ProACT Sam gives advice to Expat familes on how to protect your assets and looks into the impact of automatic exchange of information rules (in force since 2016) on tax residency.
‘Automatic exchange of information’ between tax offices across borders prevents illegal criminal money laundering. The introduction of this system also enforced tax laws. This restricts those Expats who may have pursued a ‘nomad’ lifestyle without a tax residence.
If an Expat isn’t tax resident in a country overseas, they remain tax resident in their country of citizenship or domicile.
Everyone, including every Expat, needs a tax registration number for their country of residency.
Tax identification number (TIN)
The tax identification number (TIN) has become the global enforcement tool in money laundering.
Every financial institution must verify its customers using photo identification e.g. passport, home address verification (utility bill for example), and a tax identification number.
Any bank, estate agent, Investment Company and currency exchange service must verify individuals and companies, including by their tax number.
This information is reported to the tax office in the country of that service provider, which in turn shares the financial information with the tax office in the country of the individual’s tax residence.
Cross-Border Tax Residence Complications For Expat Families
Expats have tax complications in that they potentially have two countries taxing their income and property. One country could charge a higher rate on business, property, probate, inheritance, or capital gains. This will depend on the rules for each of the countries involved.
As 2020 has shown us, when the unexpected happens (like a global lockdown!) there are potential negative outcomes for businesses, jobs, rental incomes and tax residency. Putting this into the context of 2020’s example, the pandemic has created issues with inheritance, care needs, death, probate, divorce and bankruptcy for many individuals and their families.
How Can Expat Families Protect Their Assets Across Border And Down Generations?
Tax residency protects Expat families.
Tax residency is key to protecting assets within an Expat family.
As an individual, any asset gains and income you receive are taxed in your country of tax residency, unless it’s a fixed asset (e.g. company shares or property) or overseas earned income.
All Expats should review the tax liability of the assets they own. While income is taxed as it arises, capital is taxed when a trigger event takes place which changes the ownership of an asset.
Double Taxation Treaties
Double taxation treaties between any two countries stop tax from being paid twice.
The country of the Expat’s tax residence and the country in which the asset is registered both have a claim to tax.
The double taxation treaty ensures Expats only pays tax once (noting that you will still pay the highest rate tax you are liable for).
Protect Family Assets And Save Up To 45% Tax
UK Expats with assets or income in the UK are potentially liable to 40% Inheritance Tax, 28% Capital Gains Tax on residential property ownership, 18% Capital Gains Tax, or up to 45% higher rate tax in service company income.
Expats Living and Working Abroad or those with overseas property could protect their family assets from capital gains taxes and higher rate income taxes by using a Family Trust or a company to hold assets and receive income.
Using a Family Trust or a company allows a separate tax identification number to be issued for each entity. This gives the Expat control of the assets they hold in a tax residence which is not their individual tax residence.
Subject to the individual’s circumstances, the benefit is that tax paid by the Family Trust is lower than the tax which would be paid in the tax residence of the individual. Saving up to 45% tax!
If you are an Expat and think that we may be able to help you save up to 45% tax by using a Family Trust, please contact us for a free review.
There are more benefits to a Family Trust: The trust doesn’t die. So there are never any probate costs, no delays and no inheritance tax to pay.
Property is controlled by the family and because it doesn’t ‘pass’ between individuals generation to generation, it avoids capital gains tax on disposal.
The family gains peace of mind and security knowing its assets are protected from the cost and delay of probate, divorce, bankruptcy or care needs.
The Expat family’s assets are protected across border and down generations.
ProACT Free Review
ProACT offers a free online consultation to Expats Living and Working Abroad, to review their tax residency, asset holdings and business set up. We guide Expat families and businesses across border and down generations.