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Expat Financial Planning PDF Print E-mail
Thursday, 04 December 2008 16:31

Expat Financial Planning

Alex Kavanagh explores tax minefields that expatriates should be aware of when planning life assurance and pensions

Working abroad at some point is now considered par for the course for those who work for a multinational company. But if you combine the complexities of expatriate tax planning with the difficulties of UK pensions, it is quite easy to see where the difficulties lie when it comes to retirement planning.

The term expatriate covers a multitude of sins, particularly when it comes to pension planning. Not all of those working abroad are considered expatriates - if they are on secondment for short periods and are not paid in local currency, for example. Here the situation is straightforward, as such individuals will be able to continue tax and national insurance contributions as if they were in the UK.

Expat Financial Planning & Inland REvenue's

The arbiter is the Inland Revenue’s booklet IR20, which states that a UK taxpayer should be present in the UK for less than 183 days, and fewer than 91 days on average, in any tax year in order to qualify for non-UK tax status.

Tax treatment of pension saving plans varies across the world. UK tax-exempt personal pensions and US-style 401k plans are mostly not in evidence, so residents abroad will have to say goodbye to such familiar tax-beneficial products as personal pensions, ISAs and venture capital trusts.

Expat Financial Planning & The European Union

In the European Union alone there are 15 different tax regimes, some closer to that of the UK than others. Expatriates working in a European country and who are domiciled in that country for tax purposes will be confronted with a retirement tax situation quite different from that in the UK. If employed, individuals will have to pay tax on any contributions to a retirement fund, while the income is often free of tax, in contrast to the UK.

In Britain, along with the Netherlands, Switzerland and the US, contributions to pension funds are freed from tax as a retirement saving incentive, while income from the fund is taxed. The rest of Europe is moving towards that model, but it is taking its time. Until it adopts the model, conventional pension-saving products are, as such, rendered unnecessary.

Expat Financial Planning & Robert Ollenshaw

Robert Ollenshaw, Paris regional manager at the Luxembourg-based financial adviser European Business Network, emphasises that most expatriates discount their company plan and foreign social security payments when it comes to calculating retirement income. The sums are simply not meaningful for those working abroad for periods less than about five, or even ten, years. “Most people regard it as dead money,” Ollenshaw says.

For tax-planning purposes, most wealthy individuals need to take advantage of as many tax concessions as possible without expecting too much in the way of state tax concessions or employer contributions.

Expat Financial Planning & Non Tax-Advantaged Situations

For those in a non tax-advantaged situation, Ollenshaw points to the advantages of a Hansard Financial Trust regular or single premium Assured Security Plan, a life assurance contract that is compliant with the system both in the UK and other countries, like France. Contributions can be made in sterling or dollars.

 

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