Brexit – it’s a word that has dominated the headlines since the UK voted to leave the EU in 2016. Since then, it is a word that has created more questions than it has answers.

Boris Johnson has made it very clear. The UK will leave the European Union on October 31st, with or without a deal. So, what does this mean for the thousands of British expats living in Cyprus?

The expat pension situation

An estimated 70,000 British expats are living in Cyprus, although many live on the island for part of the year. With so many UK expats retiring in Cyprus, the future of UK pensions will be a topic of interest for most.

As we said before, Brexit has created more questions than it has answers. The fallout of the UK leaving the EU and its impact on British expats is mostly down to speculation. Even the experts are unsure of how things will unfold, and with the chances of a no-deal Brexit, things are even less clear.

Brexit and pensions

The UK’s exit from the EU will not change existing double tax treaties as things stand. The UK has a double tax treaty in place with Cyprus, which protect expats from being taxed in the UK and Cyprus.

An unchanged double tax treaty is good news for retirees living in Cyprus as most UK pension are also protected. It also seems that State Pensions rates will be protected against Brexit regardless of the outcome.

The triple lock guarantee ensures that the UK State Pension increase each year, rising by either 2.5%, the rate of inflation, or average earnings. There were fears initially that a no-deal Brexit could see an end of the triple lock guarantee.

The Work and Pensions Secretary, Amber Rudd put those fears to rest recently. Even in the event of a no-deal Brexit, State Pensions will continue to rise for the next three years.

The real issue is the impact that a no-deal Brexit could have on private pensions. Private pensions can currently be transferred tax-free. A no-deal Brexit could see an end to this.

QROPS

As a UK expat, it’s essential to be as prepared as you can be for every possible outcome.

A qualifying recognised overseas pension scheme (QROPS) are commonly used by UK expats looking to retire abroad. It lets you consolidate one or more UK pension into a single tax-efficient plan.

Not only are QROPS protected from UK tax on income and gains, but they can also offer protection against a no-deal Brexit.

Some pensions providers could lose the right to pay personal pension benefits to expats if the UK leaves without a deal. QROPS and the funds transferred into them should remain unaffected.

QROPS also protect pensions from currency exchange rate fluctuations. The strength of the pound has taken a hit recently, and it could get worse when the UK leaves the EU.

QROPS can protect your pension against volatile exchange rates. Many QROPS on the market offer multi-currency flexibility, which means you can hold and draw funds in the currency of your choice.

Things to consider

Although Brexit should not impact QROPS, tax could be applied when transferring into one.

Pension funds transferred to a non-UK pension scheme is liable for a 25% transfer tax. The transfer tax is not applied if both the individual and the QROPS both reside within the European Economic Area (EAA).

Once the UK leaves the EU, there is no guarantee that the same rules around the transfer tax will apply.

The reality is, not even the UK government knows for sure what will happen to expatriates with UK pensions after Brexit. The fact remains, the UK is leaving the EU on October 31st, and that could bring an end to tax-free pension transfers.

Not everyone will benefit from a QROPS, and they are not all created equally. Each provider and the jurisdiction that it’s held in could impact the tax benefits.

If you would like to discuss the options available to you, or for more information on retirement planning, speak to one of our expat pension experts. You can contact us using the form below, and someone will be in touch.

The post Brexit: How to Prepare for Your Retirement appeared first on Holborn Assets Cyprus.

British expats often think that UK inheritance tax (IHT) does not apply to them. That’s because their monthly income isn’t taxed by the UK government – so why should their financial estate be too?

It’s a fair assumption. But here’s the reality check. The HMRC treat your estate as an expat differently from your income.

… As a British expat, unless you’ve persuaded the HMRC that your “country of domicile” is not the UK, it is likely that you will be faced by IHT.

Remember: “country of domicile” is a complicated tax term – it doesn’t mean simply the country where you currently live and work abroad.

The demands of UK inheritance tax are likely to intensify in coming years. That’s because IHT is a growing earner for the UK government. It pulled in over £5bn last tax year. And this tax year, a record £6.5bn is expected. Another good reason to tackle your IHT position is the possibility of a new political regime thanks to Brexit. For some, the real danger of poor IHT planning is “Labour threatening to tax inherited wealth even more spitefully if it ever seizes power.” (thisismoney.com)

Get real with your IHT, get planning and get some professional advice!

How do I reduce my UK Inheritance Tax?

Every UK citizen is entitled to a “nil-rate band” of £325,000. This is the sum they can pass on without paying IHT. Any value above this will usually be taxed at 40%. That’s the bad news -and one very good reason to get on top of your retirement planning.

The good news about your nil-rate band is that you can inherit your partner’s if they don’t use it when they die. There is also a “residence nil-rate band” being phased in which is designed to make it easier to hand the family home onto the kids. AES International report that, “from 2020 married couples/civil partners will be able to pass on estates worth up to £1M to their direct descendants (typically children/ grandchildren) – IHT free!”

There’s so much you can do yourself to ensure your financial legacy does not get eaten up by taxation. Start as early as you can:

1. 1. Get help
   

   You can try and work it all out yourself. Or you can seek advice from a professional. “Avoiding inheritance tax can be a very complex process if you decide to proceed without any advice or assistance.” (expertsforexpats.com) The earlier you consult with an IFA and work out a plan of action, the better.
   

2. 2. Write a Will

Without a Last Will and Testament, your strategy for your financial legacy lacks a centrepiece. As an expat non-resident of the UK, you may well end up with two wills – one for the UAE, for example, and one for the UK. Either way, you are bound to incur IHT if you haven’t even got as far as writing any will at all, so make it a priority! Explore wills in the UAE with the DIFC Wills & Probate Registry.

3. 3. Use gifts

4. “The simplest way to reduce a future inheritance bill is through gifting – usually money or personal possessions.” (thisismoney.com) There are many ins and outs to giving money away before you die. But gifting all revolves around the fact that you may give away up to £3000 every year as you see fit, and this sum will not then attract IHT when you die. If unused, your allowance of £3000 can be rolled onto the next year. Make sure you talk to your IFAs about the details of gifting. Be sure to record all activity for tax record purposes.

4. 4. Use a Trust or a pension

Trusts can be used to optimise your inheritance tax by passing on assets to your beneficiaries in legal “wrappers”. Trusts are necessarily expensive to set up. A simpler way of passing on wealth is to pass on your Direct Contribution pension (ie. private pensions, SIPPs), which you may do tax free (with conditions).

5. 5. Write your life insurance into Trust
   

   Otherwise any payout will be liable to IHT.

I thought IHT didn’t apply to me because I’m an expat?

Expats are wrong to think that UK inheritance tax (IHT) does not apply to their assets outside the UK just because their income is not taxed by the UK. Your eligibility for IHT is likely to depend on whether you have changed your “country of domicile”. You will still have to pay IHT as an expat if you are “domiciled” in the UK. (Which is likely).

UK: still your “country of domicile”?

UK citizens who change their “country of domicile” to another country do not pay IHT. These people are referred to as non-domiciled in the UK.

People who live and work abroad without paying UK taxes are still likely to be considered as domiciled but “non-resident” by the HMRC – and therefore liable for IHT. One rule of thumb is that, “if you or your father were born or raised in Britain, you’re likely to be deemed domiciled in Britain.” (aesinternational.com).

As an expat, if you don’t know whether you are non-domiciled or non-resident, it is likely that you are non-resident – which means you will still have to pay IHT. Unlike non-residents, non-domiciled UK citizens do not pay IHT.

If you had achieved non-domiciled status, you would probably know. It is commonly held to be both a difficult and punishing process. It is difficult because you need to prove to the HMRC that you have no intention of returning to the UK. And the HMRC has free reign to judge for itself;

“When it comes to determining your country of domicile, the tax man will interpret the conditions and draw their own conclusion about whether you are still domicile in the UK.” (expertsforexpats.com)

The process of trying to achieve non-domiciled status is also punishing because, to show you are serious, you will need to:

• Give up your UK passport
• Close all UK bank accounts
• Sell all your UK property (and buy new property in your country of residence)
• Satisfy other social-related requirements

If there were ever an occasion when you need a squadron of IFAs, accountants and lawyers – attempting to change your country of domicile is it! There are easier ways to minimise your exposure to IHT – but you will need advice that takes into account your unique financial situation.

As with all retirement planning, be sure to be practical. Give yourself a realistic budget for your living now. It’s all very well planning for the future. But, especially as an expat, living for the moment needs to be accounted for too.

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So what factors shape women’s attitudes to retirement?

Knowledge is power

UK expats in the UAE

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