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Together with the introduction of the EU Savings Tax Directive in
January 2005, UK Inheritance Tax considerations and the latest
Anti-Money Laundering reporting requirements are the most important
considerations for professional advisers and their clients, now is an
ideal time to consider your overall tax planning requirements.
Inheritance Tax.
1) If you have a UK Domicile of Origin it is very difficult to change
it, simply living in another country, no matter for how long, does not
work.
2) If you have a UK Domicile then your estate is liable to inheritance
tax on your worldwide assets unless you plan correctly. As a matter of
additional interest, even non-UK Domiciled persons are liable for UK
Inheritance Tax on assets that are UK based e.g. property.
3) Even retiring to Cyprus and declaring that you will live the rest of
your life in Cyprus does not necessarily remove your estate from the UK
IHT net.
In 2001/2, the Inland Revenue collected more than 2.3 billion pounds
Inheritance tax more than doubled over the previous ten years and set to
double again by 2005.
Although the inheritance tax nil rate band has risen in line with
inflation – £268,000 for 2004/5 after the UK budget on the 17th March 04
- up from £255000 the previous year and from £243000 in the last four
years this is a drop in the ocean compared to the rise in property
prices in the UK property worth £ 243000 in 1999 would probably be worth
closer to £500000 than £268000 today, and probably not much different in
Cyprus.
Considering that IHT on any amount beyond the nil rate band is at 40%
just that alone anyone with a £500000 property will leave their heirs
not just the property but an IHT bill of £92800 which will have to be
paid before probate is granted and the property passes to the heirs!
What is of great concern is that many people are not only unaware they
may have a liability but that there are options available to them to
protect their wealth for future generations.
EU Savings Tax Directive
On 3rd June 2003, the European Finance Ministers agreed to new tax
measures aimed to collect tax revenues across members of the EU. Known
as the EU Savings Tax Directive this agreement is due operate from 1st
January 2005. After that all non-resident personal Deposit accounts by
held EU residents, in EU member state countries, will automatically have
details of interest earned passed to the individual’s home tax
jurisdiction.
Austria, Belgium and Luxembourg, have elected instead to levy a
withholding tax at source on the interest earned by EU residents at an
initial rate of 15%, rising to 35% in 2011.
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The directive will only affect individuals who are resident within the
EU. It will not apply to accounts held in a company name (For example
Acme Products Ltd) or under the name of a trust. You should be aware
that if you hold a personal bank account in a participating jurisdiction
details of interest earned on your account will automatically be shared
with the revenue in the country in which you are ‘tax resident’ from 1st
January 2005. Again excepting Austria, Belgium or Luxembourg or any of
the other co-operating territories also adopting this withholding tax
policy (IOM, the Channel Islands, Switzerland, Andorra, Monaco and
Liechtenstein)
Of course, if you are currently making full disclosure, implementation
of the directive will have no impact on you. Information regarding
interest earned will simply be shared with your home tax jurisdiction
enabling it to check the details you give on your annual tax return.
You need take no action the directive this will just happen in the
background and involves matter of one tax jurisdiction talking to
another about you, but not with you.
It is probable that before 1st January 2005 if you bank in any EU or
otherwise participating territory then your bank will require details of
your country of residence.
The deposit-taker must then decide if you are deemed to be within the
scope of the directive, depending on where your account is held, details
of your interest earned will automatically be returned to your home tax
jurisdiction from 1st January 2005 or your interest will be taxed at 15%
at source.
Provided you are tax compliant however, you should not be concerned
about the directive.
What are the implications of moving savings to another location? First,
there is the time and trouble involved in sourcing a suitable
alternative – comparison of interest rates, jurisdiction, reputation of
the institution, gathering all the identification documentation required
and so on.
What can be done?
The key in reducing the IHT bill and EUSTD solutions is to take action
in good time, there are options and they need to be considered very much
on an individual basis.
Trust and corporate structures enable you to hold a variety of assets in
a secure and tax efficient manner and help preserve your wealth for
future generations.
The potential tax savings using trust and company structures can often
outweigh the cost in creating such vehicles.
New Anti-Money Laundering Requirements
In practice the changes will have very significant on their relationship
with their professional advisers back in the UK. Tax evasion is a crime
and all UK professionals including financial advisers, accountants,
second hand car dealers, currency traders, any bank employees,
solicitors, antique dealers, estate agents, art dealers and stockbrokers
in fact anyone involved in large financial transactions now must report
every suspicion of tax evasion. They may also have to report any
suspicions from prior knowledge they have. If they do not report it,
they can go to jail for up to five years. It is a crime not to report
any suspicion– no proof is required. Crime includes tax evasion, tax
fraud, fraud, theft, incorrect tax returns, corruption, price fixing, as
well any more obvious crimes such as burglary, soliciting, product
piracy etc.
Final Points
The Savings Tax Directive will impact every account held under an
individual name (not company or trust) by an EU resident.
Mitigating schemes include using corporate and trust structures.
Investors who are declaring all interest received have no cause for
concern the information they send to their residencies will just be
cross-checked.
Any and all dealings with virtually any institution in the UK will by
law be required to be reported to the UK Revenue and shared by them with
the Inland Revenue in the (EU) country of residence of the individual
concerned.
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