Expats Face Further Delays in Residence Status Laws

Draft legislation for inclusion in the Finance Bill 2012 was published on 6 December 2011. It was expected that this would include further details about the statutory residence test, but it appears any legislative changes have been postponed.

The following statement was released to explain: ‘In the Budget 2011, the government announced its intention to introduce a statutory residence test in the Finance Bill 2012. Following consultation over the summer, the government has decided to allow further time to finalise the detail of the test. The test will now be introduced with effect from 6 April 2013 and legislated in Finance Bill 2013. Draft legislation will be published around the Budget 2012.’

A separate statement confirms that the government remains committed to introducing the statutory test, but the detailed issues associated with it require further consideration.

Expat tax experts at The Fry Group say that this is a disappointment for those who were expecting a statutory test to be introduced in April 2012. In the interim, non-residents are faced with another year of their status being decided based on personal circumstances against a background of case law and HMRC ‘guidance’.

It may be coincidence but the Supreme Court rejected the long running Gaines-Cooper appeal recently. This case emphasised the importance of making and maintaining a clear and distinct break from the UK, ensuring that one’s ‘centre of life’ is not in the UK and being careful that any time spent in the UK is within the visiting limitations. It also clearly highlighted the care that needs to be taken in relying upon HMRC guidance.

The deferral leaves expats with a degree of uncertainty. However, it is important to note that it appears the taxman is taking seriously the opportunity to develop a robust and clear set of rules surrounding this important area.

Overseas Pensions Face Tax Problem

The UK government has revealed a series of new measures to highlight any potential abuse of the QROPS (qualifying recognised overseas pension scheme) system which allows pension savers to transfer their pension schemes overseas. The new rules will come into force from 6 April 2012.

The QROPS system was designed to allow individuals permanently living overseas to transfer their UK pensions to a pension based in their new country of residence. It was meant to limit individuals to lump sum and pension benefits which are broadly equivalent to the benefits that would have been available to them had they left their pension in the UK.

Since the system was introduced some QROPS arrangements have been promoted as an opportunity to avoid tax with alleged promises of access to 100% of the pension scheme as a tax-free lump sum.

According to pensions specialists A J Bell, the changes announced by HMRC include requirements for:
- The transferring saver to provide more detailed information ahead of the transfer, including a declaration that they understand the potential for significant tax penalties.
- The UK scheme to pass this information, and more, to HMRC inside 30 days of the transfer taking place.
- The overseas scheme to report all lump sum payments made from their scheme in the ten years following the transfer. The old rules only required reporting if the individual had lived in the UK in the last five tax years.
- The overseas provider to provide more information about their scheme and the individuals running the scheme.

In addition, the QROPS itself must comply with new requirements to receive HMRC approval. Any tax exemptions offered by the QROPS to non-residents must also be available to residents.

Cheaper Travel Money on Way

Measures announced by the UK’s Office of Fair Trading (OFT) are set to improve the foreign currency market for travellers.

These improvements follow a super-complaint issued by Consumer Focus to the OFT last September. The watchdog argued that a combination of complex charges and poor or misleading information have led to consumers paying too much when buying foreign money or using cards overseas.

Following a review of the market, the OFT has worked with the industry to tackle the three major elements raised by the watchdog:
- All of the major banks have committed to stop charging customers a cash withdrawal fee for using debit cards to buy currency in the UK. This move alone could save millions of pounds each year for consumers. This means that from the end of 2012, consumers can use their debit cards to buy foreign exchange from banks, bureaux de change, the post office and travel agents and know there aren't hidden charges simply for paying on a card.
- Greater transparency will give customers a clearer idea of what they are being charged when using cards overseas. Some leading banks and lenders have agreed to print all charges and exchange rates clearly on monthly and annual customer statements instead of burying details in small print or even in separate documents. This will mean customers can more easily work out exactly how much they are paying for foreign currency and shop around to get better deals.
- Many foreign currency businesses are to review their marketing to make charges and conditions more easily understood by customers. Consumers will be less likely to be caught out by bogus 0% commission offers, which are not fee-free as the exchange rates already include mark-ups levied by suppliers.

As well as measures announced to improve the travel money market, Consumer Focus would like to see the industry go further by:
- Speeding up the timetable for scrapping charges for using debit cards to buy foreign exchange. This should happen as soon as possible.
- Providers still need to make using cards overseas simpler. Improved disclosure of these charges is welcome but better still would be a wholesale simplification of this cocktail of charges. Again providers should implement any changes to improve customer disclosure as quickly as possible.
- The industry must act on its review of the way travel money is marketed. Financial services generally must learn the lesson that treating consumers fairly and with respect is central to regaining consumer trust.

Youngsters Want to Work Abroad

A third of young people (18-34 year olds) considered leaving the UK to improve their career prospects, according to new research from Post Office International Payments.

A further 27 per cent said they were open to the idea of moving abroad. Nearly one in five has already lived or worked abroad before.

The chance of an improved quality of living was the top reason for wanting to escape the gloomy UK job and housing market. The prospect of a higher salary and more career opportunities were also among the top incentives for young professionals considering the move.

On average, 18-34 year olds said they would look to stay away for at least five years. More than one in ten believed they could ride out the effects of the current economic climate by working overseas.

Nearly a quarter of young people felt that moving overseas would be a way for them to combine their desire to go travelling with working and getting paid. Nearly one in five felt that a move abroad would create more opportunities for promotion.

Looking at reasons not to leave the UK, families have the biggest hold on young people with 62 per cent saying they could not leave their loved ones behind. Thirteen per cent of young people stated that they couldn't leave the UK as they have too many debts.

Inflation Link for New Account

NatWest International Personal Banking (IPB) has launched UK Inflation Deposit, a four-year deposit account designed to earn a potential return linked to the annual rate of UK inflation.

An annual return equivalent to the UK retail price index (RPI) rate, plus 0.25%, is calculated in each year. Any annual returns are added together and paid on the maturity date.

If the level of RPI is higher than where it was a year earlier, the rate will be positive meaning prices have risen and inflation exists.

Conversely, if the index is lower than where it was a year earlier, the RPI rate will be negative and negative inflation exists.

To determine the RPI rate on each anniversary date, the level of the index from two months previously is observed and compared with the level recorded 14 months previously. For example, on the first anniversary date on 23 January 2013, the November 2012 level of the Index will be observed and compared with the November 2011 level and the UK RPI rate will be calculated as the percentage change in the index between these two dates.

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