There is a popular misconception regarding British expats. It is believed that their legal accountability to United Kingdom tax ends when they exit the country to become tax residents somewhere else. However, this is hardly the case. The estate of these British expats generally stays assessable to the UK inheritance tax.
As per the tax authority in the UK (HMRC), individuals can be categorized in two different ways:
• By residency
• By domicile
The birth of a person determines his/her domicile and residency usually change depending on where the individual spends majority of his/her time.
David Reed from Oscar Winson explains that it is quite simple for an individual to become a tax resident elsewhere (in another nation) and hence turn into a UK non-resident. On the other hand, it is very hard for an individual to let go of a UK domicile.
Inheritance tax is essentially the tax paid on a property in the event that the property owner dies. Based on specific criteria, this tax might also be due on trusts or gifts which are made in the person’s lifetime. Inheritance tax is usually paid by executors with the help of the deceased person’s estate funds.
Oscar Winson advises expats on financial management and says that those living outside the United Kingdom are also liable to pay inheritance tax if they are considered to have the status of a UK domicile. UK domiciles owning estates with value more than £325,000, will have to pay inheritance tax, 36% or 40% on the amount which is over the pre-determined threshold.
Avoiding inheritance tax
David Reed suggests that some careful planning could make it possible to mitigate a certain amount of UK inheritance tax. There are basically two methods using which expats can legally mitigate inheritance tax and guarantee the passage of a maximum amount of their estate to their heirs.
The first is to shift from your domicile country, move outside the United Kingdom. The second method is to safeguard your property by shifting it into tax effective financial structures.
A change in the domicile status is not just about proving that you currently live abroad. The person also needs to prove that he/she does not intend to return back the country of their origin. This can be done by
• Relinquishing the UK passport.
• Cutting off associations with all social organizations in the UK, while joining new groups in the present country.
• Buying property in the country where you reside and selling off all the UK property.
• Shutting all bank accounts in the UK.
Planning for retirement is something that a lot of expats find challenging primarily due to the fact that many of them operate pensions in two jurisdictions. Having pension schemes in multiple jurisdictions can be confusing. You are worried about whether you have the right amount of savings and whether your savings are actually benefiting you.
David Reed of Oscar Winson Financial Services states that this is one area where financial advisors might prove to be very useful. Financial advisors who have worked with expats can understand the situation you are in and provide the right solutions for you. They can offer specific advice that is perfect for your requirements.
Here are a few more reasons to help you understand why a financial advisor for pension planning may be a good choice.
They make things simpler
With several types of investment options and theories doing the rounds, understanding what would suit your requirements is hard to figure out. A financial advisor can help you find the right solution by eliminating all the unnecessary information. Too much information can end up confusing you. But, financial advisors are skilled in the area of finances. They can provide tailored solutions and help you implement the right financial strategy.
They can also help you understand the risks you are taking and how your financial security will be affected by those risks.
They can show you much more
A financial advisor can open up your eyes to all the options available; options you didn’t even know existed in first place. They can show you alternative solutions that will help you gain more returns from your pension planning and also, minimize the risks involved. They can help you work out ways to gain benefits and still help you stay in line with your financial strategy and risk tolerance.
They can help you keep track
The performance of your pension strategy is something you might not be able to track or measure. Financial advisors can help you with this by measuring your progress in the context of your financial goals. They can compare your plan with the right benchmarks and provide you with insights that you would normally miss out on.
Also, the entire task of pension planning can be handed over to them. At the end of the day, you will be free to pursue the other goals in your life.read more
Let’s begin by understanding what an ‘expat will’ is. David Reed of Oscar Winson claims that it is actually difficult to really define an expat will because every jurisdiction has its own laws which govern the calculation and distribution of an estate after death. So the ideal thing for expats would be to create a will in every jurisdiction with the help of a local legal representative who has a complete understanding about the laws of that particular country.
Why expats need to prepare a will
Oscar Winson lists down some important reasons why expats must prepare a will:
• At the basic level, an expat will help in communicating how your assets should be managed if and when you die.
• If you fail to prepare a will, it will mean that the management of your assets could fall under intestacy rules. And these rules might not do justice to how you would want your money, property and others things to be distributed.
• Different nations have different legal rules. It is important that you have a thorough understanding of these rules. Ensure that all the steps you take are legal and avoid all those steps which could possibly lead to a mistreatment of your property.
• With an expat will, your relatives will be saved from paying additional tax charges.
There are expats who are owners of assets in several countries. There is a high chance of them facing the inheritance and probate laws of the particular nation. In addition to this, the executor hired by you might have to get sanction from the local governing body. Also, a UK will might not get accepted in a particular jurisdiction.
Meaning of Intestate
When you do not have a legal will in the country where you reside, your entire property is legally accountable to that state’s law. Such laws are referred to as the intestacy rules. In the scenario that you die and have no will in place, you are considered as an intestate individual.
Dying intestate implies that all decisions related to your finances, property, taxes and dependents will be the state’s responsibility (the state that you reside in). In majority of the cases, the government of the UK will not be in power to alter any decision made.
Preparing an expat will involves the following steps:
• Identifying the individuals involved
• Identifying the estate
• Deciding what needs to happen if and when you die
• Division of your estate
After your death, you obviously would like to transfer your estate to your loved ones. However, transferring assets isn’t a simple task and then there is the issue of inheritance tax which your loved ones will be subject to. That is why estate planning is essential. Estate planning involves planning on how you will hand over your estate in a way that it does not reduce the value of your assets, while ensuring that they remain protected.
Estate planning must be done as early as possible. It’s something that should never be postponed or procrastinated upon. However, it can be done only when and if you gain a substantial amount of assets.
What does an estate plan consist of?
Estate plans vary according to your circumstances and situation. But they typically include the following:
• The creation of a will.
• Tax reduction strategies through the implementation of proper financial structures. This could include creating trust accounts for the beneficiaries.
• Establishing guardians for dependents.
• Establishing an executor for the estate.
• Naming or updating the beneficiaries list.
• Payment and organization of funeral arrangements.
• Creating a PoA (Power of Attorney) to oversee the management of other investments and assets.
Establishing trusts is a core aspect of estate planning. Forming a trust can offer a range of benefits such as asset growth, tax exemptions, and the general management of your assets. Minimizing taxes on inheritance can be time consuming. That’s why it is necessary to carry out estate planning as early as possible. If your estate is unplanned, your beneficiaries could end up paying exorbitant taxes.
For instance, in the United Kingdom, the government cut 40% of the inheritance as tax for assets above 325,000 pounds. However, if you were to gift your estate seven years prior to your death, your inheritance will be exempted of inheritance taxes.
Your expat status will not be factored by the HMRC (Her Majesty’s Revenue and Customs) when it comes to inheritance taxes. In fact, even if you are exempted from income taxes or capital gains taxes, you can still be subject to inheritance taxes. Inheritance taxes are determined according to domicile and if you have lived in the UK for at least 17 years, you will be liable to pay inheritance taxes. Also, inheritance taxes will apply if your assets are located in the UK, irrespective of your domicile status.
David Reed of Oscar Winson suggests quick estate planning for expats to avoid taxes, along with seeking guidance in estate matters. A reputed financial services provider like Oscar Winson has the expertise to guide expats on estate planning matters.read more
A surprising number of expats make the mistake of starting to think about retirement saving and estate planning well after they settle down in the foreign country of their choice. The reason behind this is quite evident – they believe that planning for this later stage of life can be done after their immediate concerns have all been addressed. Unfortunately, this is not really the case. The sooner you start planning for your retirement and invest attention in estate planning, the better control you have over how your assets are distributed after your lifetime. As a British expat, this assumes even more importance because the country that you have adopted may have very different laws regarding these issues.
In fact, a foreign country may have stringent rules on how expats can invest in properties, whether or not these can be transferred by will and many complexities may arise when the expat’s retirement savings or estate is being passed on to heirs. To ensure that your heirs’ right to your life savings is protected, you need to take extra care when carrying out inheritance and estate planning. The guidance and expertise of an experienced expat financial advisor like David Reed is invaluable in this situation.
Understanding your needs after retirement
At Oscar Winson, we have the exposure to understand how different countries have very different policies with respect to addressing the financial needs of the elderly population. Expats who are accustomed to their home country’s social security schemes, may assume that their adopted country will have similar policies and thus ignore proper retirement planning. The tax treatment meted out to expats and their retirement savings may be different in the foreign country which may not offer the same preferential treatment to these. Such differences can prove to be very costly for the individual, especially if they have not saved sufficiently enough to finance a comfortable retired life without relying on external help.
An objective assessment of your post-retirement needs is the first step to take here and this should be followed by an understanding of what you can expect in the country you are moving out to. This is another critical area where the expertise of David Reed, Oscar Winson’s Director, makes an immense difference to the expat’s financial independence post-retirement.
Addressing cross border complexities with estate planning tools
Even for those expats who have planned ahead and have drawn up a will or set up a trust, there may be challenges to overcome. The main issues come up because the effectiveness of many estate planning tools are eroded by cross border complexities. They simply do not ‘travel’ well across borders. The plan or tool will need to be customized keeping in mind the regulations and laws that prevail in the foreign country and this requires expertise and knowledge that most expats lack.
With immense exposure to estate planning for British expats moving to various locations across the globe, David Reed and the Oscar Winson team of finance professionals stand ready to help you address these critical concerns efficiently and effectively. We are committed to helping you plan ahead to pass on your life savings and hard earned assets to your family members and loved ones irrespective of which country you choose to spend your retirement years in.read more
It may be difficult to manage your finances as it is, even when you are not an expert. Certainly, it is much more difficult for expats to manage their finances then it is for people who live in their native countries. In order to make it easier for you to manage your finances if you are an expat, here are some tips that might help you.
Life Of An Expat
Living as an expert is definitely not an easy thing. There are so many things that you must think about, as it is, and you are probably feeling nostalgic frequently. All of this can cause incredible amounts of stress, and adding financial problems on the top of it, can really make you go crazy. Still, you probably wouldn’t want to get your life together in a foreign country. Here’s how you can achieve that.
1. Plan Your Retirement Plan
It is important to plan your future, even though you are not living in your native country. Thinking about retirement plan long before you actually need one is something everyone should do whether they are living in a foreign country, or in their native country. I retirement plan will make you feel secure, and you won’t have to worry too much about your future. Also, it will reassure you that even if your best productive years are behind you, you can still fall back to your retirement plan.
2. Resolve Inheritance Issues
Similarly, inheritance issues are something you sure that solve as soon as possible. Also, this is equally as true for those people who are living in their native countries as well as for the expats. Resolving the inheritance issues will make you less stressed about the future, and it will allow you to live your life to the fullest in the present. Some things are better to be done sooner than later, and resolving to inheritance issues is one of those things. Not only that if you’re unexpectedly gone that you will have resolved all the issues that you leave behind, but it will also reassure you that your family will be okay and that even after your death everything will be as you wanted it to be.
3. Estate Planning
Also, it’s for the best that you plan your estate in time. Estate planning requires a lot of effort, dedication as well as resilience. Especially when you’re in a foreign country living as an expat, it can be particularly difficult. Still, you will have to make sure that these issues are resolved as soon as possible, since it will make you and your family relaxed for anything that may come in the future.
4. Expats And Insurance
Perhaps the most important advice for an expat is to think about insurance. You must remember that all of us are mortal, and that numerous unexpected things might occur to you. It is for the best that you are prepared for anything that future might bring, and in order to do so, you will have to invest in insurance.