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Wednesday 04, July 2018 by Jessica Combes

The retirement question

 

For expatriates in the Gulf, the question of what to do later in life should not be left until the day approaches. Graeme Whittaker Field MCSI, ACII, ACIB, Chartered Financial Planner, Director & Head of Corporate Services, Credence International writes on how tax jurisdictions may affect your decision

However long you plan to stay in UAE, it is unlikely you will retire here, so having a plan on where to repatriate after UAE is important. Whether this be as you step into retirement or you move into your next promotion, understanding the differences between different jurisdictions is an important part of the decision-making process. Here we compare the challenges faced in considering a move to various countries. What is important when considering a retirement jurisdiction? Four main things: standard of living and climate, cost of living, medical cover, and income taxation.

STANDARD OF LIVING AND CLIMATE
If playing golf with the sun on your back is important, then it’s worth knowing what weather you will wake up to each morning. However, for some, the weather is what it is and the value of your income or pension is more important.

COST OF LIVING
The first table on the next page compares various cost of living indices against New York City (100) and, with the exception of Local Purchasing Power, lower is better. Whilst everywhere is cheaper to live than the UK, the higher LPP of the UK shows that, as average net disposable income is higher in the UK than elsewhere (due to higher wages) you have more money left each month to buy goods and services. Since the financial crisis a decade ago, Portugal has certainly faired better than the other countries on holding property prices whereas Spain is only now starting to see the green shoots of recovery on property prices meaning you can still get excellent value for money when looking to buy.

MEDICAL COSTS
Whilst all four countries analysed run state funded healthcare, for those British expatriates, the impact of Brexit will determine whether this will still be offered in a few years’ time. For non-EU expats, it is worth investigating fully the impact and cost of healthcare in your chosen country. If in doubt and if affordable, arranging your own private cover is still a sensible option.

INCOME TAX
As Benjamin Franklin said, 'In this world nothing is certain but death and taxes' and, whilst this is true, there are some interesting tax breaks available to those considering repatriation and becoming a resident. In simple terms, income tax is payable in the country you are resident in. Usually, this can be determined by the country that you spend more than 183 days per year in and your global income would be taxable at the highest marginal rate in that country. If, however, you do not spend this long in any one country, you would need to look at the Statutory Residence Test to determine which tax jurisdiction you fall into.

Sadly, if you keep moving, this doesn’t mean you avoid paying any tax at all. You need to be tax resident in a particular country. At first glance and without any tax concessions, the below table shows simple income tax on an annual income of EUR 50,000. However, Portugal offers a Non- Habitual Tax regime which effectively will allow new residents of Portugal to receive tax free global income for a period of 10 years.

Cyprus also provides some concessions with Dividend income, interest income pension lump sums and life insurance payouts receiving tax free status with regular pension income being taxed at a flat rate of five per cent. The UK, of course, provides ISAS, Pension contributions and National Savings Certificates which all offer tax breaks for residents. Spain’s rules are complicated and, whilst specific tax breaks are limited, different types of income attract different rates of income tax.

WHAT ABOUT INHERITANCE TAX?
UK Inheritance Tax is payable on death based on the value of your assets at a rate of 40 per cent. The first GBP 325,000 falls into the Nil Rate Band which avoids IHT and for married couples, each can receive this allowance. As a British expat, inheritance tax is based on domicile and not resident status. Therefore, even living in a different country will not remove this tax which is payable on death. If you are a foreign national living in the UK, Inheritance tax will potentially be payable on your UK assets only. Spain has a similar regime to the UK whereas both Portugal and Cyprus have no Inheritance Tax providing you can change your domicile to these countries.

This is a complex area and changing domicile is certainly not an easy option, but one worthwhile if your intention is never to return to the UK and you are happy to sever all ties with the UK including giving up citizenship and changing this to another country. Both countries offer citizenship through investment schemes and if this is your intention, it is well worth exploring these options.

CONCLUSION
When considering life after Dubai, careful consideration needs to be given to provide the lifestyle that you want whilst still managing your income to provide it. It is important to consider the local customs, regulations, residency rules. Most expats who come to work in UAE do so with an initial expectation of staying here for three to five years.

Some stay longer, some are unsuited to the climate and culture and leave quicker but only the astute understand that the period they spend in UAE can make a fundamental difference to the rest of their lives if they plan their finances properly whilst here. Wherever you are planning for your next stop, getting your finances in order, whilst resident in a tax haven, and receiving professional financial planning advice is key.