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Expat Focus Financial Update April 2019

Expats are not saving enough for retirement

A survey has revealed that most expats working in the United Arab Emirates have ‘no realistic plans’ when it comes to securing a comfortable retirement lifestyle. The survey was carried out by Friends Provident International, who found that less than half of expats save regularly for their retirement, despite the fact many of them expect to stop working at the age of 55.The survey also shows that one in three respondents say they will be retired before they are 55 with 53% saying they will leave work before 60. Researchers say around 48% of expats are currently saving enough for their retirement. And 81% of expats say they expect to retire to their home country with the remainder saying they will retire to a different destination.

The most popular retirement destinations for those expats who say they are not returning home are Australia, Canada and New Zealand.

The survey also highlights that 32% of respondents say they will not be entitled to a state pension when they return home, 16% were not sure if they will qualify and 52% said they will not be entitled to a pension when they come to retire. The firm’s managing director, Chris Divito, said it was a concern that 75% of expats say they will be retired before they are 65 but less than half of them are saving regularly for this purpose.

"Other than saving regularly, just one third are saving up to 10% of their monthly income and worryingly, 58% of those questioned said they only intend saving for up to 10 years before retirement."

Super-rich cut IHT bill

An analysis of HMRC data has revealed that the UK’s super-rich pays around half of their inheritance tax (IHT) bill when compared to smaller estates. The findings from Canada Life highlights that estates that are worth more than £10 million paid, on average, 10% of IHT to the Exchequer during 2015 and 2016. The average tax bill for an estate worth between £2 million and £3 million was 20% on average.

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Canada Life’s market development manager, Neil Jones, said that the ‘richest of the rich’ often didn’t pay anywhere near the official rate due to various mitigating solutions. He explained:

"The difference in net tax rates being paid by an estate is not all down to the estate value or the types of assets being held. It's often about the willingness to plan."

Currently, UK law states that the estate should pay tax on assets above £325,000 of 40% or above £450,000 if the family home is given to grandchildren or children.
Canada Life says that HMRC rules on IHT need to be simplified to ‘even the playing field’.

Tax evasion crackdown launched by HMRC

Organisations that have links, or are based, in the UK are being urged by HM Revenue and Customs to assess their procedures to ensure there are no loopholes that enable tax evasion. The reminder comes as HMRC has announced that it is focusing more attention on ‘unacceptable’ tax evasion and avoidance. HMRC also says it is looking to champion international tax transparency and will be addressing offshore tax non-compliance.

The announcement follows an investigation by accountants Price Bailey that has highlighted a surge in disputes between taxpayers and HMRC reaching a tribunal.

A spokesman told one accountancy news outlet that growing numbers of taxpayers are pushing back against HMRC demands when they feel they are being treated unfairly.

HMRC shares offshore bank details

Meanwhile, the financial records of more than 3 million UK taxpayers who hold offshore bank accounts have been shared by HMRC with 100 countries. The information has been handed over in the last two years as part of a campaign to compare the figures that taxpayers are reporting on tax returns to find potential tax avoidance cases.

The information handover comes under international data swapping agreements with the move shedding unprecedented light on the arrangements of UK residents and their offshore holdings.

The world's most expensive cities

For expats heading overseas, knowing which are the world’s most expensive cities for living in has been revealed. And, for the first time, there’s a three-way tie for the top spot.

According to the Economist Intelligence Unit’s biannual cost of living index, Paris, Hong Kong and Singapore are the costliest cities. Not far behind is Zürich followed by Geneva and Osaka in Japan. The ranking’s bottom city is Caracas in Venezuelan after months of political turmoil, followed by Damascus in Syria, Pakistan’s Karachi, Buenos Aires and New Delhi.

Researchers looked at 133 cities around the world and took into account the prices of more than 150 everyday services and items to place London in joint second place, a rise of eight places on the previous survey, alongside Milan and Melbourne.

Meanwhile, another survey has revealed that London is the most expensive city in Europe for expats to rent a home. The UK’s capital is also the world’s fourth most expensive city in the survey published by ECA International. Their researchers say that the cost of renting a three-bedroom property in the centre of London is £5,187 ($6,771) per month.

The survey looked at 279 cities to reveal the most cost-effective places to work and live with Hong Kong topping their list.

Caymans promise money laundering prevention

Authorities in the Cayman Islands have revealed they have updated their money laundering regulations in a bid to meet the Caribbean Financial Action Task Force’s anti-money laundering requirements.

The government says it is committed to ensuring a sound global financial sector and over the next year, they say ‘other issues’ will also be addressed by the jurisdiction which may affect those living and investing there.

Meanwhile, moves by Bermuda to amend its legislation to comply with European Union standards on money laundering could see it being removed from a blacklist of global tax havens. The European Commission has placed Bermuda on its list for non-cooperation to open a dialogue with them.

Brexit fears see funds being moved

Brexit fears have seen UK fund investors moving £62 billion of investments from the UK to EU-based funds since the referendum in 2016. The fund flow index, published by Calastone, highlights that Dublin is the winner in receiving funds and has received £42 billion, with most of the remainder going to Luxembourg.

In the 18 months before the referendum, UK investors placed £2.5 billion into offshore funds but in the last six months, this has risen to £9.5 billion, with another £7.5 billion being domiciled in the UK.

The research highlights that investment is across all assets types and the main driver for the switch is the choice of jurisdiction outside the UK. A spokesman for the firm said:

"High net worth individuals and institutions are responsible mainly for this trend with smaller retail savers more focused on UK-domiciled funds which suggests that more sophisticated investors have greater concerns about Brexit consequences."

Panama Papers lead to tax take boost

The controversial leaking of the Panama Papers in 2016 about offshore dealings by rich people and organisations has led to tax authorities from 22 countries retrieving more than $1.2 billion (£919mn) in owed taxes. The UK has managed to recoup $253 million, France has netted $136 million and Australia has seen a tax take of $93 million, the International Consortium of Investigative Journalists reports.

Also, Germany has raked-in $183 million from its tax probes after the documents were published by a German newspaper.

Kuwait can impose expat remittance tax

A panel created by the National Assembly in Kuwait has reaffirmed that a proposal to tax expat remittances is not unconstitutional. The move to impose a 5% tax on all money transfers being made by expats to their home country now looks set to be introduced.

Constitutional experts say that the tax will not breach the country’s constitution – they said there was nothing in the Constitution that obliged ‘the achievement of equality’ between expats and citizens when it comes to imposing taxes.

In other news….

A survey from Bloomberg has highlighted where the most expensive destinations for expats to buy breakfast are. Their findings highlight that a standard breakfast – costing less than 1% of an expat’s daily income – is available in just four cities. They are Geneva, Dubai, Luxembourg and Bern. The most expensive are Accra and Lagos.

Expats looking to invest in a home where they are working will find that Hong Kong is a world’s most expensive city for buying property, research from CBRE reveals. The real estate firm has published its annual global living report looking at 35 cities and Hong Kong takes top spot for the fifth year running with Singapore in second place and Shanghai in third. The most expensive city in North America is Vancouver while Los Angeles and New York also make the top 10. London is the world’s eighth most expensive city but the priciest in Europe. The cheapest cities for expats to buy in are Istanbul, Ho Chi Minh City and Bangkok.

High net worth individuals looking for support in managing their art collections may be interested in a new consultancy service being offered by Hottinger Group. The service will include the management of a collection, including valuation and authentication assistance as well as estate planning to ensure a smooth transfer of the art collection from one generation to another.

The high net worth and ultra-high net worth market in the US is expanding at a record pace, which is largely down to the creation of new wealth and strong market performance, research from Cerulli Associates reveals. However, not every financial advisory firm will be able to meet demand and will need to invest in resources and capabilities to meet the high end of the adviser market effectively.

The tax burden on lower to middle-income households could be alleviated with higher tax rates for the wealthy, says the OECD in a report. The organisation says that the middle-class is shrinking in most countries and governments must do more to promote and protect middle-class living standards.

Ultra-high net worth individuals around the world could benefit from a new offering from Deutsche Bank Wealth Management to enjoy institutional quality services, including investing, tailored lending and corporate finance. The bank has launched Institutional Wealth Partners to harness resources and deliver the service to clients around the world.

A move by the South African government to tax expats working overseas will, employer organisations say, lead to employers there having to increase benefit and salary packages to encourage employees to work abroad. The current tax exemption for expats will end from March next year when they will then be liable to South African tax of up to 45% of any foreign employment income over R1 million (£54,917/$71,327).

The UK government has announced that it is encouraging its Crown Dependencies to voluntarily introduce public registers. The move will encourage financial transparency and recognise the islands’ right to self-governing status. Of those to confirm they are developing public registers for company beneficial ownership that will become part of an international standard are the Isle of Man, Guernsey and Jersey.

HMRC is apparently targeting accountants and professional services firms as they seek confidential information on their clients who are suspected of tax evasion. In the year to 31 March 2018, HMRC made more than 1,400 requests to these firms and advisers, says law firm RPC. The production orders compel a third party to provide potentially incriminating information about a client’s tax affairs to the HMRC’s Criminal Investigation Directorate.

Filipino expats are growing increasingly opposed to moves by the Philippines’ government that would make it mandatory for expats to contribute to the state-run pension fund every month. A new law was introduced in February for expats to make a compulsory contribution to the fund of between 960 pesos and 2400 pesos (£14.24/$18.58). These contributions look set to increase over the next few years by 12% and the government says that the ‘Overseas Employment Certificate’ which enables access to a pension will not be issued to any expat who returns home after working overseas if their monthly premiums have not been paid.