Expat Focus Financial Update January 2019

British expat pensions after Brexit

Fears that the expat pensions for British expats in the European Union will be frozen have been dispelled by the UK government.

Previously, the government said it would maintain its ‘triple lock’ for pensions if this was reciprocated by the EU but this led to widespread worry in the expat community. Now, the government says that the UK state pension will be uprated for those who are living in the EU in 2019/20.The triple lock means that expats who have retired to the European Union will see their pension increasing in line with the highest of the average earnings, 2.5% or the inflation rate. The move will cost taxpayers around £400 million every year.

British expats fail to take financial advice

Just 27% of British expats who apply to move overseas take financial advice before doing so despite complicated tax rules, a survey has revealed.

Old Mutual International questioned more than 2,000 expats about their financial affairs and found that 30% who were planning to move abroad do not believe they need a financial adviser at all. This is despite financial advice being necessary to deal with the expat’s tax residency issues and also the UK’s inheritance tax laws.

A spokesman for the firm said that when someone moves overseas their tax residency will depend on where they are living, though being domiciled tends to be focused on where their habitual or permanent home is.

One big reason why expats do not consult with a financial adviser is the cost, according to 50% of respondents.

Old Mutual says that while moving home can be a stressful experience, starting a life in a new country can be an uncertain process and a financial adviser will be able to help expats understand the challenges ahead.

American expats could see the end of double taxation

A new bill could see American expats enjoying the end of double taxation while living overseas. The move could bring an end to the country’s citizenship-based taxation system and could tax just those who are living in the US.

The congressman behind the move says the current system is ‘archaic’ and delivers a costly burden on Americans living abroad. The move follows sustained campaigning from several expat representative groups calling for an end to the system to avoiding double taxation. To qualify, a US expat would need to be registered as a non-resident citizen and meet certain foreign residency criteria.

US expat hit by maximum fine

Meanwhile, one US expat has been hit with the maximum $700,000 (£539,000) fine for not disclosing a Swiss bank account on her financial accounts form.

Alice Kimble says that she was unaware until 2008 that she had to report these accounts on her tax return and on the Foreign Bank Account Report forms. In 2009 when the offshore voluntary disclosure programme was unveiled by the IRS, she filed her amended tax returns and reported income from these offshore accounts, but an oversight meant that she mistakenly ticked one box on the schedule asking whether she had offshore accounts as ‘No’.

Tax experts say this is not an unusual mistake to make but the IRS said this was ‘wilful non-compliance’ and imposed a non-filing FBAR penalty of $697,000.
Kimble then appealed in the Court of Federal Claims but they upheld the decision and ordered her to pay the civil penalty.

Expats in UAE use but 'don't trust' IFAs

More than half of expats who live in the UAE say they use independent financial advisers (IFAs) but, worryingly, two in three of those expats said they do not trust them.

The survey was conducted by the CFA Institute, a global association of investment professionals, to find out how trustworthy financial advisers working in the UAE’s expat community are. Around 3,000 expats took part in the study with just 33% saying their adviser was trustworthy and 33% saying their adviser was reliable.

Now financial advisers in the UAE are being told to take note of the trend and appreciate the UAE’s new financial regulations that have been brought in with the aim of protecting inexperienced expat investors.

One financial firm based in Dubai told a news outlet that their aim was to ‘regain the trust of their clients’ and this should be the number one priority for the country’s financial sector. The UAE’s government has already announced that it is reforming the way in which investment and savings products are sold and they are planning to cap the amount of commission’s being paid. The CFA says one of the big issues is a lack of qualified independent financial advisers working with expats in the UAE.

More HNWIs invest offshore

Growing numbers of high net worth individuals (HNWIs) are looking to invest offshore to gain tax efficiencies and enjoy the benefits from global diversification, one survey reveals.

The findings from GlobalData highlight that the proportion of HNWIs who have invested offshore has risen to 16.9% in December 2018, from 11.2% in 2014.

Their findings highlight that 24% of European investors are offshoring the largest proportion of their wealth in a bid to achieve tax efficiencies. Also, 41% of North Americans invest the largest proportion to diversify their investment.

Around 17% of HNWIs’ wealth is currently invested outside the investors’ countries of residence.

A spokesman for the firm said:

"Demand for tax advice is increasing and it's no longer possible to have illicit structures for wealth and investors are now undertaking due diligence in a bid to avoid financial and reputational damage."

The survey also reveals that 48% of HNWI global wealth is held in equities, while 80% is in bonds and 16% in property.

Guernsey changes pensions and tax law

In a bid to improve international best practice, Guernsey has unveiled two amendments to its laws covering pensions and tax. Among the changes is a new tax exemption for international savings plans.

These plans are often referred to as end of service gratuity schemes. Beneficiaries are non-resident to Guernsey and all of the income is sourced from outside of the island. This means the Channel Island will now build on its market-leading position in the regulated pensions sector.

The move will prove popular with large institutions who can set up savings plans for their international workforce.

The Guernsey Association of Pension Providers’ president, Stephen Ainsworth, said:

"This enables us to provide international savings plans on both a statuary and regulated tax-exempt basis and shows we are at the forefront of international best practice."

Guernsey has also clarified the definition of corporate tax residency.

British expats exit BTL market

An index from real estate firm Hamptons International has revealed that landlords based overseas are leaving the British private rental sector. The estate agent says that the proportion of properties owned by an overseas investor to let is now at its lowest level for nearly 10 years. The number of properties being let by international landlords fell in the first half of 2010 from 14.4% of all properties to 5.8% in 2018.

Expat destinations offering quality of life revealed

For expats who want an excellent quality of life for their money a new ranking from Numbeo, a site that provides details of the cost of living in countries and cities around the world, may help.

The site has looked at issues such as property prices and the cost of health care which help make cities a popular choice with expats. The tables are continuously updated and cities in Africa, Asia and South America failed to make the top 50.

Instead, around half of the top 20 places are in the US and Canada, with the number one spot taken by the Australian capital of Canberra. In second place is Eindhoven in the Netherlands with Raleigh in the US in third place. The top 10 also sees Adelaide, Zurich, Madison in the US, Brisbane, Wellington and also Columbus and Charlotte in the US making the grade.

In other news…

A move by the Cayman Islands to introduce laws delivering transparency on economic activity has led tax officials from the OECD to visit to ensure that the new regulations comply with international commitments.

US pensions consultancy Buck has launched a British arm to offer consulting, administration and technology services. The firm has established offices across the UK and has more than 100 years of expertise in delivering pensions and employee benefits in America.

A move by the Netherlands to put several offshore jurisdictions onto a blacklist has been criticised. One of those affected, the Bahamas, says the move is ‘premature’. While the Cayman Islands says it is justified, the Isle of Man says it’s a ‘surprise’. The move also sees Jersey and Guernsey being included with the Dutch Ministry of Finance says the move is aimed at preventing firms from moving assets and avoiding tax to a low tax jurisdiction.

There has been an 18% drop in expat remittances from Saudi Arabia as the kingdom’s Saudisation project begins to take its toll. According to the banking authority, SAR9.9bn (£2bn/$2.6bn) was transferred in November by expats, that compares to SAR12bn being transferred in November 2017. The number of expats employed in Saudi Arabia now stands at 13 million, down from 13.3 million a year ago.

The Maldives has pushed back on the implementation of a new law that compels employees to pay expat salaries into bank accounts. Failing to do so will lead to substantial fines but the January 1 deadline has now been extended to July 1, 2019.
An investigation by one news outlet could see the end of expensive unofficial Esta sites dominating Google search results. Since 2010, British visitors to the US have been charged $14 or £10.70 for each Esta application by the US Department for Homeland Security. However, unofficial sites dominate search results and some can charge more than $80 for the same application. Google says it has now altered its algorithm to no longer show Esta ads.

So many expats are heading to Amsterdam that houses there are reaching record prices and local residents are being forced to leave the city to rent or buy elsewhere. In the fourth quarter of 2018, prices rose by 8% with the median transaction price rising to €448,000 (£393,000/$510,000), a new record. Prices have now risen for 22 consecutive quarters.

South African expats will now be required to pay a tax of up to 45% when living and working overseas from 1 March 2020. For those who are overseas and who fall into the 25% tax bracket – but would probably fall into the South African 45% tax bracket will need to pay the 20% difference to their home country. The move will mostly affect those expats who are earning more than R1 million (£56,185/$72,960).

A survey has highlighted that some of the best investments are not found in property, stocks or gold, but in works of art. The study found that half of the world’s major collectors are American, with the rest coming from all around the world, including Britain, Italy and Russia. One reason why investment in art delivers sound returns is scarcity and distinguished artists and previous owners also push up prices.

Demand for the UK’s financial services has dropped the first time in five years with the blame being put down to regulatory changes and Brexit uncertainty, says a survey from the Confederation of British Industry (CBI). The report highlights that demand has been flat for the third quarter in a row and the financial sector will be among the hardest hit should the UK leave the European Union without a deal. The survey highlights that of 84 firms questioned, most of them are expecting demand to continue falling and for profitability to be affected for the first time in three years.