Tensions Between France and Italy Over Flat Tax Scheme
Tensions have risen this month between France and Italy over the latter nation’s ‘flat tax’ scheme, also known as the Ronaldo Law after the footballer, which offers expat millionaires a fixed €200,000 annual tax on their overseas income. The scheme has, from the Italian point of view, been successful: around 4,000 high-net-worth expats, mainly from France but also from the UK, have relocated to Milan, Florence, and Rome since 2017, thus boosting the demand for luxury properties.
France, however, has termed this “fiscal dumping.” In an interview with French Prime Minister François Bayrou, he told the press that the scheme is contributing to the ‘nomadism’ of French households, resulting in a sharp retort from Giorgia Meloni, his Italian counterpart, who referred to his remarks as ‘completely unfounded.’
Perhaps unsurprisingly, taxation experts are divided on whether the Ronaldo Law is tax dumping or not: French experts say that it is, while Italian tax lawyers protest that it is simply legitimate competition, as well as being transparent.
Dubai Runs ‘First-Time Buyers’ Scheme’
The UAE has introduced a range of perks for first-time expat buyers, with the aim of attracting more property investors to the region. The Dubai First-Time Home Buyer Programme was introduced over the summer by the Dubai Land Department and the Department of Economy and Tourism, and will give first-time buyers priority access to some developments. It also offers flexible payments and cheaper mortgages as an added inducement.
However, property experts have raised cautions over the scheme, warning that although property in Dubai has risen steeply recently, forcing some first-time buyers out of the market, it is likely to drop in price over the next few years. Nicholas Mendes, of broker John Charcol, told the press that:
“I would urge caution among first-time buyers who are viewing this as a quick or speculative investment opportunity, particularly if they have no long-term plan to remain in the region. The local market is heavily skewed towards off-plan sales which tend to carry a different risk profile compared to completed properties in more regulated markets.”
If prices do drop as predicted, Mendes says that first-time investors might find themselves owning a property which is worth less than they originally paid for it.
British expats, however, could benefit from relatively strong sterling. Prem Raja, of Currencies 4 You, says that if you are a UK expat looking at Dubai as a lifestyle or investment destination, the “combination of a softer AED, flexible payment plans and early access to new launches creates a very compelling window of opportunity.”
UAE Residents Invest in Property in London
Despite changes to the UK’s non-dom tax privileges, wealthy UAE residents and British expats residing in the UAE remain active in the London property market. Following reforms and a depreciated pound, their purchases in prime central London have risen sharply, accounting for 3% of overseas buyers—up from 0.6% the year before.
British Expats Hit by French Taxes
The Daily Telegraph reported recently that, despite double taxation legislation which is supposed to prevent this, British expats in France have been hit by large tax bills on their public sector pensions (for instance, those who have been teachers or police officers) under the category of social charges. A former police officer told the local English-language press that:
“The tax office said we have to pay because we do not have an S1. I said we don’t need it because they are government pensions, under the Double Taxation Convention’s Article 19. They think we’re not paying for health cover anywhere.”
Expats have challenged the bills but been overruled. The commentator above was told that his pension counted as a ‘pre-retirement benefit’ and thus fell outside the remit of double taxation legislation. Some expats have suggested that this is being applied to all UK pensioners in France, not just former public sector workers, so if you fall into this demographic, it might be as well to check.
SIPP Withdrawals Feature in Court Case
In late August the Financial Times reported on the case of a Mr Trevor Masters, who had amassed a large pension, from his work with Tesco, of around £6 million. Masters moved to Portugal in 2019 under the Non-Habitual Resident (NHR) scheme and transferred his pension to a SIPP. He withdrew more than £3.5 million from the SIPP in that year and was subject to UK tax of around £1.5 million. HMRC claimed that by transferring the funds to a SIPP, the pension had lost enough of its connection to the original employment that it was subject to UK tax.
Rachel de Souza, tax partner at RSM UK, told the press:
“If that was the case, it could have far-reaching consequences for many expats who had moved overseas and similarly undertaken a transfer of their old workplace pension, as many of the UK’s double tax treaties with other countries have similar wording.”
However, the subsequent tribunal argued that since no funds had been paid into the SIPP after Masters left Tesco, the causal connection with his employment had not been broken and was therefore only subject to tax in Portugal.
Irish Expats Move Pensions Abroad
An increasing number of Irish retiree expats who have relocated to countries such as Portugal are moving their pensions into pan-European structures known as IORPs. Capped benefits and rigid rules in Ireland are driving this move. The Irish Standard Fund Threshold caps tax-efficient pension savings at €2 million, with anything above subject to a 40% levy. If you want to take out a lump sum, it is 25% tax-free up to €200,000, with a subsequent 20% up to €500,000, and 40% on anything over that, plus the Universal Social Charge. Drawdowns are forced annually from the age of 61, and if placed in an Approved Retirement Fund (ARF), funds cannot then be moved.
Malta has been becoming a hub for such transfers as it has a strong IORP II framework and robust regulatory oversight as well as an extensive double taxation network with other countries. If you take out an IORP in Malta, up to 30% of your pension pot can be withdrawn tax-free in Malta and there is no upper limit. In addition, you can access it from the age of 50, make optional drawdowns without forced annual withdrawals, and there is no lifetime cap. You will need, however, to investigate the subsequent tax situation in your country of residence – for example, whether any withdrawal falls under capital gains tax rules. You can check your eligibility here.