The trouble with income tax is that as a payer of it, you can’t stipulate where it’s spent. Most reasonable people are happy to pay some tax towards health and education – even towards defence and unemployment – i.e., towards all the things that keep UK cohesive and functioning.
However, now that most of your tax is going to pay off old debts, (not just UK’s old debts, but also failed Euro state debt too), and for causes that you perhaps can’t quite get your head around, like any old foreign war that the UK feels a strong urge to be involved in, are you wondering if your UK passport could enable you to live somewhere else and perhaps pay less income tax?
The really good news is that there are some countries that haven’t got themselves in quite so much of an economic mess as the UK, and some of them welcome Britons seeking an income tax free lifestyle! As we will also demonstrate, there are nations and havens around the world where there are tax caps, and where the likes of high net worth individuals and retirees are given the best deals on taxation.
Jersey – Working to Attract the Rich with Income Tax Breaks
Jersey is the latest of the Crown Dependencies to revise its income tax plan specifically for the attraction of high net worth individuals.
Jersey politicians recently voted in favour of amending the previous terms of their so-called ‘1(1)(k) Regime,’ and going forward they have proposed that wealthy incomers will pay just 20% tax on the first £625,000 of their income, and 1% on all income thereafter. The minimum a high net worth new resident will be required to pay has been set at £125,000.
There will now be no distinction between money earned/invested in Jersey or offshore; this is in a bid to simplify matters for potentially interested parties.
In the past the IMF has rated Jersey higher in terms of compliance and regulation that the US or the UK, so perhaps if you’re looking to pay less tax and move abroad, Jersey could be a safer haven for your wealth than if you left it onshore in the UK?
Isle of Man Has a Personal Income Tax Cap and 0% Corporate Tax
The Isle of Man has taken the taxing of foreign residents a step further in terms of making it competitive. 0% corporate tax is now standard, as is a tax cap on income tax liability of £100,000 in any one year for individuals.
However, as appealing as this sounds, there is potential trouble brewing in this location. The UK has halted its VAT subsidies to the Isle of Man. Apparently the loss represents approximately 40% of the local government’s yearly income. Naturally enough that could put pressure on them to increase tax revenue.
We discussed the fact that the Isle of Man had won the best international financial centre award back in 2008. Since then the jurisdiction has made it clear that it wants to remain extremely tax competitive and attract ‘economically active entrepreneurs,’ but the UK’s actions may have made the Manx plans untenable going forward. We will keep you updated.
Income Tax Cap in Guernsey for High Net Worth Individuals
In 2007 Guernsey introduced a cap on income tax of £250,000 – however, since then it has been deemed unattractive. In fact, it was suggested that rather than attracting high net worth individuals to live in Guernsey, it was having the opposite effect and driving them away!
According to PKF, a local accountancy firm: - “in October 2009…the States approved legislation that reduced the cap on foreign source income and Guernsey deposit interest to £100,000 per annum for 2009 onwards. The Government also introduced an additional cap for Guernsey source income. Residents are now able to restrict their liability to tax on Guernsey source income to an additional £100,000…
“An individual with a combination of foreign and Guernsey source annual income totalling more than £1,000,000 can restrict the tax liability to £200,000 per annum.”
Guernsey is another of the Crown Dependencies attempting to attract dynamic and high net worth individuals to reside on the island, therefore you can expect it to continue to review its tax cap to ensure it remains competitive.
Category 2 Tax Cap Rules in Gibraltar Make it Attractive for Wealthy Britons
If you become a resident in Gibraltar under its Category 2 Tax rules you can enjoy a tax cap of approximately £30,000 per annum. This can be less if you have no Gibraltar source income.
What’s more there’s no capital gains tax, inheritance tax, wealth tax or sales tax in Gibraltar, and the weather’s much nicer than in the UK too!
However, you have to have a minimum net worth of £2 million to qualify, satisfy residency requirements in terms of the amount of time you reside in Gib, you need to have private medical cover, a home in the haven, and you are not allowed to engage in a trade, business or employment in Gibraltar.
There are exceptions to this latter rule if duties are incidental to a business outside of Gibraltar or you’re a director of a Gibraltar Exempt Company or a director of a Company which does not transact any trade or business in Gibraltar.
We covered the appeal of Gibraltar further back in 2009 when we wrote about offshore jurisdictions in Europe.
Personalised Income Tax Arrangements in Switzerland
Switzerland is perhaps one of the most attractive tax havens because it is such a stunning nation, one where the standard of living is very high, and where the government refuses to pander to international political pressure for greater tax transparency.
What’s more, for the very wealthy Switzerland’s Cantonal tax system means that you can develop a personalised income tax plan.
These are termed ‘lump sum tax arrangements,’ and they are defined by Henley and Partners, world leaders in international residence and citizenship planning, as follows: -
“Foreign citizens who fulfil certain requirements can avail themselves of a special tax arrangement whereby Swiss taxes are levied on the basis of expenditure and standard of living in Switzerland rather than on the usual worldwide income and assets. This fiscal arrangement is called lump-sum taxation (forfait fiscal in French, Pauschalbesteuerung in German) and is available almost throughout the country (except in the canton of Zurich).”
They go on to explain: -
“Besides offering unique lump-sum taxation which effectively caps the income and net wealth tax for qualifying foreign citizens, Switzerland is also an attractive place of residence with regard to inheritance and gift taxes. The country has no Federal inheritance or gift taxes. Instead, the cantons levy inheritance and gift taxes in their own competence, which means that there are 25 different inheritance and gift tax regimes, while the Canton of Schwyz has neither inheritance nor gift taxes at all.”
Clearly expert advice is required to ensure an interested individual arranges their lump-sum tax agreement in advance of relocation, and in the right Canton to suit their own personal requirements.
Income Tax Free Living in Monaco
Despite the fact that Monaco’s ambassador to the UK tried to persuade us that it’s not a tax haven in an article she penned for the Telegraph last year, the fact of the matter is, there is no income tax levied in Monaco.
Yes goods and services carry VAT, yes real estate costs per square meter are among the highest in the world and yes, the cost of living in Monaco is extortionate – but the bottom line is that residents of the Principality can live income tax-free in this stunning part of the world.
Tropical Thailand – a More Affordable Tax Haven
If you’re not high net worth or you just want to avoid all forms of income tax on your foreign sourced income, what about Thailand?
As demonstrated in our article ‘why offshore banking isn’t just for the rich’ the cost of living in Thailand is low, the standard of living is high (depending on where and how you choose to live), and Thailand is genuinely a tax haven for foreign residents.
According to the nation’s own government website: -
“A resident of Thailand is liable to pay tax on income from sources in Thailand as well as on the portion of income from foreign sources that is brought into Thailand. A non-resident is, however, subject to tax only on income from sources in Thailand.”
Therefore, if you move to live in Thailand and even if you become a permanent resident, as long as you retain the majority of your wealth offshore, it remains outside of Thailand’s tax net.
Belize is Where Retired Brits Can Live Income Tax Free
Belize has a ‘retired persons’ incentive programme,’ and qualifying persons are exempted from payment of all taxes on income received from outside Belize.
Those who can qualify are: -
- People aged forty-five years or older
- Their spouse
- Their children under the age of eighteen (or up to the age of twenty-three if enrolled in university)
- And Belizeans who are 45 and older who are returning to live in Belize.
Malaysia – a Second Home and Tax Free Wealth
The ‘Malaysia: my second home programme’ enables any qualifying person to relocate to this beautiful country, and enjoy significant benefits. In terms of tax, this is what the government’s website says: -
“Before year of assessment 2004 income remitted from abroad to Malaysia (apart from pension) is subject to tax. However, from year of assessment 2004 all income remitted from abroad is not subject to tax.”
Unlike Belize you don’t have to be 45 or older to apply, but there are some financial eligibility requirements that you will have to fulfil, in order to prove that you can support yourself and your dependents.
Andorra – Where Passive Residents Reside 100% Tax Free
The passive residency rules in Andorra allow any qualifying individual to live 100% income tax free in this tiny country, which is situated in the western part of the Italian Riviera.
The setting is divine, the climate is fantastic and the income tax free benefits are exceptional. However, the one downside is that you have to invest a fairly hefty sum in a non-interest bearing bond for the duration of your residency.
You do get the money back if you choose to leave, but you can consider it a permanent payment with no direct financial return if you want to live forever in Andorra.
So, think of the payment as a one off tax perhaps – and then you can spend the rest of your life living 100% tax-free.
Currently the bond is € 30,000 for a single applicant and € 7,000 for each subsequent member of the same household, (including children of all ages.)
Your UK Passport Can Transport You to a Tax Free Life Abroad
Tax havens quite clearly allow expats to retain more of their wealth - however, you have to pick the jurisdiction that suits your lifestyle requirements as well as your desire to pay less or no income-tax.
The above list of tax attractive nations are all accessible thanks to your British passport, but do check out any qualification criteria for tax-free/enhanced residency in advance.
Finally, the above list is by no means exhaustive – check back soon for an analysis of even more attractive tax havens.