David Franks explains successful tax haven planning across Europe and the West Indies.
Most people think that tax havens are places where there is little or no tax under the law. However, it is very surprising how many countries which are considered to have high tax rates, are actually tax havens if you know exactly how the system works. I would include France, Spain, Portugal and Cyprus as countries which, in my book, are tax havens.
One trap that some people fall into, is to say that they live in a tax haven (for example Guernsey) and then spend most of the time in another country claiming non-residence on the basis that they are a resident of Guernsey (or some other tax haven country). This is nonsense. Being a resident of Guernsey does not mean that you are therefore not a resident of some other country. You can be resident in both countries. You might have a double taxation agreement which may protect you, but you will quickly discover that tax havens (such as Guernsey, Monaco and so on) do not have effective double tax agreements with high tax countries. Thus you might be a resident in Monaco, but if you spend quite a lot of time in France in a property which is available for your use, the French can deem you to be a French tax resident. They will be unimpressed that you are also a resident of Monaco – that is simply irrelevant. Of course, if you had arranged your affairs properly in France, you could happily live there as a registered French tax resident whilst paying little tax – see below.
Andorra is in northern Spain and has no taxes for retired individuals. It is quite small, and is a popular ski resort.
The Channel Islands include Jersey, Guernsey, Sark and Alderney as the main inhabited islands. They have relatively low rates of tax and can be particularly tax efficient if you are resident, but not ordinarily resident there. However, they have few double tax agreements with other countries, so you would really have to live there rather than pretend to do so.
Apart from Capital Gains Tax on property in Cyprus, there is no Capital Gains Tax. For non-Cypriot nationals, the tax rates can be very low (between 10 and 15 per cent). There is no wealth nor succession tax for non-Cypriot domiciles. Cyprus is one of the very few tax havens where if you have a British government pension (for example from military service, or being a civil servant etc), then you can have your pension remitted without deduction of any UK PAYE, and pay a far lower tax rate in Cyprus. A government pension of this sort usually remains taxable in Britain even though you might live elsewhere; Cyprus is a notable exception.
If you plan your move to France beforehand, you will be surprised at how much tax you can legitimately save. There are investment structures which create a low income (though the investments themselves are not unusual), and a low income means that you will pay far less tax in France, especially with the Bouclier Fiscal. This new rule limits the total of your wealth tax, social charges, property tax and income tax to no more than 50 pet cent of your taxable income. Once you have achieved the trick of keeping your taxable income low, then your tax rates will be low as well.
Ireland has the remittance basis so that if you are resident there, you are only liable to tax on income remitted to Ireland. Capital remitted is tax free. This used to not apply to any income which arose in Britain, but that restriction has now been abolished.
Isle of Man
There is no Capital Gains Tax, nor wealth tax nor Inheritance Tax in the Isle of Man. The Income Tax rate is between 10 and 18 per cent, but there is an overall cap at £100,000 (£200,000 for a married couple).
In Italy, if you plan your investment structure correctly, for every 10 per cent of income or growth, your tax rate would be restricted to 1.25 per cent (this is not a misprint – it is 1.25 per cent not 12.5 per cent).
Malta also operates a remittance basis, although there is a minimum tax liability of about €4,000 payable each year. You can remit capital and Capital Gains Tax free. Again, if you arrange your affairs correctly, you should just be paying the minimum tax.
Monaco has no Income Tax or Capital Gains Tax for those who do not work in Monaco.
The use of offshore Trusts and other investment structures can legally minimise the amount of tax payable in Portugal.
Despite the fact that Spain has wealth tax, succession tax as well as Income Tax, by planning your move to Spain beforehand, you can make significant inroads to the amount of tax you would otherwise be paying.
Britain remains a tax haven for the non-UK domicile. They also are on a remittance basis, like Malta and Ireland. After seven years of residence in Britain, the non-UK domicile now has to pay a minimum of £30,000 per annum if he/she is to remain on the remittance basis.
There are a number of countries in the West Indies which either have no tax, or are on some form of remittance basis or equivalent.
The key to successful tax haven planning is to do it properly with careful advice. This is not an area for a do it yourself merchant. If you get it wrong, it may seem fine for a few years until your collar is felt by an enquiring tax inspector who picks apart your inadequate tax planning.
The author, David Franks of Blevins Franks, is a specialist in the expatriate financial sector.
Some information contained within this article may have changed since it was first published. HomesOverseas strongly advises you to seek current legal and financial advice from a qualified professional.