Offshore Onshore Mag

As the tax burden for families soars under the Labour government, our correspondent looks at the best boltholes for emigrating Britons
A RECORD 400,000 people turned their backs on Britain and emigrated last year, according to the latest figures from the Office of National Statistics.

Some of those making the move were first-time buyers frustrated by their inability to get a foot on the property ladder. Others were looking for sunnier climes. For many, though, a more attractive tax regime is one of the biggest reasons to quit these shores.

The tax burden has soared over the past decade under Labour, with middle-income families with children being among the hardest hit. The Organisation for Economic Cooperation and Development found the tax burden for a family with two incomes and two children had increased by nearly £1,200 since 2001 – one of the biggest rises in the world’s leading economies. And this was before higher mortgage repayments, utility bills, council tax and school fees.

Britain’s tax regime looks decidedly average according to the latest survey of personal taxation in expatriate hotspots by consultant Mercer. The UK ranks 18th lowest out of the 32 countries it surveyed for the taxation of married couples with children. For childless couples it ranks 21st and for single people 14th.

In more than a dozen countries the average family can pay less tax, including popular expat destinations such as France, Ireland and Hong Kong. Asian markets dominate the low-tax rankings with Taiwan, South Korea, Singapore, China and even Japan joining Hong Kong in the top 10. But the ultimate destination for tax exiles is the United Arab Emirates, where there are no income taxes for individuals.

Countries to avoid are Hungary, Denmark and Belgium where almost half the average family income is eaten up in tax and social security contributions.

Here are some of the most promising overseas locations:

Dubai

For high earners looking to slash their tax bills, Dubai and Abu Dhabi, two of the seven United Arab Emirates, would be the first choice.

Justin Rix at accountant Grant Thornton said: “Dubai can be an expensive place to live, but for tax purposes it remains pretty much the best option.”

According to Mercer, the average family living and working in the UAE takes home 95% of their annual pay.

There is a 5% social security contribution, but because of a desire to attract wealthy foreign residents, the UAE only applies it to locals.

There are downsides. Last year the government passed a law allowing the freehold purchase of properties by foreigners in designated areas. This sent prices soaring – by up to 100% in the the past year. An average two-bed flat in Jumeirah Beach costs about £260,000, but there are fears prices could fall in the next two years as completed apartments flood the market.

HSBC, Lloyds TSB and Bar-clays offer Dubai mortgages. And John Charcol, a mortgage broker, has recently started operating in Dubai. You can expect to pay a mortgage rate of about 8.3%.

Given temperatures of up to 40C it may not be a destination that many Britons would want to settle down in. But many are exploiting its low taxes to give their savings a short-term boost.

Hong Kong

Hong Kong is the second most tax-efficient place for married couples and families to live. Couples with two children take home 91% of their annual income, according to Mercer.

Rix said: “There are special allowances for married couples and families, which is why the overall tax rate for couples and parents is so favourable.”

There is no capital gains tax (CGT) and income tax rates are also lower than in Britain. Self-employed workers pay a flat rate of 16% and employees pay between 2% and 17%, depending on how much they earn.

Property prices could prove prohibitively high, however. Even a small flat can cost more than HK$3m (£187,000).

You will sometimes get more for your money if you live on the fourth floor – shunned by locals because the Chinese word for four sounds similar to the word for death. However, remember that you could find a fourth-floor flat difficult to sell.

Ireland

Ireland is the cheapest tax regime for families in the EU, but you might as well stay in Britain if you are single and childless.

The top rate of income tax is 41% – slightly higher than here. However, it offer some generous allowances for married couples, and single parents.

Single people pay the top rate on all income over €34,000 (£25,000). But a married couple with children might not pay the top rate until they are earning €68,000 or more.

Those moving to Ireland from the UK have to pay tax on any assets here – unless they move them offshore to the Channel Islands or Isle of Man.

After a decade of phenomenal growth Irish property prices have fallen about 5% this year.

France

France is often thought of as a high tax country, but if you have a large family, or are planning to have a lot of children, it becomes more attractive.

The government offers those with children a range of tax breaks. The more children you have, the less tax you pay, up to a maximum of six.

Rix said: “The French government wants every family to have children, so it has made the tax treatment of such families much more favourable. It’s a political ploy that you can make work to your advantage.”

Income tax levels are similar to those in Britain, but social security costs are higher. The rich need to watch out for the wealth tax. It applies to the value of French assets worth more than €760,000 (£547,000) held by nonFrench residents. French residents pay it on their worldwide assets and the rates range from 0.55% to 1.8%. You pay the tax on an amount equal to 70% of the market value of your assets.

Australia

It is easy to see why Australia is popular with Britons. The language is the same, the culture is similar and the weather fantastic.

Property prices are also low. One-bed flats in Sydney cost about A$350,000 (£148,000), and you can buy a three-bed house in the Melbourne suburbs for about A$450,000.

Income tax rates are high – up to 45% – but allowances mean that the overall tax burden is similar to that in Britain.

The biggest tax advantage is its treatment of assets on which you have made capital gains before emigrating.

Rix said: “If you bought an investment property for £100,000 in 1980, for example, it might now be worth £1m, leaving you with a big CGT bill should you sell while you are resident in the UK. However, the Australian tax system would see the value of the property as whatever it was when you emigrated; in this case £1m. After you become resident in Australia you could sell up and make a big tax saving.”

The system also favours retir-ees who do not pay income tax.

COUPLE LIVING THE DREAM

KEEN skiers Antonia and James Carpenter, both 37, decided to follow their dreams and move to France in the autumn of 2003.

They sold their home in Beckenham, Kent, and bought a chalet which they run as a guesthouse in Chamonix in the French Alps.

The couple, both of whom had holidayed in France on numerous occasions, like the proximity to Britain, which makes it easy to visit family and friends. After speaking to a French accountant, the couple decided to register their business in France and become residents there.

James, who was a manager for a catering company in the UK, said: ‘Our tax burden works out at about 25%, which is lower than in the UK. It’s important to get to know a place before buying, but my main advice for anyone considering emigrating would just be to go for it.’

EXILES HOUNDED BY THE REVENUE

MOST people imagine that once they have emigrated they are free from the clutches of Britain’s taxman, but the truth is many will still have to pay UK tax.

You must be nonresident for five tax years to escape UK capital-gains tax, and for income tax you must be nonresident for three years – unless you accept a contract to work abroad for at least a full tax year.

To become nonresident, you must spend no more than 90 days a year on average in the UK over four years, and less than 183 days in any tax year. The residence test now counts nights spent rather than days.

Even when you become resident overseas, tax may still be payable on UK-earned income or gains, from bank accounts or rental properties.

Britain has double-taxation arrangements with many countries to ensure you don’t pay tax twice on the same money. In your new country, you get a discount for the UK tax you have already paid. But if British taxes are lower you may have to make up the difference.

source: timesonline.co.uk