Recent changes to UK law and the expatriate

news: Recent changes to UK law and the expatriate

The five year rule

Several years ago, rules were introduced whereby an individual who became a non-resident of the UK could avoid UK capital gains tax as long as they remained a non-UK resident for five complete and consecutive UK tax years. They could return to the UK for visits; they just couldn’t become a UK tax resident again.

There was a loophole whereby, if you became a resident in certain countries with favourable double tax treaties, and where there was no capital gains tax in that other country (e.g. Portugal), then the individual need only be resident in that other country for one complete year, before returning to the UK and avoiding UK capital gains tax.

This loophole has now been closed, and whichever country you go to, you will have to be a non-resident of the UK for five consecutive UK tax years. It is still the position, however, that one does not actually have to become a tax resident in another country; you simply have to ensure that you are not a resident of the UK for a five year period.

European Health Insurance Card

From January 1, 2006, the form E111 will be completely abolished. Any old-style UK E111 forms issued before August 19, 2004 lapsed on December 31, 2004. The new European Health Insurance Card was introduced by several EU countries on June 1, 2004. This replaces those used by individuals to obtain medical treatment during a temporary stay in another EU country.

The European Health Insurance Card will be valid in all EU countries as well as Iceland, Liechtenstein and Norway. It will be used to obtain treatment by EU individuals and their dependants travelling in another EU country.

It is also intended that the new form replaces not only the E111 (for individuals staying abroad temporarily on holiday), but also the E128 (for individuals posted abroad by their employer or for individuals who study abroad). The E110 (for international road transport), and the E119 (for individuals looking for a job) will also cease to exist, being replaced by the new card.

Pension changes

There has been a raft of changes to the taxation of pensions in the UK, many of which are already taking effect, and some of which become effective on April 6, 2006. The main changes are that you are no longer obliged to buy an annuity within the pension fund, and the investments will be able to include residential properties (in the UK or outside). The contribution rules are being simplified, and far more encouraging for individuals to save in a pension fund.

Free movement of capital, services and corporations

One of the fundamental principles of the economic union is that there mustn’t be any obstacles for individuals to move from one country to another. This would appear to include the movement of a residence of a company to another country. At the moment, the UK would seek to apply taxation should the residence of a company move to another EU country, but it is now considered that such taxation would contravene the EU Treaty of Rome principles, and therefore be illegal.

Gay marriage and civil unions

The new UK Civil Partnerships Act 2004 became effective this month, when for the first time a legal gay marriage can be entered into in the UK. Where a gay marriage has been entered into legally in certain other countries, the position will be legally recognised in the UK as well.

A couple will have to register their intent 15 days before they wish to become civil partners. Anyone under the age of 16, or who is already married or in a civil partnership may not enter into a civil partnership. Those under the age of 18 will need parental consent.

Legally, laws governing financial arrangements (including all taxes), work place benefits, Wills, administration of estates and family provisions that currently apply to spouses, will apply to civil partners. Therefore, civil partners will be treated as married couples for all income-related benefits, UK state retirement benefits, immigration recognition, the right to be treated as next-of-kin, to register one partner’s death and recognition for inheritance and intestacy rules, among other aspects. They will also be able to gain parental responsibility for each other’s children, and adoption provisions will also be amended allowing civil partners to adopt children in the same way as married couples.

Those individuals who live abroad in other countries, but have entered into a civil partnership in the UK, may find that the agreement is recognised in your new country.

With rights come responsibilities, and any breakdown in the relationship will be dealt with as divorces are at present in the UK, including fair division of assets. Dissolution will have to be done by a court, and the petitioner showing that there has been an irretrievable breakdown in the relationship. It also means an end to each party being entitled to principal private residence relief on separate properties if they enter into a civil partnership, and civil partners will become “connected persons” for tax purposes.

Pension rights will accrue to a civil partner under public service schemes and also contracted-out schemes. However, other schemes may choose whether or not to recognise civil partners, and therefore the partners should take advice regarding individual schemes.The changes that apply to UK pension rules from April 2006 will apply to civil partners as to spouses.

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