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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.
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 sometimes risen in line with inflation – £325,000 for 20010/11 - up from £255000 in 2004 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 even after recent setbacks, and probably not much different in Cyprus. Considering that IHT on any amount beyond the nil rate band is at 40% just that alone any single owners 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. Since October 2007, married couples and registered civil partners can effectively increase the threshold on their estate when the second partner dies - to as much as £650,000 in 2010-11. Their executors or personal representatives must transfer the first spouse or civil partner’s unused Inheritance Tax threshold or ‘nil rate band’ to the second spouse or civil partner when they die. To transfer the unused threshold, the executors or personal representatives of the second spouse or civil partner to die need to send certain forms and supporting documents to HM Revenue & Customs (HMRC). HMRC calls this ‘transferring the nil rate band’ from one partner to another. Even so with property involved, possibly pension funds and insurance policies a joint estate in excess of £650000 is quiet possible for many couples.
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. 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. 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. 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.
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. 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.
Ross
Pays is the Chairman of The FAA based in Cyprus. FAA offer advice on wills,
tax registration services, home, health and car insurance and tax planning, including Inheritance Tax Planning, together
with full accounting services. Copyright 2004 Ross Pays
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