely depending on your state and city of residence. A state like New York, for example, has high living costs, with income tax rates both federally and at the state level. Permanent residency in the USA typically requires a Green Card, available mainly to highly skilled workers or individuals with close relatives in America.

Conclusion: Is It Time to Leap?

Moving abroad might seem daunting, but figures suggest it’s a growing trend. Brits, weary of increasing tax and lowering living standards, are seeking alternatives. Countries like the UAE, Australia, Switzerland, and the USA beckon with their self-proclaimed mix of affordable living, high-earning potential, and appealing lifestyle. Maybe now it’s time to pack your bags and take your career skills international.

HM Revenue & Customs (HMRC) have significantly increased their attention to holders of assets abroad, according to the FT. They’ve been sending out many more “nudge” letters, little reminders, suggesting people double-check their tax situations.

During the recent tax year that ended in April, HMRC sent out 23,936 of these letters, specifically about overseas matters. That’s a big jump – 31% more than the 18,260 letters they sent the previous year. This significant rise in attention on offshore assets follows a period of reduced activity during the Covid pandemic.

HMRC and Its Overseas Collaborations

An interesting fact that came to light is that HMRC isn’t just working independently. They’re actively reaching out to tax authorities in other countries. How active, you ask? They made 620 such international requests in 2022 alone, the highest they’ve done in five years. And they’re continuing this trend with 298 requests already in the current year.

This increased activity isn’t random. Andrew Park from the accountancy firm Price Bailey pointed out that HMRC had been a bit laid back about this in the past few years. This might’ve given some taxpayers a false feeling of safety, thinking they weren’t under scrutiny.

Another expert, John Hood from Moore Kingston Smith, added that HMRC is now especially interested in those wealthier individuals who have significant assets overseas.

Why the Sudden Push from HMRC?

You might wonder why HMRC is suddenly all geared up about this. Park believes the tax agency is feeling the pressure to get as much tax as possible. This need has been amplified by criticism from MPs on the public accounts committee, who believe HMRC has missed out on collecting billions. Last summer, the tax office faced more flak for not having clear estimates on UK residents’ foreign accounts’ disclosures.

This doesn’t mean everyone getting a letter has done something wrong. These letters are based on shared international data, and sometimes discrepancies arise due to computer algorithms, which might not always get it right. If you or someone you know gets such a letter, it’s a good idea to double-check your records. Not just because of any potential oversight on your part, but to ensure that the tax office hasn’t made an error either.

The International Effort to Track Financial Data

It’s worth noting that this isn’t just a UK effort. An international data sharing system, called the Common Reporting Standard, has been developed by the OECD. This has been approved by 110 countries, including places known historically as tax havens. These countries now share information to ensure that taxes are paid correctly.

HMRC, with its computer systems, checks this offshore data against what they have on UK residents. If things don’t match up, they send out these “nudge letters”.

However, Park emphasises that often these letters go out to people who are fully compliant with their taxes. This makes it all the more crucial to ensure no errors have cropped up in their process.

Hood agrees, mentioning that getting such a letter can be a cause of stress for many. Imagine having to prove you didn’t do something wrong!

HMRC’s Assurance

Despite the confusion these letters can cause, HMRC stands by their efforts, stating they’ve been successful in tackling offshore non-compliance. Since 2019, they’ve secured around £526 million from these initiatives. This, they believe, shows their dedication to ensuring everyone pays their fair share.

While living abroad, expats often encounter a unique set of financial situations. With increased earnings and potentially beneficial tax situations, they can build wealth at an accelerated rate. However, the journey is not without its pitfalls. iExpats has ten golden rules every expat should know to manage their finances seamlessly, including tax suggestions.

Understanding the Expat Financial Landscape

Living abroad can indeed provide greater financial opportunities compared to staying in one’s home country. With the potential for higher earnings, a lower cost of living in many destinations, and various tax benefits, expats have a lot on their plate. Yet, the allure of a new life overseas can sometimes mask the uncertainties that come with it. The challenge often isn’t about having funds but understanding how to invest them wisely and who to trust for advice.

1. Map Out Your Financial Journey

Drafting a financial plan is crucial. It’s a blueprint of where you stand now and where you want to be. Are you saving for your child’s education, a new house, or perhaps retirement? Visualising these goals and setting a timeline to achieve them is essential. Part of the plan also involves creating an emergency fund, ideally equalling three months of your salary, to cushion any unforeseen financial blows.

2. Get Clear on Your Tax Status

Just labelling yourself an ‘expat’ doesn’t exempt you from taxes. Your tax obligations depend on where you live and the duration of your stay. Familiarise yourself with double taxation agreements (DTA) which prevent you from being taxed twice on the same income by two different countries.

3. Explore Offshore Saving and Investing

As an expat, you have the advantage of offshore saving and investment avenues. It’s all above board, as long as you report your earnings and gains to the relevant tax authorities. Keeping offshore finances secretive is where problems arise, especially with the introduction of global information-sharing systems like the US FATCA and CRS.

4. Bank Smart

For those in politically or economically unstable countries, it’s wise to bank in a third, more stable country. This strategy ensures your assets are safe, even if the country you’re residing in faces financial crises.

5. Think About Retirement

For retirement, expats have a plethora of options. QROPS (Qualifying Recognised Overseas Pension Scheme) is an offshore pension popular among many. Similarly, International SIPPs (Self-Invested Personal Pensions) are favoured by expats familiar with the UK version. Before diving in, it’s crucial to consult with an expert as the realm of offshore pensions is intricate.

6. Craft a Comprehensive Will

Inheritance laws differ from one country to another. Having a will in every country where you hold substantial assets ensures your last wishes are respected and your beneficiaries are safeguarded from potential tax burdens.

7. Seek Out Expertise

Given the intricacies of offshore finances, seeking an experienced international Independent Financial Advisor (IFA) is invaluable. They can guide you through QROPS pension transfers, offshore investments, and the maze of tax and residency rules.

8. Stay Updated with Tax Affairs

Especially relevant for British expats, HM Revenue & Customs mandates that you complete a Form P85 to tie up any loose ends when leaving the UK. Staying abreast of tax return requirements in your resident country is equally essential.

9. Do Your Homework

Researching your destination country can save you a world of financial headaches later on. Understanding residency implications and potential financial pitfalls before relocating can steer you clear of unexpected tax bills or the need to restructure finances.

10. Keep Your Expectations Grounded

Lastly, be pragmatic. While it’s crucial to save and invest, remember to live in the present too. Set achievable goals and ensure you have enough to relish your life abroad.

In conclusion, embarking on an expat journey is thrilling and financially rewarding if navigated with care. By following these rules and staying informed, you can enjoy the fruits of your labour while living your best life overseas.

In a surprising revelation published by The Sunday Times, it has been reported that Lord Alan Sugar attempted to become a tax exile by moving to Australia, hoping to escape a significant sum of £186 million in UK tax on his substantial dividends. However, what Lord Sugar and his team failed to realize is that the UK law prohibits members of the House of Lords from becoming non-residents for tax purposes. An article by Tax Policy Associates explores why Lord Sugar’s tax avoidance plan failed and delves into the broader issue of why the UK tax system makes it so easy for individuals to become tax exiles.

The Concept of Tax Exile

Tax exiles are individuals who relocate to countries with lower tax rates or tax havens to minimize their tax liability. They become non-residents for tax purposes in their home country, allowing them to avoid or reduce taxation on their income, dividends, and capital gains. It is estimated that one in seven British billionaires now resides in tax havens, such as Monaco, Australia, Portugal, and Israel.

Becoming a Tax Exile

The process of becoming a tax exile is relatively straightforward. Individuals are only taxed by the country they reside in, referred to as their tax residence. For example, a French citizen residing in Paris would not be subject to UK tax on dividends from UK companies. However, if they were to move to the UK, they would become UK tax residents and be liable to pay tax on that income. Conversely, a British person living in London would be subject to UK tax on their UK dividends. By leaving the UK and moving to a country that does not tax capital gains, individuals can escape taxation on significant profits when selling a business or receiving a large dividend.

The Need for Exit Taxes

Exit taxes, imposed by many countries, are designed to prevent or limit the tax avoidance strategies utilized by tax exiles. These taxes typically require individuals leaving the country to be deemed to sell their assets at the prevailing market value, triggering immediate tax liability on any capital gains. However, some countries allow deferral of taxes until the assets are actually sold or dividends received. Additionally, if the new home country taxes the eventual sale, the original country usually provides a credit against the exit tax.

Lack of Exit Tax in the UK

Despite countries implementing exit taxes, the UK has yet to introduce a general exit tax for individuals. This is partly due to historical factors, as the UK did not have capital gains tax until 1965. Moreover, complying with EU law complicated the implementation of exit taxes, as unconditional interest-free deferrals of exit tax until actual disposal of assets were required. Germany’s recent attempt to disregard these EU regulations may have significant consequences.

Potential Solutions

Contemplating whether the UK should adopt an exit tax involves considering opposing views. Proponents of the current system argue that individuals should have the freedom to choose their residency based on tax benefits, and tax competition is a valuable mechanism for holding governments accountable. On the other hand, critics argue that if someone has spent years building a successful business in the UK, it is fair for the country to tax the gains made upon selling that business. Additionally, the tax system incentivizing individuals to leave may be counterproductive.

Careful Consideration of Change

Changing the law regarding tax exiles and implementing an exit tax requires careful consideration. An exit tax would need to be designed to target those specifically leaving for tax havens, rather than individuals relocating to fully taxed countries. To maintain fairness, a reevaluation of capital gain rules upon entry to the UK is also necessary, as the current system can be discouraging for entrepreneurs who have made gains outside the country. Any changes should be implemented cautiously and with great care to avoid unintended consequences.

Conclusion

The case of Alan Sugar highlights the complexities and challenges surrounding tax exiles and the UK tax system. While Lord Sugar’s attempt to become a tax exile failed due to the House of Lords’ tax residence provisions, the broader issue of tax exiles and the ease with which individuals can avoid UK taxes remains. The implementation of an exit tax, coupled with a review of capital gain rules upon entry, could help strike a balance between preserving individual freedom and ensuring fairness within the tax system. However, any changes must be approached with caution to prevent unintended consequences and maintain the UK’s attractiveness for entrepreneurs.

New research by Stripe Property Group has revealed that offshore tax haven firms own £40 billion worth of property in the UK. These overseas companies are not subject to domestic tax laws. The study highlights the number and value of properties owned by companies registered in offshore tax havens between August 2022 and August 2023.

The Scale of Offshore Ownership

According to the data, there are approximately 80,460 homes across England and Wales registered to companies located in offshore tax havens. The British Virgin Islands hold the largest share of the housing stock alone, with a value of £13.23 billion. However, in terms of volume, Jersey leads the way with 21,602 properties registered through offshore companies. Other significant tax havens owning property in the UK include Guernsey (£5.5 billion), the Isle of Man (£4.49 billion), Luxembourg (£1.07 billion), Singapore (£908 million), and Hong Kong (£851 million).

Trends in Offshore Ownership

The research also highlights trends in offshore ownership. The Cayman Islands tops the list of tax havens where companies are actively purchasing UK property, with a 4.8% increase in the number of properties between August 2022 and August 2023. Ireland follows closely behind with a 4.4% increase, and France with a 4.2% increase. On the other hand, Bermuda experienced a decline in overseas ownership by 19.5%, while Luxembourg and Malta saw decreases of 10.5% and 9.7%, respectively.

Conclusion

The research conducted by Stripe Property Group reveals the significant amount of UK property owned by offshore tax haven companies.

The world’s wealthiest individuals are increasingly choosing the United States as a destination to hide their riches. While traditional offshore tax havens like Bermuda and Switzerland may come to mind, the US has become the biggest enabler of financial secrecy in the world.

This is according to the Tax Justice Network‘s Financial Secrecy Index, which ranks countries based on their “complicity” in helping the super-rich conceal their finances. The US topped the rankings in the most recent index, surpassing notorious tax havens such as Switzerland and the Cayman Islands. Experts attribute this to the pro-anonymity loopholes that American states have introduced to attract foreign capital and grow their wealth management industries.

South Dakota

One specific state that has experienced a significant influx of wealth in recent years is South Dakota. Despite its small population size, the state has seen a massive increase in domestic and international capital flowing into its trusts. These trusts have become a favorite tool for cartel heads, oligarchs, and other individuals seeking to hide their wealth. Currently, South Dakota holds $600 billion in trust assets, a 21% year-on-year increase. If this growth continues, experts estimate that trust assets in the state could reach $1 trillion by 2030.

The rapid expansion of South Dakota’s trust industry can be attributed to favorable tax laws and deregulation. With no state income tax and the ability to hold trusts secretly, South Dakota has become an attractive destination for the super-rich. Furthermore, assets placed in trusts in the state can remain virtually untaxed indefinitely due to the abolition of the Rule Against Perpetuities in 1983. This change allowed for the creation of “dynasty trusts” that preserve wealth for generations. Over the years, the US wealth defense industry has successfully influenced South Dakota legislators to pass laws that make trusts highly appealing to the super-rich.

The deregulation trend quickly spread to other states following South Dakota’s lead. More than half of US states have weakened or repealed the Rule Against Perpetuities, allowing for the widespread use of dynasty trusts throughout the country. States like Alaska, Nevada, and Delaware have also enacted laws that promote anonymous shell companies, providing individuals with a means to anonymize their wealth and control their funds.

While trusts and shell companies are not the only vehicles used by the super-rich to evade taxes, they have contributed to the growing shadow financial system in the US. The International Consortium of Investigative Journalists (ICIJ) shed light on the use of trusts in the US to avoid tax through the release of the Pandora Papers in 2021. The investigation identified over 200 US-based trusts with total assets exceeding $1 billion. South Dakota alone had 81 of these trusts, more than any other state. Among the trust assets, nearly 30 were connected to individuals or companies accused of fraud, bribery, or human rights abuses.

Despite these revelations and the negative consequences of the growing trust industry, federal trust reform and improved transparency have been slow to materialize. The US has not adopted the Common Reporting Standards (CRS) like many other countries, which provide for automatic exchange of financial account information among participating nations. Instead, the US relies on its own system, the Foreign Account Tax Compliance Act (FATCA), which allows it to identify offshore assets held by US citizens. However, it does not provide the same level of transparency to other countries regarding international wealth stockpiled within its borders. While there are plans to introduce a new corporate formation database to identify individuals controlling shell companies in the US, further action is needed to address the US’s role as a center for offshore financial activities.

Conclusion

As traditional offshore tax havens face increasing scrutiny and transparency measures, the US has emerged as a favored destination for the super-rich seeking to hide their wealth. States like South Dakota have implemented pro-anonymity loopholes and favorable tax laws to attract foreign capital and grow their wealth management industries. However, this has come at a significant cost to the rest of the country and the world. Experts argue that federal trust reform and increased transparency are needed to curb the flow of hidden money into the US and prevent the shifting of tax burdens onto the general population. While some measures are being taken to address the issue, more needs to be done to ensure a fair and transparent financial system for all.

The UK government has taken action following the release of the Pandora Papers, a collection of leaked financial documents that exposed offshore accounts and assets. HM Revenue and Customs (HMRC) is contacting UK residents named in the files to offer them an opportunity to correct their tax affairs.

The Pandora Papers

The Pandora Papers consist of over 11 million records from 14 offshore service providers, revealing the extent of untaxed offshore assets held by individuals worldwide. In the UK, HMRC is determined to address this issue and ensure that individuals pay the taxes they owe.

This month, HMRC began writing letters to UK residents mentioned in the Pandora Papers. These individuals are being warned to report all their overseas income or gains that are subject to UK tax or face penalties of up to 200% of the tax owed, along with potential prosecution.

Kirsty Telford, Deputy Director for Offshore at HMRC’s Risk and Intelligence Service, emphasized the global nature of tax evasion and highlighted that HMRC has the ability to access international data and intelligence through collaboration. Telford emphasized the importance for those named in the Pandora Papers to take this opportunity to correct their tax records. Failing to do so could result in significant and long-lasting reputational and financial damage.

The release of the Pandora Papers follows the previous leak of the Panama Papers in 2016, and it surpasses it in terms of the volume of financial documents. HMRC promptly reviewed the Pandora Papers to identify UK residents with undisclosed offshore assets.

To address the situation, HMRC is offering disclosure facilities for recipients of the letters. These facilities are designed to help individuals come forward and correct their tax records. It is crucial for those contacted by HMRC to use the correct disclosure facility, and if they are unsure which one to utilize, seeking professional tax advice is recommended.

Summary

The release of the Pandora Papers has prompted HMRC to take action and offer UK residents named in the leaks an opportunity to correct their tax affairs. HMRC’s letters send a clear message: individuals must report their overseas income or gains that are subject to UK tax to avoid penalties and potential prosecution. The international nature of modern tax evasion means that HMRC has access to global data and intelligence, enabling them to take action against tax avoidance. By coming forward and rectifying their tax records, individuals can avoid damaging consequences. It is essential for those contacted to choose the appropriate disclosure facility or seek professional advice to navigate this process effectively.