Switzerland has always been considered the go-to country for any matter relating to wealthy people’s finances.
But recently, a growing number of jurisdictions have introduced favourable regimes for expats to move, do business in, or even retire to, such as Dubai, Singapore, Hong Kong and the Channel Islands.
As the financial world becomes more competitive in terms of services offered, with a race to lower costs for clients as much as possible, a similar trend can be seen in low-tax jurisdictions.
Mark Routen, head of tax at Hoxton Capital Management, said: “For British expats, Spain has long been one of the most popular choices along with other countries in Europe. One of the main attractions with Spain and the rest of Europe was its proximity to the UK, together with similar although not identical cultures, even if they were not particularly tax advantageous, like Dubai.”
Because of Brexit, moving to an EU country has become more difficult, but that doesn’t mean expats have a limited pool of options to choose from, although further away from home.
Routen continued: “A great option for British expats is St Kitts and Nevis, which not only does it offer an idyllic climate and environment and tax benefits, but it is also a member of the Commonwealth. Whilst St Kitts and Nevis’ VAT rates vary up to 17%, they have no income tax. They also have a nominal charge towards healthcare and social costs.
“Additionally, a big advantage to it being a Commonwealth nation, is that not only do they share a common language and legal code, but they also provide strong cultural ties that are great for expats to settle in.”
‘Tax isn’t the be all and end all’
Liz Palmer, partner and head of private wealth at Howard Kennedy, said that the law firm has also seen a increase in the number of Brits looking to move to Spain and Portugal over the past couple of years, some prompted by the travel restrictions put in place due to covid.
“The real question is whether these are shorter term trends dramatically entrenched by the pandemic, or if these traditional destinations have had their time in the sun for good,” she added. “Jersey is certainly seeing a significant uptick in the number of high net worths (HNWs) looking to move there; despite its tight controls of acceptance, we’re seeing them receive more than their normal share.
“Longer term, if you’re looking purely on financial efficiency, the traditional hubs around the Caymans and the Bahamas remain strong. But tax isn’t the be all and end all of the decision-making process, we’re often engaged by clients with tax as their initial concern, but complications around employment law often becomes the bulk of the work.”
Things differ, however, for Chinese and Indian HNWs, Palmer said, as their destination of choice is Singapore.
“This is partly because of commercial and trust structuring advantages that enable Chinese investors to raise funds through Singaporean entities for inward investment into the tech industry in India. This is less attributable to the pandemic and more about the constantly shifting international investment opportunities and constraints.”
Europe
But Jason Porter, business development director at Blevins Franks, believes that European countries have still much to offer, despite the UK’s recent detachment from the block.
He said that, in the jurisdictions Blevins Franks operates in – such as France, Portugal, Spain, Malta and Cyprus – there are regimes favourable to the taxation of expats’ income whether that is from a pension, bank interests, dividends, rental income and so on.
“The most important of these is pension income and/or lump sums, followed by the taxation of withdrawals from investment holding structures – for example from offshore single premium life assurance policies – and the taxation of dividends arising on directly held portfolios,” Porter said. “In addition, these locations need to be attractive in their own right; this will be a person’s home for an average of 15 years, so it needs to be somewhere you do not just put up with because it has an attractive tax regime.
“Bearing all of that in mind, each of the jurisdictions we have offices in have something to attract the UK retiree.”
Case studies
Porter provides several instances of how some EU countries could still offer an advantageous tax environment to UK expats.
“As an example, France would not normally be deemed a tax haven, with a top rate of income tax of 45% and social charges of up to 17.2% on top.
“But, with only 7.5% income tax on a pension lump sum for ex-UK pensioners – a “real” rate of 5.625%, if you take the 25% tax free lump sum before you leave the UK – along with the attractive tax regime applying to an offshore Assurance Vie (a form of single premium life assurance policy), which also has a beneficial wealth tax and succession tax position, you have an environment that is very attractive to UK retirees.
“Also, much has been made of Portugal’s Non-Habitual Resident (NHR) regime, which provides a preferential tax regime for the first 10 years of residence. The main benefits here are a tax on pensions of only 10% and dividends potentially tax free – both for 10 years.
“They also have a tax regime around Portuguese compliant, single premium life assurance policies, where the tax rate effectively reduces after it has been held for 5 years, so only 60% of the normal tax would be payable, and only 20% after 8 years – something which has real value after the 10 years of NHR have passed.
“In addition, Portugal does not have a succession tax like most jurisdictions, with no liability on bequests to a spouse, child or parent and a 10% stamp duty on the value to anybody else. Another would be Cyprus, where UK nationals only suffer 5% tax on pension income, potentially zero tax on pension lump sums and no tax on interest and dividends for the first 17 years.”
Post-Brexit, it has become more difficult to obtain residency in EU member states, but Porter said that, in most cases, “an application for a visa at the relevant consulate in the UK should see you able to make the long term move to an EU member state within 90 days if not a shorter timeframe”.
“There are the kinds of permits, often termed ‘Golden Visas’, which can be particularly attractive to those seeking the kind of flexibility freedom of movement used to afford, but these have a cost to them, either in terms of the application, property purchase or rental costs, financial commitment/investment or all three, so may be out of the reach of many.”
