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Tax havens not too far from the UK |
Most people like the thought of living in a sun drenched carribean tax
haven such as the Bahamas, unfortunately, as a matter of practicality
it's not really on the cards for many prospective UK emigrants.
This is due to a number of reasons which could include:
- length time from the UK
- distance from family and friends
- lack of employment facilities
- possibly underdeveloped infastructure
- quality of living
Its also worth bearing in mind that for many, any absence from the UK
will not be permanent. They may be going overseas just to avoid UK
capital gains tax, or perhaps to extract a dividend from a UK company
free of income tax. Moving too far from the UK may then not be
preferable.
For this reason, identifying any tax havens close to the UK can be useful.
We'll look at some of the prime opportunities for emigrating beginning
with the closest tax haven to the UK, which is undoubtably the Isle of
Man.
Isle of Man
The Isle of Man is one of the worlds most famous tax havens and
is located just off the west coast of England, approximately
70miles from Liverpool.
In comparison to other tax havens it sits in the 'low tax' haven
category as opposed to being completely tax free, (such as many of the
Carribean havens) apart from certain companies .
So what benefits do you get from moving there?
In terms of personal tax it offers significant personal
allowances to single individuals or married couples. A married
couple can thus exempt approximately £20,000 of income
automatically.
The first £10,000 of income would then be taxed as 10%, with income above this taxed at 18%.
Companies are subject to a 10% tax charge but if they can qualify
for exempt or international company status can earn income tax
free. Exempt companies can include companies that earn income
from overseas and are managed and controlled from the Isle of
Man.
In the Isle of Man there is:
- No capital gains tax ('CGT')
- No wealth taxation
- No inheritance tax
In comparison with many of the other tax havens, Manx tax exiles
tend to be quite understated. You won't find a harbour full of
expensive yachts or Ferraris parked on every streetcorner.
Instead its a pretty gritty island and tends to be favoured by UK
residents looking to avoid the onerous tax burdens.
On the positive side the IOM offers a good qualify of life
provided you don't mind the cold. It has good education and
health services and has a very low crime rate.
Admittedly most potential emigrants would probably look further
afield and for some its difficult to see the attraction of a cold
island off the coast of England, when there are much warmer
climates that offer equally good,and some much better tax
environments.
One point thats worth bearing in mind is that the property prices are
pretty reasonable when compared with other European tax havens,
particularly for UK emigrants looking to retain UK links.
Overall, a good choice for personal migration of UK residents,
particularly for professional and trading businesses. In
addition, it's growing in popularity for relocating e-commerce
busineses due to its sound communications.
Channel Islands
The Channel Islands are located between England and France, and
they are a British Crown dependency. They don't have any double tax
treaties except for limited agreements with the UK.
The main taxes are income tax at a standard rate of 20%,
dwellings profit tax, and social security contributions.
There is no general capital gains tax, inheritance tax or VAT.
If you're classed as a resident in the Channel Islands you'll pay income tax at 20% on your world-wide income.
There are provisions for an individual to be 'resident but not
solely or principally resident' (effectively by not having a
dwelling ). If you can get into this classification you will pay
income tax only on local source income.
Companies pay income tax on their world-wide income whereas
foreign companies controlled by individuals resident but not
principally resident in the Channel Islands pay income tax only on
local source income (excluding bank interest).
The standard rate of income tax payable by companies is the 20%.
However, the rate applicable to international companies varies
between nil and 30% according to the agreement they have
negotiated with the Administrator.
The Channel Islands also have advantages as a trust jurisdiction.
The main benefit is that when the eneficiaries of a trust are
non-resident, full exemption from local taxis given to foreign
income, even if income is distributed.
In terms of climate it's generally warmer than the UK, although
property prices can be expensive. It however very scenic and has
excellent transport links to Europe.
Andorra
Less well known as a tax haven than the Channel Islands, but certainly
a good bet if you can get a residence permit. It's a pretty
cosmopolitan area, and if you're a wealthy, self made person
who's looking to escape government red tape and massive taxes,
Andorra could certainly be at the top of your list.
It's not too far from Barcelona for travel and seems to avoid
much EU regulation and harmonization by hiding away in the
mountains.
In Andorra there is no income tax, capital gains tax, gift,
inheritance or capital transfer taxes. Employees pay
national insurance contributions, and there are some limited
municipal taxes on property.
Sounds good doesn't it? Well from a tax perspective it's
excellent particularly for Europeans not looking to move too far.
In addition as a home for your money, Andorra is hard to beat.
The banks there are solid, and there are no capital or exchange
controls. They also offer numbered accounts (accounts which have
no name and just a number). These anonymous accounts are said to
be known about only to you, your banker and God!
They do however have some strict anti-money laundering
legislation which stops criminal activity, although this excludes
tax avoidance which is not a crime in Andorra.
Andorra has one key problem on a practical level.
The main problem with Andorra is actually obtaining
residence. There are some strict restrictions on who can become a
resident.
Andorra doesn't have any double tax treaties and as such would
not be a first choice for a holding company as there would be no
opportunity to avoid withholding taxes.
Cyprus
Cyprus is one of Europes key tax havens, with good weather and its not too far from the UK.
Cyprus is a favoured jurisdiction particularly for CGT avoidance,
and is becoming increasingly popular as a home for establishing
offshore structures.
I've found that for many tax aware UK retirees and property investors, Cyprus is the number one retirement destination.
One of the key benefits is that Cyprus has double-tax
treaties with 27 other countries, including most major
Western 'high-tax' countries, and most Central and Eastern
European states. This is unusual for a tax haven and means that
Cyprus is a very good choice for holding and investment
companies.
Residence is defined as being in Cyprus for more than 183 days in
a calendar year (which is also the tax year). You're then
resident for the whole year. Resident individuals are subject to
tax on their world-wide income; non-residents are taxed only on
certain types of income arising in Cyprus.
The income tax rates for an individual are 20% - 30%.
In respect of company taxation, Cyprus imposes corporation tax on
'companies' which carry on business or has an office or place of
business (permanent establishment) in Cyprus.
Cyprus now has a 10% corporate tax rate, which applies to both
onshore and offshore companies, plus a 2% levy on wage bills
(meant to subsidise pensioners).However shareholders are not
liable to any additional tax on dividends over and above the
amount of corporate tax paid by the company.
As from 2003, Cyprus applies a residence-based corporate taxation
regime. A company is resident in Cyprus if its management and
control is exercised in Cyprus.
However, profits from activities of a permanent establishment
situated outside Cyprus are completely exempt from Cyprus
tax (except for certain overseas investment activities).
Dividends, and royalties arising from the use of an asset outside
Cyprus and interest payments to non-residents are now exempt from
withholding tax. Other types of payment to non-residents are
subject to withholding tax at 10%, although if the payment is in
respect of a right outside Cyprus, there is no withholding
tax.
It also offers an attractive CGT regime. CGT is levied at the
rate of 20% on gains arising from the disposal of land and
property situated in Cyprus or the disposal of shares in a
company (excluding shares of listed companies) which owns land or
property situated in Cyprus.
Therefore if you become a Cypriot resident and still own UK investment
property you can dispose of the property totally free of any Cypriot
CGT.
Gibraltar
Gibraltar is one of the traditional European tax havens. It's
self governing but is a dependent territory of the United
Kingdom, and entered the EU along with the UK.
In Gibraltar there is
no capital gains tax,
no wealth tax,
no sales tax or VAT.
As an individual you could in theory pay quite high taxes on your
income in Gibraltar. However, there are some special regimes that
can significantly reduce any taxes. You would therefore be
looking to take advantage of High Net Worth Individual ('HNWI') status
or gain exemption as an expatriate executive to benefit from
Gibraltar as a tax haven. They've also recently introduced tax
exemptions for some savings income.
On the downside decent property can be difficult to come by, particularly if you're after a villa. They can also be pricey.
Malta
A bit like Gibraltar in that in theory you could be liable to pretty
high income taxes (up to 35%). However, that's before you look at the
possibility of their own version of the HNWI scheme, known as the
permanent residency permit.
This allows you to be taxed at a flat rate of 15% AND only on income
that you actually remit to Malta. So if you're overseas earnings (eg
rental, trading or investment) are huge, provided you remit only the
minimum needed to cover living expenses your tax bill could be
practically non existant (especially when compared with the possible UK
income tax charge).
Once in possession of the permit;· You will be required to take
up residence by not later than one year from the issue-date of
your permit.
You'll also need to purchase or rent a property in Malta, although
given the pretty cheap property prices over there this shouldn't be too
much of a burden. The other bonus is because it used to be part of the
UK it's still got a British feel to it. Not only do they drive on the
'right' side of the road, you'll also find that practially everyone
speaks English.
So, there you have it, some of the key tax havens you could consider
without travelling too far from the UK. In terms of which is the best -
well that is the $64,000 question and will crucially depend on what
your requirements and priorities are. If you're looking for total tax
exemption Andorra may be preferred, by contrast if you want an English
lifestyle Malta could be your top choice, although overall though
Cyprus is still hard to beat. It has nice beaches, low taxes and no CGT
on overseas assets. Added to that the good network of double tax
treaties and the strong expat community makes it the always around the
top of my list.
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