IN093 - Tax Driven Emigration to Countries in Europe

Personal emigration to achieve savings of income tax or death taxes has, for many years, been a key motivating factor in the change of residence of wealthy individuals around the world.

Favoured locations within Europe for the re-location of the principal residence have, in the past, been:

• United Kingdom
• Monaco
• Switzerland
• Guernsey and Jersey
• The Isle of Man

The major advantages of a move to one of the above locations include the absence of, or substantial reduction in, income taxes, and the avoidance of exposure to inheritance taxes.

Changes in legislation are now being considered and put into effect in additional countries to either reduce or eliminate inheritance tax on the transfer of assets to family members on death. There is also increasing recognition that tax collection needs to be directed towards expenditure rather than imposed on income.

The present advantages of the above locations continue. The current position in Italy and Portugal, may also encourage consideration of re-locating to either of these countries due to changes in inheritance tax law.

United Kingdom

Currently, within the United Kingdom, as long as there is no intention to remain permanently, an individual arriving from overseas is subject to United Kingdom income tax only on income earned in the United Kingdom or remitted to the United Kingdom from overseas.

During the first seventeen years of tax residence there would be no liability to United Kingdom inheritance taxes, other than on the value of assets in the United Kingdom in excess of £263,000.

It is therefore possible to structure an individual’s financial affairs to ensure that income tax within the United Kingdom is kept to a reasonable amount, whilst avoiding any UK inheritance tax for seventeen years.


This tax regime is presently being reviewed, as it has been periodically in the past. It is possible that the advantages presently enjoyed by foreign nationals in the UK will be reduced and wealthy individuals will move away from the United Kingdom in the next few years.

Monaco

Monaco levies no personal income tax and a move to this principality provides an opportunity to avoid all income and inheritance tax obligations.

The cost of property is high and the lifestyle does not suit everyone, but once a residence has been established in Monaco the personal taxation obligations are eliminated, subject to those which might arise in countries that are the source of any earned income.

Switzerland

It is possible to establish an agreement with the Swiss authorities whereby income tax is payable on deemed income, often estimated at five times the equivalent rental value of the property in which the individual is living.

Inheritance tax between close family members is not applied in most cantons of Switzerland, with the result that the liability within Switzerland to income tax and inheritance tax can be clearly defined and restricted.

Guernsey and Jersey (the Channel Islands)

The rate of personal tax in the Channel Islands has remained at 20% for many years. Individuals living there pay tax on their worldwide income, but at a maximum rate of 20%.

There is no inheritance tax in the Channel Islands.

There are some restrictions on taking up residence in Jersey where local immigration permission is required.

Immigration restrictions in Guernsey are those that would normally be applied by the United Kingdom as a whole. The only restriction applicable to any newcomer to the island is the type of property that can be occupied. This must be a property from the Open Market Register, which are generally the more expensive properties available on the island.

There is also the opportunity to move to Sark (a small island near Guernsey), where income taxes are not applied and there is no inheritance tax or any restrictions on immigration, other than those that apply generally within the United Kingdom to non-EU citizens.

Isle of Man

A cap of £100,000 on personal income tax liabilities has been introduced for tax year 2006/2007. There are no inheritance taxes and the restrictions on immigration are those normally applied within the United Kingdom.

Italy
With changes of law in Italy providing for the elimination of gift and inheritance taxes, Italy may once again become an attractive place to live from a perspective of the absence of inheritance tax.

Income taxes remain at a high level, but with the implementation of proposed tax reforms and some structuring prior to immigration into Italy, these may well be contained at a reasonable level. In the near future therefore, residence in Italy may also be an attractive financial proposition from an income tax perspective.

Portugal

Portugal has also moved to eliminate inheritance taxes, and from 1st January 2004 inheritance by spouses and descendants are no longer subject to any death taxes in Portugal. Portugal may well therefore become the future retirement location in Europe since, again, with advance planning, income taxes may also be restricted.

Summary

From a financial perspective the UK, Monaco, Switzerland, the Channel Islands and the Isle of Man remain attractive locations to consider emigrating to.

With the legislative changes taking place in Italy and Portugal, these locations are becoming attractive alternative European locations to consider for personal emigration.

If you would like any further information please speak to your usual Dixcart contact on this issue or to the appropriate office in the UK, Switzerland, Guernsey or the Isle of Man.