Against the backdrop of Cyprus teetering on the brink of financial collapse, George Osborne’s Budget may come to be regarded as one of the most memorable from an offshore perspective. The key elements for ex pats are:
1. INTRODUCTION OF A SINGLE TIER PENSION
The chancellor’s decision to accelerate the introduction of the flat rate state pension has been described as a “cash grab on pensions”, after it emerged that it will bring an extra £5bn into Treasury coffers. Now to be introduced in 2016, a year earlier than previously planned, it will bring an extra 400,000 people into the new regime. George Osborne said the early introduction of the £144 p/week payment would “help the low paid, the self-employed and millions of women most of all”.
However he also acknowledged that this would mean all employees in defined benefit schemes, where payments are guaranteed, would pay higher national insurance contributions from 2016 as a result. This is because there will no longer be a second state pension which they can “contract out” of, a process which allows them to divert national insurance contributions to their employer’s pension scheme.
Glyn Jenkins said. “There is a real danger the move could fuel deeper cuts to public services and jobs, as well as be the final nail in the coffin for the few decent pension schemes surviving in the private sector.”
Other pensions experts warned that introducing the scheme with no flexibility could lead some companies to close their schemes. Joanne Segars, chief executive of the National Association of Pension Funds, which represents scheme providers, said: “If the government gets it wrong then it risks sparking a fresh round of final salary pension closures in the private sector.
“Businesses that get caught on the wrong side of these changes will lose a significant rebate from the end of contracting out, and this extra cost may prompt them to close their pensions altogether.”
2. RULES ON DOMICILE/RESIDENCE
Residence is a pillar of any tax system. Since Pitt’s introduction of income tax in 1799, the UK has had a tax code where liability depended (at least to some extent) on the residence status of the individual.
The old test used to be that if you spent 6 months or more in the UK, then you were deemed tax resident for that year. Furthermore, if you averaged greater than 90 days over a 3 year period, then you would also be classed as tax resident for that year and taxed accordingly. Under the new HMRC rules it is no longer simply a question of the number of days you are physically present in the UK, although this remains an important consideration.
So clearly not as straightforward as the previous regime and these new rules could bring many expats who have previously deemed themselves as “tax exempt” as it were, within the clutches once again of the UK tax authorities. It is now extremely important, therefore, for people to look further at their UK connections and take qualified advice to ensure that they do not fall foul of this new tax regime.
3. RULES FOR CROWN DEPENDENCIES
Britain’s Crown Dependencies have, in the past, been repositories for “hot money” though today they have robust anti money laundering regimes. Under Osborne’s Chancellorship the UK has agreed a comprehensive package of measures with the Isle of Man, Guernsey and Jersey governments to clamp down on those who choose to hide their money offshore.
The agreement provides for automatic exchange of a wide range of financial information on UK taxpayers with accounts in the Isle of Man, Guernsey and Jersey. This will significantly enhance HMRC’s ability to crack down on those who do not declare their offshore income or who “hide” capital derived from taxable activities in the UK in one of the Dependencies.
To see if any of these changes will affect you and to determine if your own UK pension scheme could be at risk please feel free to contact us. Either by email at [email protected] or alternatively by telephone on 038 074644 or 0800 178 269.