As we have entered 2010 and with the introduction of a 50% tax rate we are now only weeks away from the UK moving back to the realms of a high tax country. There has been much discussion about how the full impact can be averted with some individuals making plans to leave the UK altogether.
Those who are now or have in the past been taxable in the UK on the remittance basis have the opportunity to accelerate income through making remittances to the UK before 6 April.
A reminder of the primary new rules:
• The new top income tax rate of 50% applies to those with incomes over £150,000 from 6 April 2010.
• There is a phased elimination of personal allowances reaching zero for those with incomes exceeding £112,950.
• The national insurance employee rate rises and for individuals from 6 April 2011 this will be increased to a 2% levy in place of the current 1% on income above the main table rate. For employers the rate of charge increases to 13.8%.
• The effective marginal rate where UK national insurance, as well as income tax is due will rise in the next year or so from 41% to 52%.
The ability to shelter from the full consequences of this charge is being further diminished. The generous UK tax relief on pension contributions that has been available since April 2006 has been restricted significantly for those with incomes of at least £150,000 per annum. Whilst these rules apply from 6 April 2011, measures were introduced alongside this to discourage increasing contributions beyond regular patterns in place at the last Budget day (22 April 2009). The Pre-Budget Report followed up in December 2009 to bring about further changes that bring taxpayers within these special anti-forestalling rules where income exceeds £130,000.
For these measures (and for the banking sector) the payroll tax has had a significant impact on the thinking of individuals, businesses, and advisors looking again at what can be done to mitigate this higher tax charge.
Amongst possible solutions that may be considered is the advancement of income or profit shares pre-5 April 2010. Where scope exists this might involve designing subsequent deferral mechanisms into Employee Benefit Trusts (EBTs) and Employer Funded Retirement Benefit Plans (EFRBs). For some organisations this may mean maximising share incentives where capital gains (currently at 18%) can be maximised either under approved plans, or by designing incentive restrictions with a prospectively small income tax burden at present, in favour of longer term capital gains tax on growth thereafter.
Those who are now or have in the past been taxable in the UK on the remittance basis have the opportunity to accelerate income through making remittances to the UK before 6 April.
Particularly where that income has already been subject to US tax, the UK savings that can be achieved through remitting before 6 April can be substantial, but the issues involved may be complex and so we urge that this type of year-end planning be addressed as soon as possible.
The ability to plan against the full exposure to the new higher rates has become more difficult but the desire to pursue a capital gains tax rate of 18% in the UK becomes more powerful whilst this increased differential between income tax and capital gains tax rates lasts.
http://www.international-adviser.com/article/mitigating-uk-tax-hike?utm_source=Sign-Up.to&utm_medium=email&utm_campaign=147707-IA+Mar+03+2010
Saturday 6 March 2010
Friday 5 March 2010
Qrops Advice: Malta’s regulator approves two pension schemes
Malta’s regulator has approved two pension schemes, according to a notice on its website. It was not immediately clear whether these schemes are poised to receive approval for transfers of UK pensions.
HM Revenue & Customs recognised Malta as a jurisdiction to which UK pensions could be transferred at the end of November, following months of negotiations. As reported by International Adviser, that development meant that Malta-domiciled pension schemes approved by the Malta Financial Services Authority (MFSA) are eligible for QROPS status.
However, no Malta companies as yet feature on HMRC's list of Qualifying Recognised Overseas Pension Schemes (QROPS), which was last updated on 22 February.
According to the MFSA, the two schemes it has approved are MCT Malta Private Retirement Scheme in St Julians, and Melita International Retirement Scheme Trust of Sliema, an arm of Dublin-based Custom House Group. Custom House is understood to have approved pension administration operations in Malta.
Sandro Bartoli, managing director of Sliema-based Quest Investment Services, a Maltese advisory firm affiliated with Sparkasse Bank, said the announcement of the two schemes’ approval is being welcomed by IFAs and others on the island. He believes Malta’s membership in the EU will be an important selling point.
Qrops Advice on www.qrops-advisers.com or call 0044 (0)1664 444625
http://www.international-adviser.com/article/maltas-regulator-approves-two-pension-schemes?utm_source=Sign-Up.to&utm_medium=email&utm_campaign=147972-IA+05+Mar+10
HM Revenue & Customs recognised Malta as a jurisdiction to which UK pensions could be transferred at the end of November, following months of negotiations. As reported by International Adviser, that development meant that Malta-domiciled pension schemes approved by the Malta Financial Services Authority (MFSA) are eligible for QROPS status.
However, no Malta companies as yet feature on HMRC's list of Qualifying Recognised Overseas Pension Schemes (QROPS), which was last updated on 22 February.
According to the MFSA, the two schemes it has approved are MCT Malta Private Retirement Scheme in St Julians, and Melita International Retirement Scheme Trust of Sliema, an arm of Dublin-based Custom House Group. Custom House is understood to have approved pension administration operations in Malta.
Sandro Bartoli, managing director of Sliema-based Quest Investment Services, a Maltese advisory firm affiliated with Sparkasse Bank, said the announcement of the two schemes’ approval is being welcomed by IFAs and others on the island. He believes Malta’s membership in the EU will be an important selling point.
Qrops Advice on www.qrops-advisers.com or call 0044 (0)1664 444625
http://www.international-adviser.com/article/maltas-regulator-approves-two-pension-schemes?utm_source=Sign-Up.to&utm_medium=email&utm_campaign=147972-IA+05+Mar+10
Thursday 4 March 2010
QROPS Advice: Spotlight on Global Health Care investments
Such is the vast size of the world's leading pharmaceuticals firms, that many investors will already have a small exposure to the Health Care sector, via their exposure in many of the world's global equity funds. What many investors don't realise, however, is that a niche industry of specialist Health Care-focussed investment funds have been available for over 25 years.
Healthcare funds invest in the stocks of companies that operate within the healthcare sector. This encompasses a wide range of industries, detailed further below. The managers of these funds seek out companies that have upside potential from new drugs, discoveries, patents, products and even procedures.
Historically, the fortunes of Health Care funds have been greatly attributable to two major influences; political events and demographic shifts, both of which are particularly topical at the moment.
The appointment of Barack Obama as U.S President has caused understandable excitement in the Health Care fund industry, given his pre-election promise of a shake up in the American medical system. The provision of medical insurance to the estimated 46.3 million residents currently without any arrangements, and the task of improving what has historically been a much-criticised state system could prove extremely fruitful for the many companies in the vast Health Care industry.
The impact of socio-demographic movements over recent years also looks promising for the Health Care fund industry. Whilst such funds are widely considered as a defensive holding (after all, the need for medical care is universal and often independent of economic cycles), the rise in prominence of 'emerging market' countries ensures that the gap between the standards of medical provision and solutions worldwide, become ever smaller. For example, several India-focused healthcare funds have been launched recently as India's healthcare services market undergoes robust expansion. According to Technopak Advisors, the USD35bn Indian healthcare industry is projected to touch over USD75bn by 2012 and USD150bn by 2017. As medical standards in such countries improve, so do life expectancy rates which, in-turn, favours medical supply companies.
There are highly specialised Health Care funds available, with significant differences amongst them. For example, some specialize in big pharmaceuticals, including some of the world's largest drug companies such as Pfizer Inc and Johnson & Johnson. Other healthcare mutual funds specialise in biotechnology stocks. Such funds invest primarily in companies that use biological processes in the development or manufacture of a product, or in the technological solution to a problem. There are also healthcare funds that own hospital companies, makers of medical devices, distributors of medical supplies, and so on.
Well diversified Health Care funds which invest across the many specialist sectors of the industry prove to be the most popular, particularly when held as an investment via a pension or a holding in a life assurance contract. Derek Tanner, manager of the the Hansard Invesco Healthcare fund (MC22, available in both HIL and HEL) looks back at 2009, and forward to 2010, commenting "The health care sector was favoured during the quarter as investors saw more action around the US health care reform efforts.
It is important to note that not all health care companies will be affected by health care reform in the same way. Some industries, like health care equipment and biotechnology, are less exposed. Managed health care will be among the most directly impacted by efforts of health care reform.However, we believe fear is largely baked into these stocks that are now trading at major discounts. As a result, we continue to overweight these sectors.
We tend to believe the future of health care is in biotechnology rather than pharmaceuticals. Within biotech, our emphasis is in profitable large-cap companies that are generating sufficient free cash flow rather than small-cap start-ups that typically lack liquidity and earnings."
Healthcare funds invest in the stocks of companies that operate within the healthcare sector. This encompasses a wide range of industries, detailed further below. The managers of these funds seek out companies that have upside potential from new drugs, discoveries, patents, products and even procedures.
Historically, the fortunes of Health Care funds have been greatly attributable to two major influences; political events and demographic shifts, both of which are particularly topical at the moment.
The appointment of Barack Obama as U.S President has caused understandable excitement in the Health Care fund industry, given his pre-election promise of a shake up in the American medical system. The provision of medical insurance to the estimated 46.3 million residents currently without any arrangements, and the task of improving what has historically been a much-criticised state system could prove extremely fruitful for the many companies in the vast Health Care industry.
The impact of socio-demographic movements over recent years also looks promising for the Health Care fund industry. Whilst such funds are widely considered as a defensive holding (after all, the need for medical care is universal and often independent of economic cycles), the rise in prominence of 'emerging market' countries ensures that the gap between the standards of medical provision and solutions worldwide, become ever smaller. For example, several India-focused healthcare funds have been launched recently as India's healthcare services market undergoes robust expansion. According to Technopak Advisors, the USD35bn Indian healthcare industry is projected to touch over USD75bn by 2012 and USD150bn by 2017. As medical standards in such countries improve, so do life expectancy rates which, in-turn, favours medical supply companies.
There are highly specialised Health Care funds available, with significant differences amongst them. For example, some specialize in big pharmaceuticals, including some of the world's largest drug companies such as Pfizer Inc and Johnson & Johnson. Other healthcare mutual funds specialise in biotechnology stocks. Such funds invest primarily in companies that use biological processes in the development or manufacture of a product, or in the technological solution to a problem. There are also healthcare funds that own hospital companies, makers of medical devices, distributors of medical supplies, and so on.
Well diversified Health Care funds which invest across the many specialist sectors of the industry prove to be the most popular, particularly when held as an investment via a pension or a holding in a life assurance contract. Derek Tanner, manager of the the Hansard Invesco Healthcare fund (MC22, available in both HIL and HEL) looks back at 2009, and forward to 2010, commenting "The health care sector was favoured during the quarter as investors saw more action around the US health care reform efforts.
It is important to note that not all health care companies will be affected by health care reform in the same way. Some industries, like health care equipment and biotechnology, are less exposed. Managed health care will be among the most directly impacted by efforts of health care reform.However, we believe fear is largely baked into these stocks that are now trading at major discounts. As a result, we continue to overweight these sectors.
We tend to believe the future of health care is in biotechnology rather than pharmaceuticals. Within biotech, our emphasis is in profitable large-cap companies that are generating sufficient free cash flow rather than small-cap start-ups that typically lack liquidity and earnings."
Tuesday 2 March 2010
QROPS – Maximising Your UK Pension Fund When You Live Overseas
When you move from one country to another, you should review your wealth management arrangements to ensure they will work effectively for your new lifestyle and that they are suitable for the investment and tax regime of your new country of residence. You will also want to establish if your expatriate status and/or the local rules provide any new opportunities for increased tax mitigation.
While many people do review their saving and investment arrangements, they often fail to consider their pension funds – perhaps because they know that the UK retains a tight control over them, even if they have left the UK.
However, while UK pension funds may be fairly inflexible and could be liable for UK death taxes even where the owner is non-UK resident, many expatriates do have the QROPS option. If you have left or are about to leave the UK it is now possible to transfer most private pension funds into a Qualifying Recognised Overseas Pension Scheme (QROPS).
Deferred pensions, pensions in drawdown and protected rights can all be moved into a QROPS, but you cannot make a transfer if you have already bought an annuity. Final Salary Schemes are only eligible if the pension has not commenced and state pensions cannot be moved either.
Improving pension income and investment opportunities
QROPS can be more flexible in how and when you take your income. You can vary your income (within limits) to suit your lifestyle and financial requirements within your country of residence. A wide range of investment opportunities are available within a QROPS, and with increased control over your fund you can structure it to suit your needs for income and capital growth.
Tax efficiency
Another way to increase your income is of course to pay less tax on it. Your pension can roll up tax free within a QROPS and income will be paid to you gross. You do need to declare it in your country of residence, but in countries like Spain, Portugal and France you can structure your fund so that you pay less tax on it than you would with a UK pension fund.
Removing currency risk
Exchange rate movements between Sterling and the Euro can affect how much pension income you receive each month. While sometimes your income does increase, as we’ve seen over the last few years more often than not you end up with less in your pocket. You may also be paying exchange rate costs.
With a QROPS you can choose which currency your fund is denominated in and which currency you receive the income in. This can be Sterling, or Euro, or indeed any currency. By holding your fund in Euros you will no longer be at the mercy of falling rates. If you want to give the exchange rate the opportunity to improve before you change currency, you can set up your fund in Sterling and transfer to Euros at a later date.
Avoiding the annuity trap
Under current UK legislation, you must either buy an annuity by your 75th birthday or be transferred into an Alternatively Secured Pension (ASP) – but for many people neither is a particularly attractive option.
Annuities are increasingly considered inflexible and annuity rates are currently very low. When you die the balance of your fund dies with you – you cannot pass this asset onto the next generation. Other than perhaps a spouse’s/dependent’s pension, there is nothing to leave your family, even if there is still a healthy balance left in the fund.
With the ASP alternative you would receive lower levels of income than you did when you were in drawdown. While you can leave the balance to your family, it comes at very high price – the tax charges on death can be as high as 82%!
The Conservatives have said that if they win the General Election they will scrap the compulsory annuitisation at age 75. In certain respects this is strange news because, as I have said above, there is currently no legal compulsion to buy an annuity at age 75. However time will tell what George Osborne means by this.
On the other hand, if you transfer your pension into a QROPS it won’t matter whether this goes ahead or not, because with a QROPS you never have to buy an annuity, which means you may be able to leave your family a larger inheritance. If you think an annuity would suit your circumstances, however, the option to purchase one remains open to you.
Avoiding UK death taxes
If you have taken any benefits from your UK pension fund (income or cash lump sum) and have not bought an annuity, it will be potentially liable for a tax charge on death of 35% pre age 75 and up to 82% post age 75. This also applies to non-UK residents and even to non-UK domiciles. Unlike with inheritance tax, there is no exemption between spouses.
However, if you have transferred your pension into a QROPS, and provided you have been non-UK tax resident for five complete and consecutive tax years at the time of your death, your fund will escape the UK charges, that is, both the 35% charge on income drawdown and the up to 82% charge on ASPs.
While transferring your pension funds into a QROPS can provide many benefits, it won’t necessarily suit everyone, so do make sure you understand all the implications before you decide to go ahead. For those whose pension funds total less than £75,000, a move to QROPS is unlikely to be cost effective. You should also make sure that the scheme you choose is approved by HM Revenue & Customs and follows the spirit of the UK legislation which allows pension holders to transfer out of the UK and into a QROPS.
http://www.expatwealth.telegraph.co.uk/NDEN._25_NewsDetails.aspx
While many people do review their saving and investment arrangements, they often fail to consider their pension funds – perhaps because they know that the UK retains a tight control over them, even if they have left the UK.
However, while UK pension funds may be fairly inflexible and could be liable for UK death taxes even where the owner is non-UK resident, many expatriates do have the QROPS option. If you have left or are about to leave the UK it is now possible to transfer most private pension funds into a Qualifying Recognised Overseas Pension Scheme (QROPS).
Deferred pensions, pensions in drawdown and protected rights can all be moved into a QROPS, but you cannot make a transfer if you have already bought an annuity. Final Salary Schemes are only eligible if the pension has not commenced and state pensions cannot be moved either.
Improving pension income and investment opportunities
QROPS can be more flexible in how and when you take your income. You can vary your income (within limits) to suit your lifestyle and financial requirements within your country of residence. A wide range of investment opportunities are available within a QROPS, and with increased control over your fund you can structure it to suit your needs for income and capital growth.
Tax efficiency
Another way to increase your income is of course to pay less tax on it. Your pension can roll up tax free within a QROPS and income will be paid to you gross. You do need to declare it in your country of residence, but in countries like Spain, Portugal and France you can structure your fund so that you pay less tax on it than you would with a UK pension fund.
Removing currency risk
Exchange rate movements between Sterling and the Euro can affect how much pension income you receive each month. While sometimes your income does increase, as we’ve seen over the last few years more often than not you end up with less in your pocket. You may also be paying exchange rate costs.
With a QROPS you can choose which currency your fund is denominated in and which currency you receive the income in. This can be Sterling, or Euro, or indeed any currency. By holding your fund in Euros you will no longer be at the mercy of falling rates. If you want to give the exchange rate the opportunity to improve before you change currency, you can set up your fund in Sterling and transfer to Euros at a later date.
Avoiding the annuity trap
Under current UK legislation, you must either buy an annuity by your 75th birthday or be transferred into an Alternatively Secured Pension (ASP) – but for many people neither is a particularly attractive option.
Annuities are increasingly considered inflexible and annuity rates are currently very low. When you die the balance of your fund dies with you – you cannot pass this asset onto the next generation. Other than perhaps a spouse’s/dependent’s pension, there is nothing to leave your family, even if there is still a healthy balance left in the fund.
With the ASP alternative you would receive lower levels of income than you did when you were in drawdown. While you can leave the balance to your family, it comes at very high price – the tax charges on death can be as high as 82%!
The Conservatives have said that if they win the General Election they will scrap the compulsory annuitisation at age 75. In certain respects this is strange news because, as I have said above, there is currently no legal compulsion to buy an annuity at age 75. However time will tell what George Osborne means by this.
On the other hand, if you transfer your pension into a QROPS it won’t matter whether this goes ahead or not, because with a QROPS you never have to buy an annuity, which means you may be able to leave your family a larger inheritance. If you think an annuity would suit your circumstances, however, the option to purchase one remains open to you.
Avoiding UK death taxes
If you have taken any benefits from your UK pension fund (income or cash lump sum) and have not bought an annuity, it will be potentially liable for a tax charge on death of 35% pre age 75 and up to 82% post age 75. This also applies to non-UK residents and even to non-UK domiciles. Unlike with inheritance tax, there is no exemption between spouses.
However, if you have transferred your pension into a QROPS, and provided you have been non-UK tax resident for five complete and consecutive tax years at the time of your death, your fund will escape the UK charges, that is, both the 35% charge on income drawdown and the up to 82% charge on ASPs.
While transferring your pension funds into a QROPS can provide many benefits, it won’t necessarily suit everyone, so do make sure you understand all the implications before you decide to go ahead. For those whose pension funds total less than £75,000, a move to QROPS is unlikely to be cost effective. You should also make sure that the scheme you choose is approved by HM Revenue & Customs and follows the spirit of the UK legislation which allows pension holders to transfer out of the UK and into a QROPS.
http://www.expatwealth.telegraph.co.uk/NDEN._25_NewsDetails.aspx
Subscribe to:
Posts (Atom)
Posts
