Expats might want to re-think their position regarding where their legal domicile might lie after a high profile case found in favour of the taxman against a British entrepreneur who still had a home and asset interests in the UK.
The Court of Appeal in London ruled that millionaire and Seychelles resident Robert Gaines-Cooper was liable to pay UK tax despite spending less than 91 days a year in England because the country had remained the centre of gravity of his life and interests.
Rex Cowley, head of marketing at Close International Asset Management, said the case has resulted in renewed interest in Qualifying Recognised Overseas Pension Schemes (QROPS) from British expats and their advisors.
‘Certain sectors within the advisory community believe that the extent to which many clients have gone with regards to shaking off their UK domicile is not significant enough. Particularly if they still have pension assets in the UK,’ he said.
‘For many expatriates the move to a different country is followed by the change of domicile in order to simplify their tax affairs. However, it would seem that many expats still have UK pension contracts, both defined benefits and defined contribution schemes. Whilst a QROPS may have been discounted in the past by the client or their advisor, the above ruling is causing expatriates to reconsider this decision,’ he added.
UK pensions can be moved to a QROPS scheme and in addition to the many benefits people have over remaining in the UK scheme, for those who have moved abroad there is now the added advantage that it moves a major asset out of the UK, according to Tim Parkes, director of Carey Pensions and Benefits.
But specialist QROPS advisers are warning people to be wary of overseas advisers who make undeliverable promises. Geraint Davies, managing director of Montfort International, who helped draft guidance on QROPS with the Personal Finance Society (PFS) advises to examine the situation carefully.
‘The facts are you do not have to be a non-UK resident for five years to access QROPS but you do to permanently remove any of the restrictions which exist under UK tax legislation. Even then individuals will be subject to the tax regime of the territory of residence and all other areas in which the person has lived,’ he explained.
In addition, he says QROPS are only tax-neutral where the country of residence has been checked by the recommending adviser and there are no tax liabilities levied on unrealised gains or distributions out of the scheme. ’However, in order to achieve a change in domicile, expatriates with defined benefit schemes have some difficult choices to make when weighing up the issue of domicile versus a promised pension benefit,’ explained Cowley.
‘Either way, the Gains Cooper case shows that financial planners advising expatriates who wish to or believe they have lost their domicile need to consider not only the status of their clients’ assets and/or income, but also their clients’ behaviour patterns and the associations they hold
with the UK in order to facilitate a true transition,’ he added.