Questions about expat tax are often part of the enquiries we get from those that have moved outside of the UK and have (or are about to) apply to tax residency in their host nation.
It won’t come as a surprise to many that different jurisdictions have vastly differing tax rules and there is no standard right way of doing it. Coupled with this, there is an awful lot of misinformation about expatriate taxation out there; usually proffered by those that have an interest in the sale of a product using lines such as “tax efficient” or “tax compliant”.
The failure of expatriates take good Expat Tax advice
Normally, the best people to provide advice about expatriate taxation are likely to be local tax advisers and accountants. However, many outside the UK do not understand the investment and pension products that many hold, either in the UK or in another third country.
Therefore those best placed to give local tax advice are unlikely to be the best at providing expatriate with advice about tax on British products; particularly as is the case for trusts and pensions. In fact, many jurisdictions do not recognise the pensions and trusts and so expert guidance can be essential from regulated advisers based in Britain as well. Getting it wrong can be expensive!
The number of situations where a lack of care/knowledge can impact on other areas of financial planning are too numerous to mention. Some common examples that I have come across are –
- Selling a life policy without using a trust and causing an increase in the potential Inheritance Tax of the client’s estate.
- The cashing in of a share portfolio of someone who is retired and triggering significant Capital Gains Tax( CGT) .Upon death the remaining funds are subjected to Inheritance Tax- the CGT would not have been payable on death had the portfolio not been encashed.
- Selling a personalised bond to a returning UK expat and creating a chargeable gain of 15% pa, even if the policy makes no money
- Transferring a pension offshore to obtain a greater lump sum when , in fact, the existing pension had ‘scheme specific lump sum protection’
- Establishing a trust for a life tenant and using a non-income producing asset from which capital withdrawals are made and leaving the trustees at risk from action by the remaindermen.
- Not understanding the most tax effective way of making encashment from investment bonds that trigger a chargeable event that cannot be undone.
A fee-based financial adviser is not a tax adviser and should be wary about giving advice about expat tax. However, the adviser should have sufficient knowledge to advise a client when to take tax advice.
It only takes a cursory look at some financial websites to see advisers claiming to be “fully qualified” or “experts”. How can one person be fully qualified to deal with all things financial? Are there really people out there with the expertise to provide full holistic financial advice? At what point should the financial planner put up his/her hand and say “I will need to refer to a specialist in order to provide you with the best solution”?
Expat tax- the obligation to refer to tax advisers
Recent case law, Mehjoo v Harben Barker , demonstrates the issues of a limitation of expertise and the obligations that comes with that limitation. In summing up the judge stated that the defendants had a contractual duty to advise the claimant that non domicile status carried with it potentially significant tax advantages. He likened this duty to refer a client to a tax specialist to that of a GP’s duty to refer a patient, in that if a professional knows here might be possible types of treatment known only to specialists, then that triggers a duty to advise.
When this was reported on an accountancy journal’s website one commentator stated that there is nothing wrong with being out of your depth as nobody can be au fait with every aspect of finance. He then went on to point out that there is something very wrong with failing to recognise when one is out of one’s depth and cheerfully providing advice that is inadequate – particularly when the consequence is that the client suffers as a result.
A good financial adviser will help a client identify when tax advice is needed and will then be able to work with other professionals to ensure the issue of expat tax is properly covered.
Beware the financial adviser that provides tax advice and tries to prevent you from taking advice from an accountant who may want to question that advice!
The views expressed in this article are not to be construed as personal advice. You should contact a qualified and ideally regulated adviser in order to obtain up to date personal advice with regard to your own personal circumstances. If you do not then you are acting under your own authority and deemed “execution only”. The author does not accept any liability for people acting without personalised advice, who base a decision on views expressed in this generic article. Where this article is dated then it is based on legislation as of the date. Legislation changes but articles are rarely updated, although sometimes a new article is written; so, please check for later articles or changes in legislation on official government websites, as this article should not be relied on in isolation.
This article was republished on 9th January 2020
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- Independent Financial Advice- Expats
- Holistic Financial Planning
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