Tax Creeps - Changing World for UK Expats
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With elections in the EU, UK and USA this year, as well as Russia there is a potential of a new world order with lots of twists and turns along the way. Some of the events are scheduled and some will occur as results unfold with the fickle finger of fate able to intervene.
POLITICAL CHANGES
In the USA the President is held to be the leader of the free world. If he is unable to continue in his role then the vice president becomes president. In effect with the USA Presidential election on November 5th the Vice President is indirectly elected to become president - if the president is unwilling or unable to carry out his duties, say if in hospital or prison. With both Presidential candidates to be octogenarians during their 4 term of office, and noting the life expectancy of an 80 year old American male is around 7 years, there is a higher than usual possibility of death in office during the election or subsequent 4 year term.
How will that play out to impact the global economy and political scene?
The EU elections saw a swing to centre right parties with a number of more autocratic leaders emerging in the EU. How will that impact over the next 5 years in a centralised EU bureaucracy.
The left-leaning French President Macron reacted to the centre-right swing in the EU elections to call a snap French election, one that could see the current prime minister Gabrial Attal age 35, replaced by the centre-right candidate age 28 - whose current life expectancy is 48 more years - but only to the age of 76.
The older you get the greater your life expectancy…
When the UK rebelled against the EU bureaucracy and Brexited out, in a swing to the UK centre right parties, it was a major upheaval for the UK and EU. A Brexit that has politically failed in the UK and could now see the July the 4th election date elect a centre left government that potentially could do everything they can to make a ‘better EU agreement for the UK’.
That is more turmoil and instability for the UK to change all the borders and residency and trade rules back to move forward.
The EU is one intra-national organisation but not the whole picture. It offers an EU citizen status to EU citizens but individuals still have to register in each EU country to be tax resident or stay more that 90 day short stay.
The EEA is a collection of countries that includes all EU countries as well as Iceland, Liechtenstein and Norway that allows all countries to be part of the EU Single market. Switzerland is another special case - not in the EU or EEA but with bilateral treaties allowing the Swiss to enjoy the EU single market.
How special could the UK be?
Then there is the EU Schengen Zone which will complicate matters more in 2025 applying the 90 in 180 day stay rule for all travellers to the EU with an electronic travel authority called the European Travel Information Authorisation System (ETIAS) (learn more) requirement for all non EU resident permit holders arriving from visa free countries.
RESIDENCY CHANGES
The UK currently allows visa free travellers to stay up to 6 months before a visa and tax residency arises.
Even so the UK has introduced and is rolling out their own electronic travel authority called Electronic Travel Authorisation (ETA) in 2025. This means all visa free travellers to the UK will need a travel authority from 2025 - including EU Citizens.
The difference between a travel authority and a visa? Name in effect. Going forward, electronic authority allows the government and border police to know who is crossing the border and who has not left the country.
The EU Schengen zone complicates this further with the EU rules of 90 in 180 day stays.
With electronic travel authorities in place the EU can apply the 90 in 180 day short stay rules for all visitors to the EU. That means visa free travellers can be denied boarding or entry.
This technology is already in place and expats need to carry their local residency permits when travelling to ensure no problems on journeys.
Remember as well with the EU the rule is a total of 90 days in any 6 months. You can have multiple trips but won't be allowed to cross the border if your trip allows you to break the 90/180 day rule and exceed the period of stay without a resident permit.
With electronic travel authorities, such as ETIAS in the Schengen Area, on your movements it's not just big brother that knows where you are - but the tax man too. If you are in the country for more than 6 months in a year you become a tax resident. In some countries this becomes a mandatory requirement to complete a tax return - for higher or lower tax to you.
TAX CREEPS
If your days resident in country become excessive you can become a tax resident.
British expats can become tax resident if they spend too much time in the UK.
If dual taxation applies you pay the highest rate of tax.
An expat could enjoy low tax living and working abroad, but if you exceed the residency rules you could become liable to a higher rate of tax - up to 45% in the UK for example.
Countries like Portugal and Cyprus can apply flat rate taxes on all worldwide income, which could take the shine off the holiday home.
Then we have elections that could bring new tax regimes.
USA expats still have to file annual US tax returns and pay tax at source. They can get some exemption up to $120k income.
UK expats can currently be exempt for all worldwide income if they are tax resident in a country with a UK double taxation treaty. This includes most European countries and allows UK expats to enjoy lower taxes overseas.
UK Property rental income is currently fixed to the UK and taxable there. Government service pensions have been added as UK fixed income for tax in recent year.
Could other UK pensions be added to the fixed tax rule? Creepy thought.
Cyprus expats can pay just 5% tax on pensions, 0% tax on dividends and savings and no income tax if remote working overseas.
For 2023 Cyprus tax returns (due now) a flat rate 2.65% tax applies to all tax residents worldwide income. This is a tax increase for those that may not have paid Cyprus tax before. A UK Expat in Cyprus with £20,000 Dividend income now has £530 tax for 2023 and 2024 and the years ahead.
UK Non dom rules are listed to end in April 2025 whichever government comes to power, This will make expats tax resident in the UK subject to tax on worldwide income and gains at the highest UK marginal rate. Could this approach and principle be exerted to UK expats abroad to retain some taxable income in the UK?
Capital gains taxes on assets in the UK are taxable there at current rates from 10-24%. It would be an easy step to increase capital taxes on property, shares and investments in the UK with 33% being discussed.
Cyprus has one capital gains tax rate of 20%, UK could simplify the 4 rates down to one rate, and higher than the current minimum of 10%.
TENDRILS
The world is changing this year and elections accelerate that, bringing about unexpected events like the snap French general election.
In a changing world UK expats can best plan ahead to ensure they have the resident permit they need to enjoy overseas property homes, and lower tax residence abroad. As more rules are introduced better tax planning is required to protect assets for income, capital and heritance taxes. Noting the flat rate taxes can be generating that little bit extra for the government.
ProACT Partnership are expat experts for tax and residency. Contact us for a free review and guidance for the year ahead.
proactpartnership.com/contact-us
Cyprus Office Tel: +357 26 819 424
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