The UK tax year starts 6th April 2018.
Fixed income arising in the UK must be declared to the HMRC. This includes property rental, earned income, capital gains and inheritance tax on uk assets.
From April 2016 the UK banks pay gross interest. So moveable income like royalties, bank interest and dividends can be taxed in your country of residence if properly registered and declared. If an Expat doesn’t have a tax residence abroad tax should be declared and paid on these in the UK
UK nationals retain a liability to UK tax on their world wide income unless they are registered tax resident elsewhere or registered as non resident
Buy to Let Mortgage Tax Relief
From 2017 a limit is being introduced on mortgage tax relief for UK property investors.
For the UK tax return now due, for the last year 2017-18 only 75% of the mortgage interest is allowable against higher rate income tax, the rest being limited to the basic rate of 20%.
Higher rate tax is charged up to 45% in the UK. So private property investment landlords in the UK are facing a 25% tax increase by this change of allowances.
By Brexit year 2020/21 all mortgage interest will only be allowable against basic rate tax at 20% for individual UK property investors.
Tax Saving Review point
Consider the higher tax liability from rental income. If it affects you how could you adapt your property holdings for tax savings?
Owning property through a limited company allows full mortgage interest relief, a transfer to a limited company could save income tax.
Talk to ProACT Partnership Tax Saving Expat Experts
Expats owning UK property though a company can also make UK inheritance tax saving at 40% as the value of the asset is the company shares not the property value.
Changes to Domicile and Inheritance Tax
UK Inheritance taxi at 40% is paid on death for assets above a basic nil rate band of £325,000.
If an Expat is permanently domiciled outside the UK only UK assets are charged to Inheritance tax. Owning a property or business share in the UK valued up to £325k is free of inheritance tax.
Someone born in the UK, a British Citizen, will be deemed domicile even if living and working abroad as an expat and tax resident in another country, unless they have been out a long time. A long time. An Expat living and working in the UK will be deemed domicile if she has lived in the UK for 20 years and as a tax resident for 15 of those.
Expats living in the UK in the last 3 years before death will always e deemed domicile for worldwide Inheritance tax on death, no matter how long they spent abroad.
Cyprus has a legal definition of ‘domicile’ so many expats are automatically “Non Domicile” by law. This leaves them by definition with their domicile of origin, catching many UK expats with potential world wide inheritance tax on death even if abroad, and including on Cyprus assets,
In practice Expats have to certify they are not Cyprus domicile to avoid 30% defence levy saving taxes, confirming by their own hand they should pay inheritance tax in their home country. In Cyprus Inheritance tax is 0%, in the UK 40%.
Tax Saving Review point
Declare non domicile in Cyprus for 30% Tax saving on Cyprus defence levy
Choose Cyprus Domicile to avoid UK Inheritance tax of 40%
If you return to UK you acquire a liability to UK inheritance tax at 40% straight away.
Inheritance Tax - the 1 Million Threshold
Year by year a Residential Property Band of Inheritance tax relief is being introduced in the UK.
The first allowance of an additional £100,000 was introduced on in April 2017. For those of you that managed to hang on, and die after the start of the new tax year on 6/4/18 the threshold rises to £125,000 per person.
This means if an Expat owns a property as a main UK residence ( i.e. not let), then on death they have an inheritance tax nil rate band of £325,000 plus £125,000 if a share of that property is given to a family beneficiary.
A total of £450,000 can now be gifted by an individual on death saving 40% inheritance tax - £180,000.
For a married couple this can be doubled meaning children can inherit £900,000 without inheritance tax.
Any tax on the excess is only charged on second death.
Tax Saving Review point
For Expats they should consider if they have UK property that qualifies for this additional inheritance tax allowance.
Rental property in the UK may not qualify for the additional inheritance tax allowance. If gifted to a Property Company or Cyprus Trust arrangement then up to all Property assets are protected from Inheritance tax at 40%.
Alternatively they could consider lifetime gifts that could avoid inheritance tax at 40% as well as protecting UK property assets from:
- local authority care home fees
- divorce and marriage break up in the family
- bankruptcy and debt issues in a family business
UK Common Market
Post Brexit the UK government are talking about their own ‘free trade’ area and common market including England, Wales, Scotland and Northern Ireland.
Scotland have tax powers that they are applying and from 2017-18 significant divergence is being seen between English and separate Scottish tax rates
Pension Contributions for UK workers
if you are a UK worker of a UK company you have to pay 5% of your earned income into a pension scheme from the start of this tax year.
Happy New Tax Year - 3 Changes to Social Insurance in 2018
Social Insurance Agreements
All EU states have separate independent Social Insurance systems, but an harmonised and coordinated approach that allows Expats Living and Working Abroad or Retired overseas to access Social Insurance more effectively.
With EU Brexit Expats are concerned for their rights as worker to social welfare protection, health cover and pensions.
Will pensions still be paid?
Will healthcare be provided?
Are benefit transferable?
3 Changes to Social Insurance in 2018
Factors affecting social welfare with EU Brexit for Expats
- Countries sign Bilateral Social Security Agreements for social insurance and benefits for Expats Living and Working Abroad. Countries like Cyprus and UK sign an agreements with the EU.
So each Social Insurance arrangement is different in each country, in terms of tax, cost and benefits.
By signing EU Regulations social insurance agreements between member states replace bilateral agreements by the coordinated single EU agreement connecting all EU28 member states.
UK had bilateral agreement before the EU with EU countries like Greece and Cyprus.
The UK Maintains bilateral agreements for social insurance with around 18 countries in addition to the EU28 member states. This includes USA, Canada, Philippines, Jersey, Israel, Japan and Korea.
Following EU Brexit Expats will wait to see is the UK sign a renewed bilateral agreement with the EU27 or individual bilateral agreements with countries like Cyprus again at the end of the transitional period.
Meanwhile EU Expats are covered under the EU Agreement through the end of the transitional period of EU Brexit in December 2020, so existing medical, benefits and pension arrangements will remain in place.
- The French President Macron has secured EU agreement to stop “Social Dumping”. Under this practice companies in a low social insurance cost countries within the EU, send workers to high social cost companies eg Poland to France, but only pay for the lower home country social insurance, and the employment is paid under the lower home country minimum wage structure
Now any Expat working in the EU for another country, will always pay social insurance costs in the country where work is done, not the low cost country of origin.
This affects EU expats working abroad in the EU - about 2m people.
Did you know Poland has the largest number of EU Expats working abroad in the EU, meanwhile Little Britain has the fewest Expats working abroad in the EU.
- NI Contributions for Contractors - Expat Employee Charge
Expat job prospects in the UK are hit by a tax hike on employers who employ Tier 2 employees in the UK, these are people that are non EU skilled migrant workers.
These employers have been hit with a £1000 levy per person per year from 2017-18 and this should have been paid by companies.
Post Brexit this levy could be applied to EU skilled migrant workers seeking to live and work in the UK. This would discourage UK companies from employing overseas workers from the EU, as well as around the world, and could be EU Expats being let go.
Such action could not be applied until the end of the EU Brexit transition period in December 2020, meaning any extension of this levy on Expat jobs in the UK could only be introduced after 1st January 2021.
There are exemptions for this levy including people qualified to a higher level, an Expat migrant worker with a PhD. education will not incur for his UK employer the £1000 pa foreign workers levy post Brexit.
New Year Cyprus Way for Tax Returns
- online tax registration required for all cyprus tax returns from 1/1/2018. this includes Individuals now as well as companies and vat businesses.
- you can only submit online cyprus tax returns from this date
- system not ready. currently submissions cannot be made until into May 2018 for 2017,
- s/e online returns deadline extended to june 2018 from june 2017, so there is some scope for extension for 2017 returns due April 2018.
- tax should already have been paid for 2017, this should still be paid by self assessment before end of June 2018
Tax Saving Review Points
- All registered individuals in Cyprus are now being automatically enrolled into online tax. Logins are being sent to taxpayers and their agents. These are being sent by post (not email) in mid April
- Need help registering ? contact ProACT for help and guidance
- Previous years returns can still redone, prior to 2016, but 2017 cannot yet be done. These returns will be available from May onwards.
- Need help submitting an online return, ask ProACT for help
- Consider your business and employment structure. Where should contractors be based to pay the most effective social insurance, and stay within the new rules.
Automatic Exchange of Information
Common Reporting Standards allow exchange of information of income from work, rentals and savings means the tax man knows all your income tax information
Your bank or investment company share this information with their country of tax residence and your country of tax residence.
That is why you have had to provide tax numbers to your bank and investment company over the last year.
As the UK does not deduct tax at source, you may well have a tax liability in your tax resident country. This cannot be hidden from them.
Saving Tax Could Cost You Inheritance Tax
Tax rates in Cyprus have not changed for 2017 but there is a change to the treatment the savings defence tax at up to 30% tax.
Expats could pay 0% tax on interest, dividends and rental income, saving 30, 17, 3% defence tax.
This was introduced in 2015 along with changes brought in with the EU Laws of Succession and changes to Wills.
Initially tax on savings was not claimed nor deducted since July 2015.
However since 2017 it was decided that to secure this relief of defence tax, Expats must submit a domicile questionnaire and non domicile claim.
This is a double edged sword. Claiming relief of saving tax now, confirms you don’t have a Cyprus domicile. Therefore you are likely to retain your domicile of origin or birth. If you are British born, that means you are confirming you are liable for UK Inheritance tax of 40% on worldwide assets.
It seems that initial enthusiasm by Cyprus to offer lower tax for Expats, has a consequence that is now managed by requiring Expats to confirm their Domicile - in Cyprus and at home.
Many Expats submitted Income tax returns for 2015 and 2016 without a domicile questionnaire. If you haven’t, you should do so now, or find yourself with a saving tax assessment for 2015 and 2016 in a future assessment.
Tax Saving Review Points
If you want 30% Saving tax savings in Cyprus on World wide income then submit a Domicile Questionnaire.
There are ways that a Family or Business could avoid 40% Inheritance Tax also.
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