But while sales of offshore life bonds will benefit, higher rate tax relief on pension contributions remains under threat. The Treasury plans to simply cut the maximum amount of contribution per tax year that attracts tax relief from the present £225,000 to between £30,000 and £50,000.
According to Craig Brown, director of IOMA Solutions, a leading life assurance company on the Island of Man, Isle of Man-based pensions could mitigate this problem. “This could be a boost to the island’s pension industry, as higher earners in the UK consider the use of an Isle of Man based pension as part of their retirement planning, something which might previously have had adverse tax consequences for their contributions,” he told me, adding that investing into an offshore bond is particularly useful for UK high earners who plan to move, or retire, to a low tax jurisdiction.
Other types of offshore schemes such as Employee Funded Retirement Benefit Schemes (EFRBS) are less attractive, however, as they will fall within the scope of an anti tax avoidance review currently being carried out.
Established expatriates can still move their pension plans offshore through QROPs, a growing business on the Isle of Man.
The rise in Capital Gains Tax to 28 per cent for higher rate taxpayers will affect some British expatriates selling property they own in the UK, unless they have spent five consecutive tax years as a non-resident. If they haven't spent five consecutive years away, it may be a wise move for expatriates who might be affected by the rise in CGT to defer their return to the UK.
Any capital gain is added to income, so a one–off large gain from selling a property could push the owner into the higher rate tax bracket, and liability to 28 per cent on part of the gain. The Chancellor left open the prospect of a further rise in CGT in the 2011 Budget.
The Chancellor deferred decisions on changes to domicile rules. Louise Somerset, tax director of RBC Wealth Management of the UK and Channel Islands said she was not surprised at the lack of an announcement on domicile, as the government has appointed a commission to review the area. She added: “But we will need to wait and see if it amounts to anything positive or simply kicks the problem into the long grass.”
There was also no mention of residency rules. There have been several tax cases where wealthy businessmen who made frequent visits to the UK and kept strong UK connections despite living overseas were ruled to be tax resident. However, many UK expatriates work overseas under employment contracts and only return for brief holiday visits. Ms Somerset said that many ordinary workers "do not know where they stand."
Mr Brown commented: “The planned review of the tax status of UK non-domiciled individuals and the possible introduction of a general anti avoidance rule may have an adverse impact on the international financial services industry in the Isle of Man, but until the results of the reviews are known we cannot say this with any degree of certainty.“
Dean Power, a senior tax executive at The Fry Group said: “Domicile is certainly an issue the government will examine during the course of this parliament but there are differences between the Coalition partners. The Conservatives favour one off annual payment by non domiciled residents while the Liberal Democrats want to deem them domiciled after seven years as residents. As for residency, I would like to see a statutory residency test, for the sake of certainty."
One potential crumb of comfort for some expatriates is the raising of the personal allowance from next April by £1,000 to £7,475. This might cut UK tax bills for expatriates who derive some income from the UK.
Mr Power said: "A married couple jointly owning a property can make £2,000 more per year in net rent before being liable to income tax - provided that’s their only source of UK-based income - as the personal allowance can be doubled up in this case to nearly £15,000.”
And remember that expenses such as a mortgage, management fees and depreciation are allowable expenses against rental income.
Mr Power also welcomed the continued tax concessions for holiday lets, as “many of our expat clients own holiday lets in the UK”. The number of days per year the property has to be available or let will however be subject to review.
Source: The Telegraph