Protect your wealth and your family from international tax exposure

Transcription

1 Protect your wealth and your family from international tax exposure Expat Financial Affairs Conference British Chamber of Commerce Guy Jorion - 11 October 2014

2 Scope: you are I. Living in Belgium having lived, worked and collected real estate and other investments in several other countries. As a Belgian tax resident, these assets cannot escape the Belgian tax net. II. Wanting to plan to make things easier for your family if, suddenly, you are no longer there. III. Ceasing being an international civil servant with the European/NATO Institutions and retiring in Belgium (or don t know where). IV. Needing flexibility because you do not know or understand what your current status is or where you will live after Belgium. Page 2

3 Agenda: I. Stay in Belgium? Belgium Tax system: hell or paradise? Why Belgium so attractive? Avoidance of double taxation (income Tax/inheritance Tax) II. III. IV. Moving to the UK? UK Tax system. Why the UK so attractive? UK IHT principles, rates and exemptions. Are there pitfalls? International estate planning: 1. UK IHT and usufruct/bare ownership according to civil Law 2. UK IHT deemed domicile v Belgian estate Tax (double taxation) 3. UK/B gift/iht case study: Belgian resident now retired. Is the owner of real estate in both countries. No children but other relatives living in UK. Do he have to sell/gift a real estate (in which country) before moving back to the UK? Q and A (annex casus III.3) Page 3

4 Keep in mind: The information contained within these slides do not constitute tax advice. The calculations are for illustrative purposes only. Professional advice should be sought in the relevant jurisdiction on a case by case basis. Page 4

5 Protect your wealth and your family from international tax exposure: Stay in Belgium? Expat Financial Affairs Conference British Chamber of Commerce Guy Jorion 11 October 2014

6 STAY IN BELGIUM Belgian Tax System (Stay or go into hell) Income Tax High progressivity with only 5 rates from 27 to 53% marginal rate (local tax included) on immovable/business income (including pension!) from 36 KEUR. There is no system of division of income into parts (as the socalled French quotient familial ) IHT 3 to 30% in direct line (30% up to 500 KEUR); 20 to 70% for other relatives; 40 to 80% for other people (Brussels). Transfer tax 10% (Flanders) % (Brussels/Wallonia) applicable on real estate s transactions. VAT 21% British British Chamber Chamber of Commerce of Commerce Expat Financial Expat Affairs Financial seminar Affairs seminar Page Page 66

7 STAY IN BELGIUM Belgian Tax System (Stay or welcome into paradise) Income Tax CGT Real Estate CGT IHT Wealth Tax 25% final tax on movable income (interest/dividend) cashed via a Belgian bank (25% + local tax if cashed abroad) NIL (if it falls within the normal private wealth management) 18% (if holding period less than 5 years otherwise NIL) Reduced rates on registered donation of securities (or cash): for Brussels 3% in direct line 7% for a gift to other relatives or others NIL Page 7

8 STAY IN BELGIUM Why is Belgium so attractive? Brussels is more and more comparable to a (very) little Washington DC: the European Commission, the NATO and other international institutions are headquartered in Brussels Ease of international and local travel (at the crossroad of the railways to big cities via Eurostar, Thalys and ICE) Brussels is still a little village compared to other big European cities, with a cheap real estate market Multilingual (3 official languages) and multicultural country with both German and Latin influences Education/Health care (international schools hospitals)/lifestyle (Belgian beers and chocolates) Page 8

9 STAY IN BELGIUM Why is Belgium so attractive? Legal system based on the Code Napoléon (French civil law) Form over substance principle (contrary to UK/US Law) Belgium is a paradise Taxwise for retired HNWIs (no CGT, no wealth tax, no extra social security contributions as in France) Host country for an expatriation from another European country : contrary to other countries, the 183 days test is not applicable. However, there is a tax law proposal which is pending by lack of government. Pursuant to the new disclosure of the settlor or the beneficiary of a foreign foundation or trust, Belgium would like to introduce a look through approach for taxing at least the distributions by the trustee (follow-up needed). Page 9

10 STAY IN BELGIUM Why is Belgium so attractive? If a UK manager (employee or director) can not (or will not) benefit from the special tax regime for expatriates (only earned income from Belgium on the days of presence in B the so-called "travel exclusion" - are taxable), If the UK manager settles himself permanently in Belgium (buying a house, family living in Belgium), he can reduce the Belgian tax burden by "splitting" his remuneration over 2 or more countries or by incorporating his management company which is generally not challenged by the Tax and social security authorities as in France or as in the Netherlands. It is also an instrument to organize work after the retirement age and to benefit from the pension Page 10

11 STAY IN BELGIUM Avoidance of double taxation (Income Tax) A double taxation treaty on income tax between France and Belgium exists since This treaty is not in line with the OECD model and does not clearly allow the power to taxation for the capital gain realized by a Belgian resident when the shares of a SCI ( société civile immobilière ) or the shares of a real estate company owning French real estate are sold. Accordingly, Belgium as residence State has the power to tax this capital gain but does not effectively tax according to its domestic law. It means a double non taxation (which could be challenged by the French tax authorities). Page 11

12 STAY IN BELGIUM Avoidance of double taxation (IHT) According to section 750ter, 2 CGI (French Income tax law), the shares of a real estate company could be considered Taxwise as a French real estate. A double taxation treaty on inheritance taxes between France and Belgium exists since In case of death, there will be no tax in France according to section 8 of the Treaty (only Belgium has the power to tax). => As nearly all conventions have been signed prior to the enactment of these provisions, conventions do not refer to section 750ter, 2 and thus bar the application of French domestic law. Thus, for instance, as regards Belgian (and also Spanish, Finnish or Saudi) residents, the acquisition of immovable property through companies may remain fully advisable in order to avoid taxation in France. Page 12

13 Protect your wealth and your family from international tax exposure: Move back to the UK? Expat Financial Affairs Conference British Chamber of Commerce Guy Jorion - 11 October 2014

14 MOVING BACK TO THE UK UK Tax System Income Tax 45% CGT 28% IHT Wealth Tax SDLT (Stamp Duty Land tax) 40% (on donor) NIL VAT 20% Up to 7% (normal circumstances) Page 14

15 MOVING BACK TO THE UK Why is The UK so attractive? Good legal system (common and equity law) Financial sector and business regulation Education/Health care Ease of international and local travel Culture/lifestyle Trusts are a common and potentially effective planning tool for legal, tax and succession purposes Page 15

16 MOVING BACK TO THE UK DOMICILE/RESIDENCE For UK tax purposes domicile is different to tax residence. 3 types of domicile: domicile of origin, domicile of dependency and domicile of choice which is a mixture of actual residence and intention of permanent or indefinite residence (Residence for domicile purposes is physical presence in a country) Deemed Domicile (for UK Inheritance Tax only): tax resident in the UK in 17 out of the previous 20 tax years The statutory residence test includes 2 automatic tests of non-residence and of UK residence. If neither automatic tests apply, sufficient UK ties will lead to residence Page 16

17 MOVING BACK TO THE UK What are the basic tax principles in this case? Consider date of becoming UK resident under statutory residence test. Impact upon pre-uk arrival planning and post-uk residence scope of taxation Consider domicile status and impact on scope of liability to income/capital gains tax and inheritance taxes Worldwide income/gains taxed as arise, unless remittance basis applies (subject to review of domicile) Annual (private) pension will be taxed in the UK according to the Belgian/UK DTT Offshore structures using trusts and/or companies can be very beneficial for structuring assets. However, complex anti-avoidance legislation applies and bespoke professional advice is essential before undertaking any planning Page 17

18 MOVING BACK TO THE UK UK Income Tax rates and taxable bands (HMRC) Arising Basis Starting rate for savings 10% Between 0 and 2880 ( 3621) Basic rate 20% Between 0 and ( 40073) Higher rate 40% Between and ( ) Additional rate 45% from April 6, 2013 Over ( ) Page 18

19 MOVING BACK TO THE UK UK Inheritance tax ( Principles) Gifts to a spouse (during lifetime or on death) are normally exempt from UK IHT. Consider availability of foreign tax credit relief in situations where different countries levy IHT on different persons (i.e. donor/donee) and do not offer the same reliefs (e.g. no spouse exemption). Assets sited in the UK (i.e. real estate property) are subject to IHT regardless of the domicile of the deceased. 1. Securities in a company are situated in the country where the transfer of title to the shares will be completed; 2. Where the shares are registered, their situs will be the place where the register is properly kept (UK shares could be carefully converted into non UK ones). Page 19

20 MOVING BACK TO THE UK IHT rates and exemptions IHT on death is charged at 0% for the first 325K par person (+/- 409 KEUR). This is the so called NRB or nil rate band which is transferable between spouses. Assets over the value of the nil rate band are charged to 40% IHT. Lifetime gifts into trust are chargeable to IHT over the available NRB (at 20%). Lifetime gifts to individuals are potentially exempt transfers so that IHT only becomes chargeable if the donor dies within 7 years of making the gift. Page 20

21 MOVING BACK TO THE UK Is there anything I need to be aware of? Yes! It is very complex and full advice is essential Planning ahead is key: IHT is normally charged periodically on lifetime trusts but tax is not charged by reference to the death of a beneficiary. Other jurisdictions like France may regard a beneficiary as the owner of the trust property and charge tax on the beneficiary s death. It is not the case for the moment in Belgium but the law is likely to be changed and in case the beneficiary does not move from Belgium to the UK and pass away in Belgium, it would involve a double taxation without relief. Page 21

22 Protect your wealth and your family from international tax exposure: International estate planning Expat Financial Affairs Conference British Chamber of Commerce Guy Jorion 11 October 2014

23 III.1. UK and Belgian civil/iht law: double taxation Casus 1: Helen is a widow resident of Belgium with 3 children living in the UK. She received via a Belgian intestate succession the usufruct of the 50/100 of the entire estate (1 M being the portfolio investment of her husband). Her 3 children receive the bare ownership of their father s estate. Helen will move to the UK. What will at her death? Assume her entire estate will be subject to UK IHT, i.e. the usufruct on 1M shares (because the UK law does not recognize the bare ownership of the children but only Helen s interest on her husband property) and her own estate in full ownership (1 M at the time being). Answer: at Helen s death, tax may be charged in the UK on the full value of the property. As the B IHT has been charged on a different event, FTC is no more available. Proposal: before leaving Brussels, she makes a donation to her children via a public notary. Gift Tax will be 3% of the estate; no UK IHT due after 7 years. Page 23

24 III.2. UK and Belgian domicile: double taxation Casus 2: Richard has his domicile of origin in the UK. He moved to Belgium in June Today he dies. Period to be considered = April 1, 2013 to March 30, Spent 18 Tax years in the UK (more than 17 out of the 20 tax years concerned). So UK deemed domiciled for UK IHT purposes and Belgian resident too so Belgian estate Tax is due. Assume Richard s estate = UK real estate properties and portfolioinvestment (UK shares). Belgium will grant a Foreign tax credit for the 40% UK IHT limited to the Belgian tax (30% maximum) on the UK real estate only (not on the UK shares). There will be no FTC (Foreign Tax Credit) in the UK because the situs of the shares is not in Belgium. Page 24

25 III.3. UK and Belgian real estate : double taxation Casus 3: Audrey Haliday is a UK national ex European officer Belgian resident (Brussels) now retired. Is the owner of 2 real estates (one in Belgium, the other one in UK). No children but one niece and one nephew living in UK. Does she have to sell/gift a real estate before moving back to UK? Assume her other estate = a portfolio-investment (UK/Luxembourg). She dies before moving to the UK: Belgium will grant a (full) FTC (Foreign tax credit) for the 40% UK IHT limited to the Belgian tax (65% in this case) on the UK real estate only. A previous gift of the house in the UK is not taxable in Belgium and is not added to the estate to calculate Belgian inheritance tax. She dies as a UK resident: UK will grant a FTC for the Belgian IHT paid, limited to the UK tax (40% in this case) on the Belgian real estate. UK portfolioinvestment will not be taxed twice (no IHT in Belgium). The sale of the Belgian house before moving to the UK could lead to a non taxation in Belgium. Page 25

26 Do you still have questions or remarks or query regarding your own personal situation? Page 26

27 IN SUCH A CASE PLEASE CONTACT INT PRIVATE CLIENT SERVICES OR THE BELGIUM UK DESK OF BDO THANKS FOR ATTENDING BDO BRUSSELS IPCS Guy JORION - Bruno ORBAN BDO BRUSSELS UK DESK Marc VERBEECK Christopher THUBRON BDO LONDON IPCS Richard MONTAGUE Effie KARAMANI