Investment Offshore Guide

oThis guide could be of interest to anyone, whether or not resident in the UK, although it will most likely be of more use to those who are resident or domiciled abroad.

Planning Your Finances

There are a hundred-and-one ways to save for university fees – especially as an expat offshore investor!

Initial considerations should be made depending on the length of time until your child is of age to attend university, the amount of capital hoping to be raised and the level of risk you are willing to subject your savings to. There are tax free and tax friendly options available to you. If you might need the funds in the short term you could consider a re-mortgage to release equity from your home for the education of your student child. If you do not plan ahead, this may be your only option.

To help you identify the best financial options available to you, you will need personally focused advice, and consider that making your money work harder for you is the focus that any decent financial adviser should consider.

Generally, the savings and investment plans that most expatriate parents choose are not restricted to education planning. This allows parents and their student children to use the money for other purposes if required – e.g., a wedding, a house purchase or a grandchild. Remember that life is what gets in the way of our plans and circumstances change over time.

Offshore Investment Guide

Estate Planning

SOLUTIONS TO EFFECTIVE ESTATE PLANNING ARE AVAILABLE. UNLESS YOU SEEK THEM OUT THE INLAND REVENUE, AND NOT YOUR FAMILY, WILL BE THE MAJOR BENEFICIARY FROM YOUR DEATH.

 You may think that as an expatriate you have slipped through the net of several countries – where your work, where you are domiciled, and where you are resident, and your estate will be free of inheritance taxation liabilities. Unless you have taken certain steps already this may very well NOT be the case.

The solutions to your estate planning problems are out there but unless you are informed and prepared, the Inland Revenue may very well benefit substantially from your death.

From school fee planning to retirement planning – when it comes to planning for our future and that of our families we have no problem considering the options and possible solutions. Considering our own mortality however, is not something we like to spend much time doing! Yet the fact of the matter is - it is unavoidable. And just as death is not something we can escape from, death duty in some form or other is just as inevitable. That said - there is specific action that can be taken to protect your assets from excessive tax.

This chapter will help you to understand what your estate tax liabilities may be, and how best you can take action to avoid your family losing out to tax.

WHAT IS INHERITANCE TAX?

Inheritance Tax or IHT is what the UK Government calls death duties. The US Government prefer to refer to death duties as Estate Tax and in France for example, death duties are called Estate and Gift Tax.

Whatever the name for this form of taxation one thing is universally true – the further taxation at death, of assets on which and for which you have paid your tax liability throughout life, is quite simply unfair.

AUTOMATIC EXPATRIATE AVOIDANCE.

If you believe that simply by moving away from your country of birth you can avoid inheritance tax, you may very well be in for a sad surprise.

Depending on your circumstances at the present time it may well be possible to reduce your income and capital gains taxes – but it is far harder to escape taxation of your estate at death.

If you are British but no longer a UK resident and you hold property in the UK and abroad, at death the Inland Revenue will be entitled to claim Inheritance Tax on your worldwide assets. The rate of tax to which you are liable will be 0% on the first £285,000 of your estate – the nil rate band, (2006/7.) Any total estate over that sum is liable to tax at a rate of 40%.

N.B. The first £285,000 is not exempt – it is simply taxed at 0%, meaning the Inland Revenue can change that to be a positive percentage amount at any time.

Your UK inheritance tax liabilities are not based on your country of residence; they are not based on the amount of time you have been out of the country; they are based on your domicile. Currently the UK government is debating whether to significantly raise IHT percentages as it is an easy and effective way for them to raise massive sums of money. IHT is not going to be reduced and is certainly not going away.

DETERMINING YOUR DOMICILE. CHANGING DOMICILE.

Losing residency in your country of birth is fairly easy to do! Leave that country for long enough and you’ll lose your residency there. Losing or changing your domicile on the other hand is quite another matter. Your domicile will always revert to your country of birth unless you take specific and direct action to change it.

Going back to the UK expatriate example above: the expatriate Briton had given up his residency but had not given up his domicile, furthermore, as he still had assets in the UK, the UK Inland Revenue was able to claim IHT on his entire worldwide assets at the time of death. Maybe a good solution for him would have been to change domicile. However, changing domicile is not easy to do and it is not something that is generally actively encouraged!

FOR A BRITISH NATIONAL TO CHANGE DOMICILE….

At this stage the ex-British national living in their ‘domicile of choice’ can still be deemed to be UK domiciled for Inheritance Tax purposes!

You can be ‘deemed domiciled’ in the UK even if you have been away from the country for 17 out of the last 20 years: For example.

You can be ‘deemed domiciled’ in the UK for the 3 years after you cease to be officially UK domiciled!

WHAT COULD BE THE EFFECT FOR OTHER NATIONALS?

 US – For US citizens it’s worse! No matter where you live in the world, no matter how long you’ve lived there and no matter where your assets are in the world; at death your entire estate may be liable for US Estate Tax at 50%.

Canada – Canada doesn’t have a straight tax at death. Instead things are far more complicated! In Canada you have capital gains tax liable on the ‘deemed disposal’ of a person’s estate. There are probate fees…and rates applicable can change from state to state!

Europe – Taking France as an example where the rules are significantly more complex, note that the top rate is 40%, the same as in the UK.

Quite simply, whatever your nationality and wherever you now live, your estate may be liable for quite significant death taxes.

The rates of tax applicable and the rules determining who gets what are different in every country.

EXAMPLES OF THE HIGHEST RATE APPLICABLE IN VARIOUS COUNTRIES.

EXAMPLE OF UK TAX LIABILITY.

BASED ON UK INHERITANCE TAX;

• Anything left to spouse passes free of IHT as there is no liability between man and wife.
• The liability arises on the second death when the estate defers to a third party; family, friends etc…
• The tax has to be paid before probate can be issued. The Inland Revenue will issue a certificate to confirm payment of tax which has to be produced along with the probate package. CAN YOU AFFORD SUCH A SUM?

What’s YOUR LIABILITY?

To determine the potential death duty liability on your estate, a full and comprehensive financial review will need to be carried out. There are so many areas that need to be considered, and professional advice is essential to make sure that you cover every potential aspect of the situation. The fact that your loved ones will at least receive the remainder of your estate after death duties is simply not acceptable.

Do you WANT the INLAND RWEVENUE to benefit again from the hard work you put in through life?

Take positive action today to determine your liabilities.

What can you do to reduce the liability?

There are a number of options open to you in life that will allow you to reduce the death tax burden due on your estate. Determining what action should be taken and what’s right in your personal circumstance will require professional advice – financial and taxation advisers understand the rules and the liabilities and can work with you personally to protect your assets and to protect your estate.

Some of the options and considerations that may be open to you and of interest to you are:

Gifts – the giving of assets as ‘gifts’ during your lifetime can reduce liability at death. You have tobe able to do without the asset gifted for the rest of your life of course. And you have to have madethe gift a number of years before your death for it not to be counted as part of your estate.

Trusts - a trust is a legal entity which can be used effectively for financial planning and estate planning purposes – especially if it is established offshore. A trust can enable you to make long term plans for the preservation and distribution of your wealth during or after your lifetime. If you transfer your assets into trust, depending on the trust type you choose, you can make sure that the management of your assets will continue in accordance with your specific wishes.

Portfolio Bonds and Investment Funds – through which you can save to accumulate the money to cover death duty.

Wills – do not die intestate….if you do not make a will, or make a will and fail to revue it occasionally, your estate will not necessarily be handled according to your wishes. As an expatriate you need to make sure that you have a will in the country in which you reside and governed by the laws of that country, as well as a will covering any assets you have back home. Furthermore divorce or marriage can invalidate a will.

If you and your family relocate overseas, one of your first priorities from a financial planning point of view may very well be establishing health care. Costs and services abroad can differ greatly to what you are accustomed to ‘back home’. Therefore it is essential to make sure that you are fully covered. From straight health insurance for you and your family you may need to consider both critical illness insurance and income protection. Making sure that you have the important insurances in place will benefit you with greater peace of mind coupled with greater security as a family. Personal peace of mind will enable you to get on with enjoying your time abroad and allow you to concentrate on establishing long term financial freedom.

Health insurance

In terms of health insurance, it is essential to make sure that you and your family are covered in your new country of residence and also when travelling. Always make sure that you are comfortable with any restrictions or limitations of policies that are recommended to you, and any excess you may be liable for in the event of a claim.

Medical costs differ greatly around the world, as do the standards of treatment available. Find out what services are available in your country of residence, what your insurance covers you for, and always make sure that you have the option to repatriate in the event of an emergency. There are so very many companies offering health insurance in the market place today and all come with features, benefits, exclusions and exceptions. Speak to a suitable financial adviser to find out what your best options are depending on your personal needs and those of your family.

With something as precious and essential as your health are you prepared to accept second best?

Critical Illness insurance

Critical illness insurance can take away stress and financial strain if ever you are incapacitated by serious illness. Financial expenditure and outgoings will not cease if you are taken ill: your ability to provide for your family might, however, cease. Critical illness insurance is designed to pay out in the event that you are unable to work due to serious and ongoing illness.

Income protection insurance

Income protection insurance may also be available to you. This insurance is used to replace a percentage of your income if you are unable to work through injury or illness

Life Assurance

As an expatriate living in a ‘foreign’ country there are many uncertainties, upheavals, unknowns and concerns especially when it comes to fiscal matters. Life assurance is one of the most important products when it comes to peace of mind. You want to protect your loved ones in the event of your death – protect them financially and emotionally. For your family to maintain the same standard of living in the event of your death you have to make sure that you have the correct type and level of life assurance. The type of life assurance you need depends on what you want to achieve with your policy.

If you simply require insurance against your untimely death for the fixed number of years of your offspring’s childhood for example, this can be arranged via level term life assurance.

Decreasing term assurance can be used to pay off a mortgage or other loan in the event of your death during the outstanding period of the loan.

Whole of life assurance is exactly as it sounds – it covers your beneficiary in the event of your death whenever it occurs.

Annual renewable life assurance can be used by expatriates who wish to insure themselves one year at a time depending on their changing circumstances.

Life assurance policies are available for your whole family and are definitely something worth considering when it comes to financial peace of mind.

Yes, insurance and assurance are boring! But knowing that you have these covers in place and for suitable amounts brings protection which in turn brings peace of mind.

When it comes to financial and wealth management and making your money work harder for you and your family, the first step is to actually make sure your current position is secured.

We all know that we should have enough in the bank readily to hand to cover a rainy day or an emergency trip back home – but at the same time we need to look out for ourselves and our family today as well as securing our future tomorrow.

No one step in the financial planning lifecycle should be over looked! Depending on the stage of life you are at, certain solutions and concepts may be inappropriate to you - but the underlying fundamentals of each section should be considered. The underlying fundamental of this section is to encourage you to insure yourself as protection to ensure your future.

Based on your country of residence, country of domicile, intention to remain or repatriate, and the needs and requirements you have, a financial adviser will be best placed to advise you when it comes to all your insurances and assurances.

e Investment Guide

International Financial Planning  

As an expatriate you are often in a far better position financially than both your peers back home and the local people in your new country of residence - find out how to make the most of your advantage.  

Having covered the main points of the financial planning lifecycle from an 'offshore' perspective, this final section of the guide will cover the general areas of consideration specific to international investors and expatriates alike.

As an expatriate are you profiting financially from your time overseas?

Are you an expatriate who takes high paid short term contracts around the world?

Or are you maybe an expatriate who has accepted a position with your company in a more extreme environment overseas and as a result you’re benefiting financially for your ‘hardship’? Maybe the country in which you’re now living and working has a far lower cost of living than you’re used to back home. Maybe you’re lucky enough to have lower taxation? Are you benefiting from extra financial incentives offered in a bid to get you to accept a riskier position or to take a contract that others may find unattractive?

If you are such an expatriate, profiting financially from your time overseas, you are in a far more privileged position that your peers back home, and possibly in a far more privileged position than you realise in terms of maximising wealth and securing your financial future.

Just think about it for a minute…

By taking advantage of the extra disposable income you have, and intensively investing over the short, medium or long term; by taking advantage of the many offshore tax friendly possibilities and by using your time overseas wisely you can save in 3 – 5 years what an average investor might take his entire working life to accumulate.

Are you in a position to invest more as a result of higher income, lower taxation or lower cost of living? If so, find out how you can make your money work harder and how you can build a wealthier future.

Often the countries where expatriates go to work offer a far lower cost of living from rental costs to the weekly food bill – and yet the expatriate could be receiving over and above what he earned back home. If you’ve worked before in London or New York for example, you’ll find a move to India or Australia shocks you when you can see how well people live on far smaller amounts of money. Rental costs in major cities alone are enough to eat up a salary, and when you move to a country with lower living costs you will find that your salary will take you a lot further. Even if you are not relocated and effectively compensated by an employer for a move overseas and you choose to source a contract for yourself, you may well be working in an environment that is unattractive for many foreign workers as a result of the climate, the security, the environment, the location or whatever – and you will be well paid for your services.

All these facts mean that your income should exceed your expenditure.

Further advantages

As an expatriate, you are legally entitled to take advantage of any tax savings offered in your country of residence. E.G.

Switzerland is a country which offers an incredibly high standard of living, political and economic stability, amazing scenery and all this for an average of 21% tax! Of course a country like Switzerland has very high living costs which might negate any taxation savings!

Dubai – another location which offers an incredibly high standard of living, economic stability and striking scenery (lots of sand!) – and a country where there are no corporate taxes and no personal taxes, because direct taxation is against the traditions of the UAE.

Wherever you choose or are required to go – check out the taxation benefits of going there and consider also the remittance basis when it comes to taxation and whether it is applicable to your circumstances....

The remittance basis

Income or gains may only be taxable if they are remitted to (or brought in to) the country in which you are now living…it may therefore be possible to remit only the basic minimum for living costs and save on income and capital gains in your new country of residence.

Taking advantage

Investing your excess money is simply putting it to good use. Rather than living up to your means by adopting an extravagant lifestyle you may well choose to live well but sensibly and invest the rest. Investing today for your future and that of your family will afford you peace of mind.

The sooner you invest, the longer you can invest for.

The longer you invest for, the greater the returns you can potentially achieve.

By establishing wealth you establish security.

As an expatriate there are many offshore jurisdictions with tax friendly policies that offer interesting investment opportunities to you. When choosing the right jurisdiction as the harbour for your money considerations need to be made based on a number of factors including:

Your personal circumstances will dictate what solutions are available to you.

International advice.

To find out what investment opportunities are available to you and in which jurisdictions you will benefit most from investing your money, you should speak to an international independent financial adviser. Local advisers in your country of residence may have knowledge of the domestic tax situation only and may not understand the intricacies of putting your expatriate offshore status to its full advantage. Furthermore, if you relocate again or repatriate, your local adviser will no longer be in a position to assist you. If you have invested through the local adviser how will you benefit from financial reviews etc., when you no longer reside in the same country? Contacting an adviser back home will bring similar issues. He will not understand how best you can utilise the extra income you’re receiving from a taxation point of view in your country of residence and he will not know how you can benefit from your status as an expatriate in your specific country of residence. Contacting an adviser back home may also prove tricky when considering communication links and time zones.

A Financial Review

Whether you are an experienced international or expatriate investor or thinking about getting your financial affairs in order for the first time, a full financial review or an investment overview can be time well spent.

OFFSHORE TAX HAVENS.

 Isle of Man

The Isle of Man has a stable and independent legal, economic and political climate. All life assurance companies based there are closely regulated. The island is a designated territory of the UK under the Financial Services & Markets Act 2000. This means investors are protected through laws accepted by the UK authorities as being at least as effective as their own. Compared to Luxembourg for example, the Isle of Man is the only one with a statutory compensation scheme for offshore life assurance companies. Investors worldwide who invest in policies issued by Isle of Man authorised life assurance companies benefit directly from this level of protection afforded them. If a company is unable to meet its financial liabilities, this worldwide investor protection scheme will compensate investors affected by up to 90% of the value of their policies and there is no upper amount to the monetary limit.

Financial institutions on the island are prohibited from disclosing client or transaction details to anyone, unless obliged by law to do so (under a drug enforcement or terrorism order for example).

Non-residence is the key to obtaining offshore tax treatment on the island

In the Isle of Man there is no general capital gains tax or capital transfer tax and apart from VAT at 17.5%, the only significant tax is Income Tax which is 18% maximum and does not apply to offshore funds.

Finding the right investment solutions based on your requirements and situation and from the point of view of security for your money, tax efficiency of your investment and ease of administration of the policy is something your financial adviser will be able to help you with. As you are unique, so are your needs, requirements, current situation, future desires and overall objectives – you need personal and specific advice from a qualified and experienced adviser. Make sure you get it.

To give you one example of the flexible products on offer in the marketplace which can offer tax efficiency, cost effectiveness, asset protection and personal confidentiality together with insurance coverage and income options, let’s discuss portfolio bonds.

Whether this product is available to you or right for you, only your adviser can tell you. This is simply one example of what can be achieved with your extra income and for the benefits of personal wealth building.

The Portfolio Bond

This is a simple holding structure for a wide range of investment vehicles – stocks and shares, bonds, funds, cash etc.

Key Points of a Portfolio Bond

You would benefit from having access to the full range of investment vehicles available, and from having your assets handled by professional asset managers. In certain jurisdictions portfolio bonds are 100% free of local taxes and can be structured for individual requirements in terms of their taxation status. There can be massive benefits from structuring your portfolio through an offshore bond type vehicle. As the benefits change depending on individual personal circumstances this is an area that you really must discuss with a good internationally focused financial adviser.

EU TAX/ SAVINGS DIRECTIVE 2005

The EU Savings Directive commenced on the 1st of July 2005 after being delayed for 6 months, and the EU will require a complete exchange of financial information between all EU member states – including the Isle of Man, Jersey and Guernsey.

If you are an EU resident and have any money in a bank account or on deposit in any one of the EU countries your information can be disclosed to the tax authority in your country of residence.

Every EU resident and EU domiciled individual will potentially be affected as t he Directive requires financial institutions and banks in any EU country who pay any form of savings interest to individuals who are tax resident in another EU country, to pass on all the information to the domestic tax authority or to levy a withholding tax. The purpose of the Directive is to enable a taxpayer's local tax authority to find out whether the tax payer gets savings income which may not have been declared.

Jersey, Guernsey, the Isle of Man and the Cayman Islands are all included in this Directive.

Jersey, Guernsey and the Isle of Man have chosen to introduce a withholding tax similar to that taken in Belgium, Luxembourg and Austria. This will afford the individual a choice when it comes to either declaration of his assets or a taxation payment from the savings interest that he receives. Investments affected include bank accounts, interest bearing investments, money market instruments etc.

Assets held by a life company are not currently affected – this means that if you have an offshore life assurance policy for example, this will continue to operate as a tax efficient wrapper for you and to protect you from the effects of the EU Savings Directive 2005.

AND - Portfolio Bonds Don’t Count Either!

If you already have money invested offshore in an EU tax friendly jurisdiction and are concerned that you may lose your confidentiality and suffer as a result, speak to an internationally focused financial adviser immediately. There are steps you can take to protect your assets, your wealth, your investment returns and your personal privacy.