…unless you attended the recent Blevins Franks Seminars?
Blevins Franks Trustees recently held their annual Autumn Seminars throughout Southern Europe. They hold two financial seminars each year and this season the topics generated substantial interest from the expatriate community, with over 1,500 expatriates attending in total. Seminars were held throughout the Algarve, Costa del Sol, Costa Blanca, Mallorca, Tenerife, Cote D’Azur, Dordogne, South West France and Cyprus. The key speakers were David Franks and Bill Blevins, co-founders of the Blevins Franks group and co-authors of the popular Blevins Franks Guides to Living in Spain/Portugal/France/Cyprus and contributors to a number of leading financial publications, both in Continental Europe and in the UK.
The key subjects discussed were UK inheritance tax, the EU’s imminent Savings Tax Directive and how to legally protect one’s wealth from the taxman – subjects that clearly touched a nerve with attendees!
UK Inheritance Tax is very much a ‘hot topic’ at the moment, with an increasing number of people now liable for this unpopular tax and proposals afoot to introduce a new banding system which would increase the top rate of this particularly pernicious – but avoidable – tax to a top rate of 50 per cent. Most British expatriates remain liable for this tax because it is based on UK domicile. It has not been easy in the past to shake off UK domicile, but the seminar explained that this is now much simpler to achieve and if an individual’s domicile status can be changed, incredible tax planning opportunities exist.
Bill Blevins and David Franks explained how inheritance tax and domicile work and explored the reasons for the recent outcry in the UK press. Statistics published this summer show that two new families fall into the inheritance tax net every minute (according to Friends Provident) and the number of families affected by this tax rose by 60 per cent in less than a year (according to NOP World Survey data).
Inheritance tax is charged on the total value of one’s estate at death. This includes property, savings and investments, household effects, cars, jewellery and so on. It is also based on worldwide assets, so all property and possessions in your country of residence are also included (regardless of whether you own property in the UK).
Under the current system, inheritance tax is charged on the total value of one’s assets at a flat rate of 40 per cent over a £263,000 threshold. This is not a generous threshold once you add up all your assets, especially considering that property prices have risen over the last few years in both the UK and Europe. It is payable on inheritances as well as assets given away in the previous seven years and on certain lifetime gifts. There is an exemption for assets passed between husband and wife, but this merely defers the tax payable until your children inherit your estate.
The key speakers also explained how the proposals by the Institute for Public Policy Research to amend inheritance tax would work. Although they advocate a new lower starting rate of 22 per cent, this is only for estates worth between £263,000 and £288,000. The tax rate will remain 40 per cent for a second band of between £288,000 and £763,000. The third band of over £763,000 will suffer tax at a hefty 50 per cent.
With increasing investment markets likely over the next few years, as well as possible increases in European property prices, more and more people – including those living outside the UK – will fall within this 50 per cent tax band. Although this system is currently a proposal, the IPPR is very close to Downing Street, which has adopted its proposals in the past. Also, there is no doubt that the UK government needs the extra money this system would generate (the UK State pensions “time bomb” is just one example) so its implementation is a distinct possibility if the Labour Party retains power in the UK.
Inheritance tax is, however, often called a ‘voluntary’ tax because with appropriate and timely planning it can be legally avoided. During the seminar presentation, the speakers described the so-called ‘Golden Trust’, that allows you to remove assets from UK tax forever, provided that you are able to establish a non UK domicile.
With this Trust, you can still benefit from your assets during your (and your spouse’s) lifetime, and even if either of you returns to the UK in the future, the assets still remain outside of your estate for IHT purposes. This is for the lifetime of the trust, allowing your assets to ‘tumble down’ generations of beneficiaries, free of IHT. Action needs to be taken now, before the UK Chancellor makes his autumn budget statement.
EU Savings Tax Directive
The seminars also explained the regulations behind the EU’s Savings Tax Directive and how it will affect expatriates. Blevins Franks have discussed this important issue at previous seminars, but with the Directive now confirmed as starting next year, it is important that everyone puts their financial affairs in order now.
Switzerland was one of the stumbling blocks to the Directive, but they finally came to an agreement earlier this year, which cleared the way for the Directive to go ahead. It forms part of a series of bilateral agreements between the EU and Switzerland, which Swiss President, Joseph Deiss, recently said were the only way forward for the country to avoid isolation in Europe.
A recent survey carried out by the Swiss government also established that the number of Swiss citizens in favour of a reduction in banking secrecy is growing. Only 51 per cent are now in favour of secrecy (down from 57 per cent last year) and about one third want to weaken the banking secrecy laws.
The Savings Tax Directive, which comes into full force and effect next July, will see most EU Member States automatically exchanging information on the tax affairs and interest earnings of EU citizens. For a transitional period (forecast to be up to 2011), Austria, Belgium and Luxembourg, as well as Jersey, Guernsey and the Isle of Man and the UK Caribbean islands, will instead impose a withholding tax on income from savings interest. This starts at 15 per cent and will rise progressively to 35 per cent by 2011. Switzerland, Andorra, San Marino, Monaco and Liechtenstein will apply the same withholding tax on interest earned by EU residents.
Whereas no one wants to pay the full rates of interest tax on their savings, it is also extremely foolish nowadays to attempt to evade tax by any means, including non-declaration. The current climate of exchange of information means that the taxman is more than likely to find out. The answer is to use financial structures that will enable you to legally lower or eliminate your tax bill.
One proposed solution is the Private Client Portfolio bond, a specialised form of life assurance arrangement that acts as a ‘tax wrapper’. You are able to hold your specific choice of assets within this bond, allowing you to set up your tax and general financial planning in one exercise. The value of holding your portfolio and assets in an offshore Trust was also explained at the seminars.
Blevins Franks Trustees forms part of the Blevins Franks Group, which includes Blevins Franks International, an international Tax Advisory Service, an international pensions department and a mortgage company that deals with European mortgages.Blevins Franks are therefore able to advise on all aspects of your financial planning, allowing you to save costs and reduce the risk of fragmentation from having to use more than one firm.
• If you missed the seminar, but would like to discuss the topics, or if you would like information on any of our services, contact your local Blevins Franks Office for a confidential meeting: Tel:289 397 707, fax 289 391 324 or email: email@example.com