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Expat Investor : November 2007
expatinvestor.com 14 EXPAT INVESTOR November 2007 Fast Facts 99010 Fast Facts 99410 Authorised and regulated by the Financial Services Authority. © AXA PPP healthcare 2007 Lines are open from 8am to 8pm Monday to Friday and 9am to 1pm Saturday (UK time). Calls may be recorded. For great British healthcare -- worldwide -- join us now and we'll give you up to two months' cover free Call +44(0)1892 550814 quoting reference EI5555 or visit www.axappphealthcare.co.uk/media When you're living, working, travelling or retired away from home you deserve quality healthcare insurance from a well grounded company that really knows their way around the world of healthcare cover! AXA PPP healthcare has an International Health Plan to suit most needs. Join us and you can rely on quick, easy access to private medical treatment; a choice of hospitals; emergency evacuation or repatriation; plus an English-speaking health information line that's on call for you around-the-clock. All claims will be assessed against the terms and conditions of the chosen product and any individual exclusions placed on your policy at joining. Wherever you put your feet up AXA PPP healthcare is right there with you QUOTE, UNQUOTE RESIDENCE Residence is the cornerstone of tax planning for expatriates. Maintaining non-resident status ensures that UK income tax is not paid on any income received whilst overseas. Current HMRC guidelines state that non- resident status will apply if expatriates keep their visits to the UK at less than 183 days in any one tax year and less than an average of 91 days per tax year over a four year rolling period. Normally, dates of arrival and dates of departure are not counted. Other conditions to the guidelines apply, but the heart of this rule has always provided expatriates with a clear view of what was needed to maintain non-resident status -- even if a property has been retained in the UK. A review of Residence and Domicile rules was announced by the UK government in 2002 and, as noted in the 2006 Budget, is still ongoing. No changes in the law have been made, but two high profile cases, which enjoyed substantial press coverage, illustrate the high level of proof which HMRC may now require from those claiming non- resident status. The Shepherd Case This significant case concerned a Mr Shepherd, who was employed as a pilot by a British company and flew long-haul flights, all of which took off and landed at Heathrow. Mr Shepherd decided to move overseas and rent a flat in Cyprus before finally buying a property there. However, before and after each duty flight, he still sometimes stayed in the family home occupied by his wife, from whom he had separated. In addition, he restricted the days spent in the UK to well within the published limits for non-residents. Despite this, HMRC ruled that Mr Shepherd was still UK resident as he had not been able to demonstrate a "clear and distinct" break from the UK. As a result, although Mr Shepherd intended his move to Cyprus to be permanent, HMRC regarded it as temporary. The ruling emphasised that non-resident status cannot be achieved merely by counting days in the UK. HMRC argues that its judgment was in accordance with existing legislation, but it is clearly not in line with the published guidance in Booklet IR20 that most expatriates rely upon. The Gaines-Cooper Case The most recent high-profile case concerned Mr Gaines-Cooper, who had lived overseas for many years, and who argued that he was non- resident for UK tax purposes and had acquired a domicile of choice overseas. After a detailed investigation, HMRC ruled that Mr Gaines-Cooper had been resident and domiciled in the UK because of the significant personal and business ties which he had retained in the UK. We have seen much the same stance in our dealings with HMRC in the last five to10 years. There is a toughening up towards those claiming non-resident status, and HMRC seems intent on enforcing a stricter application of legislation. Residence in the UK has a much more adhesive quality than many expats realise. Simply moving abroad to avoid UK tax is much more difficult than it used to be, and HMRC is paying continued and careful attention to those wanting to adopt non-resident status. Changes to the 2006/07 Tax Return mean that greater disclosure about the length and nature of any visits to the UK is now required. For those living abroad it is critical to ensure that your tax planning continues to work with the changing guidelines. THE UK STATE PENSION Another important issue for British expatriates is the restructuring of the UK state pension system which was finalised in July 2007. The net result is a radical shake up of a system which had previously been criticised as being unfair, given the increase in life expectancy rates and decrease in pension saving. The main changes are: From 6th April 2010, the number of years' contributions required for people to qualify for a full basic state pension will be cut to 30. The current requirement is 39 years for women and 44 for men. The state pension age for men and women will gradually increase to 68 by 2046. The state pension will be linked to earnings rather than prices. For British expats the reduced number of qualifying years means that the state pension does provide a very cost-effective means of saving for retirement. The easiest way to check how many years' contributions you have made, or ensure your voluntary contributions are paid, is by contacting the Pensions Service (www.thepensionservice.gov.uk). However, it is important to ensure that you have an adequate retirement fund in place, as the changes, although positive, still do not guarantee that the state pension will cover your lifestyle requirements during retirement. The Fry Group provides advice to expatriates on all aspects of financial planning, including taxation, retirement, estate planning and wealth management. Further information is available through the fast facts number below. Know your expat labels and pension rights Steve Travis, International Manager at The Fry Group, provides an update on two important topics for British expatriates -- maintaining non-resident status and the UK state pension.