Category: Expatriate Services

Rich People From These Nations Hide the Most Offshore Wealth

 

 

 

 

The top 0.01 percent isn’t paying a big chunk of its tax bill

Pinpointing the inequality between rich and poor is notoriously difficult because the data is so squishy, and new research shows just how hard that job can be.

The study is the first of its kind to quantify tax avoidance by nation. It kicks off this week’s economic research roundup, and is followed by a look at the decline in innovative ideas, another on the trajectory for pricing power, and a final piece on inflation and wages in the U.S. and Europe. Check this column each week for new economic studies from around the world.

 

Who’s skipping out on taxes

One-tenth of the world’s total wealth is held in offshore tax havens, but that share jumps to as much of 15 percent for Europe and as much as 60 percent for Gulf and some Latin American countries, new research shows. When it comes to total offshore wealth as a share of GDP, the United Arab Emirates, Venezuela, Saudi Arabia, Russia and Argentina lead the pack, while Germany, the U.K. and France all have above-average holdings. The U.S. is slightly below average.

There are a few factors that are closely associated with a high share of offshore wealth-to-GDP – proximity to Switzerland, the presence of national resources,  and political and economic instability. That could be why the U.S. is slightly below the average, said economist Gabriel Zucman, one of the authors.

Offshore wealth boosts inequality when it’s factored into tax data, because it belongs mostly to the richest households.  In the U.K., Spain, and France, about 30 percent to 40 percent of the wealth of the richest 0.01 percent of households is held abroad. Russia’s richest hold as much as 60 percent of their wealth overseas. “The way that we measure inequality in economics, and the social sciences, is that we rely a lot on tax data,” Zucman said. “There’s the obvious problem that there is tax avoidance: if you only look at tax data there is risk that you’re going to underestimate the true concentration of wealth.”

 

 

 

 

 

 

 

 

 

 

 

 

Also worth noting: Hong Kong is rising as a destination for overseas cash, probably thanks to the rise of the super-rich in China and increased international pressure on more storied tax havens, like Switzerland.

Who Owns the Wealth in Tax Havens? Macro Evidence and Implications for Global Inequality
Published September 2017

 

A good idea is hard to find

Moore’s law – the idea that the number of transitors packed onto a computer chip doubles every two years – is getting harder to bring to fruition: it takes 18 times as many researchers to generate that change today as in 1970. That’s happening as research productivity is declining at a rate that averages 6.8 percent per year, new research by Stanford University economist Nicholas Bloom and co-authors finds. Likewise, research productivity for agricultural seed yields is slumping, and a similar slide is evident in mortality improvements associated with cancer and heart disease.

So what’s going on here? We could be trying too hard. The decrease in semiconductor-related productivity “might be precisely due to the fact that research effort is rising so sharply,’’ the authors suggest. “Because it gets harder to find new ideas as research progresses, a sustained and massive expansion of research” might “lead to a substantial downward trend in research productivity.” Regardless of the cause, it matters for economic growth.

Are Ideas Getting Harder to Find?
Published September 2017

 

Pricing power: don’t count it out

Pricing power – the ability to raise prices without choking off demand – has actually increased over the past two decades despite the advent of Amazon, according to Goldman Sachs researchers. U.S. firms charged 67 percent more than their marginal costs in 2014, versus 18 percent in 1980. The authors suggest that that could be happening because superstar firms are capturing a bigger slice of market share and are establishing productivity advantages, and because technology has boosted other forms of pricing power, like product differentiation.

At the same time, consumer price elasticity – the chance that they curb buying things as they become more expensive – has fallen for the past 20 years, though it’s picked up a bit in the last five.

US Daily: Pricing Power and Inflation
Published Sept. 8, 2017

 

Don’t get too excited about inflation 

Much of the recent slowdown in U.S. inflation and recent pickup in the euro area owe to jumpy sub-components – like cell phone plans and generic medicines in America – rather than a genuine change in trend inflation, researchers at The Institute of International Finance write in a note. “The`signal-to-noise’ ratio in core inflation has deteriorated on both sides of the Atlantic,” the researchers write. When it comes to wages in the U.S., though, the story changes: there’s no reason to believe that one-off events are driving a recent slowdown, so that “the wage slowdown looks broad-based and is therefore a genuine puzzle.”

Signal-to-Noise in the Wage Slowdown
Published Sept. 11

 

Remember there is nothing wrong with being tax efficient, the problems occur when you are tax avoiding, we help many expats each year to maximise their legal right to be tax efficient while offshore and if you would like a free and private consultation please let me know.

All the best and have a great day

Stuart

CEO

Farringdon Group

+60 3 2026 0286

 

Article – Courtesy of Bloomberg

How To Make The Most Of Unused Inheritance Tax Allowance

The UK tax office has recently updated its rules for transferring any unused portion of basic and additional IHT thresholds when the first person in a marriage or civil partnership dies.

Find out more about the basic and additional IHT thresholds and see examples of how unused portions can be transferred to a surviving spouse or partner.

 

The Basic Tax-Free Threshold

The basic tax-free threshold available when a spouse or civil partner dies can be increased to as much as £650,000 ($843,933, €715,226) if none of the £325,000 threshold was used when the first of the couple died.

The basic threshold that is available to their estate is increased by the percentage of the threshold that was not used when the first partner died.

 

Example

Paul dies leaving legacies totaling £600,000. He leaves £130,000 to his children and the rest to his wife.

The available threshold at the time was £325,000.

The legacies to the children would use up 40% (£130,000 ÷ £325,000 x 100) of the threshold, leaving 60% unused.

When his wife dies, the threshold is still £325,000, so their available threshold would be increased by the unused percentage (60%) to £520,000.

If his wife’s estate isn’t worth more than £520,000 there’ll be no IHT to pay when she dies. If it’s worth more, IHT should be paid on anything above £520,000.

 

Transferring any unused basic threshold

The estate’s executors must claim to transfer the unused basic threshold when the husband, wife or civil partner dies.

 

Unused additional threshold

If someone owned their own home or a share of one, their estate may be entitled to an additional threshold.

The extra amount for 2017/18 is up to £100,000. The maximum available amount will go up yearly.

Any additional threshold that is not used when someone dies can be transferred to their husband, wife or civil partner’s estate when they die.

This can also be done if the first of the couple died before 6 April 2017, even though the additional threshold was not available at that time.

The additional threshold and any transferred additional threshold is available if the surviving husband, wife or civil partner:

Leaves a home to their direct descendants; or,

Includes the home in their estate.

 

Qualifying criteria

The home that the surviving husband, wife or civil partner leaves to their direct descendants does not have to be the same home that they lived in with their partner to either qualify for the additional threshold or to transfer it.

The surviving husband, wife or civil partner does not have to have previously owned the home with their late partner, or inherited it from them.

It can be any home as long as the surviving spouse or civil partner lived in it at some stage before they died and the home is included in their estate.

If the surviving husband, wife or civil partner sold or gave away their home on or after 8 July 2015 and they leave other assets to their direct descendants when they die, the additional threshold may still be available under the downsizing rules.

Couples who are not married or in a civil partnership, or who have divorced, will still be able to benefit from the additional threshold individually if they leave a home to their direct descendants. But they won’t be able to transfer any unused additional threshold to each other.

 

Pre-April 2017

Where the first of the couple died before 6 April 2017 their estate wouldn’t have used any of the additional threshold as it wasn’t available.

So, 100% of the additional threshold will be available for transfer unless their estate was worth more than £2m and the additional threshold is tapered away.

It’s the unused percentage of the additional threshold that’s transferred, not the unused amount.

This makes sure that if the maximum amount of additional threshold increases over time, the survivor’s estate will benefit from the increase.

 

Calculating additional threshold

You calculate the actual amount that is transferred to the surviving spouse or civil partner’s estate in two steps:

Step 1. Work out the percentage of additional threshold that wasn’t used when the first of the couple died.

You do this by dividing the unused amount of additional threshold by the total additional threshold that was available when the first of the couple died and multiplying the result by 100.

If the person died before 6 April 2017 the unused additional threshold and total available additional threshold are both deemed to be £100,000 so the unused percentage is 100%.

Step 2. Multiply the percentage of additional threshold that was unused when the first of the couple died by the maximum additional threshold available at the time of the survivor’s death.

This gives you the sum available to transfer.

 

Case Study

Philip died in 2015 and left his entire estate to his wife. This was before the additional threshold was available.

So, when he died, the additional threshold could not have been used. That means 100% is available to transfer to his wife’s estate.

His wife dies on 30 July 2019 and leaves all her estate, including a home worth £400,000, to her daughter.

Having died in the tax year 2019/20, the maximum available additional threshold is £150,000.

Her executor makes a claim to transfer the unused additional threshold from Philip’s estate.

So, the total available additional threshold for Philip’s wife’s estate will be £300,000 (£150,000 + (transfer of 100% x £150,000)).

 

Transferring any unused additional threshold

The estate’s personal representative will need to give details of the amount due and supporting information on the IHT return.

They will make a claim to transfer any unused additional threshold from the estate of a late husband, wife or civil partner.

They will also need to make a claim for any additional threshold as a result of downsizing selling or giving away of the home before the person died.

As the additional threshold and basic IHT threshold are not linked, the percentages transferred can be different.

This means that even if all of the basic IHT threshold was used when the first of the couple died, you can still transfer the unused additional threshold.

The percentage of transferred additional threshold will be limited to 100%.

This means that if an individual has had more than one spouse or civil partner and they make a claim to transfer the unused additional threshold from each one, the total transferred additional threshold can’t be more than 100% of the maximum available amount.

 

We know this tends to get complicated and it’s something that people do forget about or don’t tend to talk about, so we can help. I’m happy to arrange an introduction via call, Skype or face 2 face, just let me know and of course, as always, everything is private and confidential that is discussed.

All the best

Stuart

CEO

Farringdon Group

+60 3 2026 0286

 

 

 

Source: International Adviser

Are You Returning ‘Home’ to the UK ?

Making the move back to the UK after spending time living abroad is not nearly as easy as one would think. There are a number of reasons why people decide to return ‘home’, most commonly, homesickness, new position and missing family members.

 

Your decision to move home has likely took months to reach and moving home after spending an extended period of time living and working abroad can give way to a number of challenges, both emotional and difficult never mind the change of climate and way of life.

The process of repatriating can become a stressful experience. Think of it as being similar to when you started your expat adventure, just without the hassle spending hours in a bank, opening up a new account in a foreign country!

 

When considering repatriation, one must consider whether they are still a UK Resident or an Overseas Resident.

 

This list of Criteria is helpful in determining which category you fit in. This should be step one when considering moving back to the UK.

 

You are still considered a UK resident if you;

  • Present in the UK for 183 days or more in a tax year; or
  • There is at least one period of 91 consecutive days, at least 30 days of which fall in the tax year, when:
  • you have a home in the UK in which you spend a sufficient amount of time (typically 30 days), and either you:
  • have no overseas home, or
  • have an overseas home in which you spend no more than a permitted amount of time (typically 30 days)
  • Work full time (typically 35 hours per week) in the UK, as assessed over a period of 365 days with no significant break (typically 31 days of less than 3 hours work) (also consider relevant jobs)or
  • The 30-day presence rules operate on each home separately and independently

You are now considered an overseas resident if you;

  • Resident in the UK in all of the previous three tax years and present in the UK for fewer than 16 days in the current tax year; or
  • Not resident in the UK in all of the previous three tax years and present in the UK for fewer than 46 days in the current tax year; or
  • Work “full time overseas” (typically 35 hours), in the year of assessment and there are
no significant breaks from overseas work (typically 31 days of less than 3 hours work), the number of days on which more than 3 hours are worked in the UK is less than 31 and the number of days spent in the UK is less than 91

Now it’s time to acknowledge what has changed since you left

A list of changes would include;

  • Changes to State Pension
  • Changes in personal tax allowances
  • Changes to lifetime allowance
  • Changes to inheritance tax
  • The closing of capital gain loopholes

Regarding state pension,

After April 2017, people will have to work longer, needing to make 35 years’ worth of National Insurance (NI) contributions, rather than the current 30, to qualify for the full state pension.

Whether or not you will be awarded the UK State Pension is usually based on the UK qualifying years you have worked. You can however accrue qualifying years in the European Economic Area, Switzerland, or certain bilateral countries that have a social security agreement with the UK. We can assist by sending you a quick and easy 5 step guide to checking your NI contributions, just email me for details.

 

Regarding changes to personal tax allowance,

The amount of money you are allowed to
earn before income tax becomes payable has increased to £11,000, up from £10,600. From 6th April 2017 it will rise again to £11,500.

Those who fall into the 40% tax rate bracket can now earn £43,000 a year, up slightly from £42,385 in 2015/16, before having to pay the higher-rate of income tax. This is set to rise further to £45,000 in April 2017 with the Government stating its commitment to raising it to £50,000 by 2020.

 

Regarding changes to lifetime allowance,

On the 6th April 2016 the standard pensions Lifetime Allowance (LTA) was reduced again, this time from £1.25 million to £1 million. Having peaked at £1.8m in 2010/11 anybody with an estimated pension portfolio approaching £700,000 or a projected retirement income of £35,000, must review their retirement plans now.

Those who do nothing risk being taxed at a rate of 55% for any excess (amount above the lifetime allowance) taken as a lump sum, or 25% for any excess taken as income (in addition to your marginal UK income tax rate). We can assist with a free pension review, please email me for more details.

 

Regarding changes to inheritance tax,

The idea of working your whole life and then having to pass
a large slice over to the state can leave a bitter taste in many people’s mouths. However, with careful planning there are ways
to minimise or even eradicate any such liability and ensure that your life’s wealth goes to the people you want it to.

Unfortunately, it is all too common to see forced property sales and huge
tax payments simply because people did not seek proper advice at the right time. There are some very simple steps to protecting your wealth and they could end up saving you and your family a fortune.

 

Regarding closing of Capital Gains Tax loopholes,

As of April 6 2015, all non-UK residents must pay CGT when selling UK residential property of any value. If you currently own a UK property, be it for residential or investment purposes, it is important that you are up to speed with the new Capital Gains Tax Rules introduced in 2015. When an asset, such as a house is sold or disposed of, Capital Gains Tax (CGT) is paid on any realised profits.

The total gain is calculated by subtracting the sale value from the property’s when the rule change came into effect. If you haven’t already, you should consider obtaining a valuation of your property, even if you don’t intend on selling it in the near future.

How you are impacted by UK CGT can differ based on your residency status. The tax rules in your current jurisdiction might make it advantageous to dispose of your assets before returning to the UK.

 

If you have any questions or queries on ANYTHING above I would be more than happy to advise and speak to you on a one to one basis, either email or call me direct.

All the best and have a great day

Stuart

CEO

Farringdon Group

+60 3 2026 0286

UK Interest Rates & The Impact on DB Pensions

In the UK, interest rates have been kept at 0.25% by the Monetary Policy Committee. Nonetheless, the fall of the pound and the ongoing inflation means the MPC had to discuss a 0.25% rise, bringing interest rates to 0.5% by the end of this year.

Whilst acknowledging that five votes are needed to pass the decision of raising rates, 3 members from the 8 voted in favour of a change which did not include Bank’s Governor Mark Carney who appeared to be more worried about a the slowing of consumer spending, rising household prices and the UK’s dismal wage growth.

Moreover the more inflation there is, the more likely members of the Committee will vote in favour of an increase as this has currently dented the overall growth of the UK and all of its advanced European neighbours.

In May, inflation rose higher than the target 2% limit established by the Bank of England as it hit 2.9% this was mainly driven in part by the pound’s weakness since the Brexit vote which has in turn made imports to the UK more expensive.

Impact on the Pound

The potential for the Bank of England or BOE rate rise will help the pound get back on his feet but since the decision has yet to be made it will have a negative impact in the short term.

Currently the sterling is not performing or showing its dominance against the USD, Euro and New Zealand Dollar and if interest or exchange rates are not altered and regulated according to the present market then borrowing prices go up along with the interest rate, then the investments decrease which reduces prices making exchanges easier and cheaper resulting in a rise of the pound’s power against foreign currencies. For the time being, the pound is 14% lower than the US dollar when compared to before the Brexit announcement of 2016.

Impact UK stock market (FTSE 100)

Overall, a low powered pound is benefitting the FTSE 100, up by 18% from 2016, nonetheless, several big companies are not profiting from the downfall of the sterling, in fact, multinationals investing and making money overseas lost more than others since each transaction costs.

An increase of interest rates will empower the pound which will benefit the companies listed in the FTSE 100, their buying power will grow and so will their investments.

Impact on your Defined Benefit Pension

Quite simply, if the interest rate goes higher your DB Pension or Final Salary Pension valuation could potential decrease substantially, so now would be a good time to get a current valuation, which I can do free of charge.

See my article on DB Schemes and the huge under-funding that may affect your retirement and contact me directly if you would like more information and know your options.

 

All the Best

Stuart

CEO

Farringdon Group

+60 3 2026 0286

Have I got a Defined Benefit Pension?

We have been finding many people lately with DB pensions from the UK and feel that everyone who has one or think they may have one knows about their options.

To give you an idea of how things may have increased, the last two clients with final salary schemes that we retrieved valuations for had increased 30% since 2015, therefore I am hoping you will be pleasantly surprised and fully informed.

We are also finding that 90% of ALL DB Schemes in the UK are severely underfunded with HMRC reviewing this constantly as this will have a huge effect on the UK financially and potentially less of a payout at retirement for your pension. There are some article links at the end of this if you wish to know more.

So,

Have I got a defined benefit pension?

A defined benefit pension (DB) is a type of workplace pension which:

  • Gives you an income that is normally based on your salary, length of service with your employer (or service in the scheme) and a calculation made under the rules of the pension scheme.
  • You should receive statements which set out how much pension per year you are expected to receive when you reach your normal retirement age.
  • If you work in the public sector or have been a member of a workplace pension scheme for some years, you may have a DB pension entitlement.

If you took out a personal pension this will not be a defined benefit pension.

What other pension types might I have?

Most pension schemes that people join now are “defined contribution”.

  • This is a personal or workplace pension based on how much money has been paid into your pot.
  • When you take money from a defined contribution pension scheme it comes from the money you (and sometimes your employer) saved into it over the years, plus any investment returns your money may have earned.
  • There is no guaranteed amount of pension –and you could get back less than the amount you paid in.

Why are defined benefit pensions valuable?

With defined contribution pensions, you can decide how you take your money out – with defined benefit pensions, your employer guarantees a certain amount of pension each year when you retire.

Because of the guaranteed nature of defined benefit pensions they are often seen as more valuable than defined contribution pensions, as the risks (for instance of living longer than expected or of investments under-performing) are under-written by the employer rather than the individual themselves. The Pensions Regulator also believes that is likely to be in the best financial interests of the majority of members to remain in their DB scheme.

Can I take any cash from my defined benefit pension?  NO !

Until the age of 60 or 65 you will not receive anything from a DB Scheme.

BUT – By transferring to a SIPP or QROPS you can have more flexibility:

  • You can normally take a 25% pension commencement lump sum when you retire from a DB Pension (typically up to 25% of the value of your pension) but you will generally have to give up a part of your pension for cash.
  • The rate for giving up pension for cash will be set by the scheme trustees. These are not guaranteed and may change from time to time in line with changing financial conditions.
  • The amount of lump sum you wish to take will depend on your preference and needs, either you take the pension commencement lump sum or a higher income for the rest of your life.

How do the new pension flexibilities affect me?

The changes outlined by the Chancellor of the Exchequer in the March 2014 Budget brought about some significant changes to the way in which defined contribution pensions can be accessed, with effect from 6 April 2015. The flexibilities do not apply to defined benefit pensions. The Pension Wise service is available to anyone over 55 who has a defined contribution pension arrangement

Therefore, if you only have a defined benefit pension arrangement you will not be eligible for the service.

Can people with defined benefit pensions access the new flexibilities?

The only way that a person can take advantage of the flexibilities is to transfer out of their DB pension scheme into a new or existing defined contribution arrangement, which will offer you flexibility. However, if you are in a public sector scheme you will not be able to transfer your benefits out if the scheme is an unfunded one. If you do transfer and you are at an age where you can take your benefits, you will be able to access the funds in the way you wish, but check that the rules of the receiving arrangement allow you to do this.

However, in order to transfer out you (and your employer) must have stopped contributing to the scheme. You should consider carefully as to whether it is in your interests to opt out of membership of the DB scheme as DB schemes have considerable security and you may be losing out on valuable benefits. You will also generally be required to take independent financial advice before being allowed to transfer. If you are currently in receipt of a pension, you will be unable to transfer out of a DB scheme.

Do I have to transfer out all of my benefits in a scheme?

You will generally need to transfer out all of your DB benefits in a scheme (referred to as “Guaranteed benefit”). However, some schemes may allow you to transfer only a portion of your benefits out of the scheme, but you should check with the scheme administrators about what is permissible. If you also hold defined contribution benefits in the same scheme, you will be able to leave these benefits in the scheme while transferring out your DB benefits.

A member’s transfer right applies to each type of benefit you hold in a scheme, rather than to all the benefits in a scheme. You will have different options to access pension flexibilities depending on the type of benefits in the scheme, for instance if you have defined contribution benefits such as Additional Voluntary Contributions (AVCs).

How do I transfer out if I wish to?

  • Members who are more than one year away from their scheme’s normal retirement age have the right to transfer their DB benefits out of the scheme (unless they are in a public sector scheme which does not permit transfer).
  • Every 12 months you have a right to request a transfer value quotation from the scheme. Your scheme may allow you more frequent requests, although you may be charged for this.
  • When you request a transfer, the trustees of the scheme need to provide you with a “statement of entitlement”. The trustees normally have 3 months from the date of your request to provide you with this statement, although in certain circumstances, this can be extended to 6 months.
  • The statement will provide you with a “Cash Equivalent Transfer Value” (CETV): the CETV is the current value of your benefits within the scheme.
  • The transfer value is normally guaranteed for 3 months from the calculation date (known as the guarantee date) and the trustees should generally pay the transfer value to the accepting pension arrangement within 6 months of the guarantee date.
  • You should be aware that, from April 2015, there will be requirements on trustees when members request a transfer out of a DB scheme where the transfer value is over £30,000. To protect people from making poor choices, there will be a mandatory advice requirement for any member who wants to transfer out to take independent, financial advice from a suitably qualified person. Trustees will need to check that this has been taken before allowing any transfer to go ahead.
  • Members will be expected to meet the cost of this advice, although trustees will not be responsible for checking what advice was given. If you need help in finding a financial adviser, the Money Advice Service has a directory of authorised advisers on its website (directory.moneyadviceservice.org.uk)
  • Schemes are required to notify members about what they have to do and the information the scheme will need to complete a transfer. If a member doesn’t provide what the scheme needs the trustees aren’t obliged to complete the transfer.

How does my scheme calculate the value of my benefits?

  • The cash equivalent transfer value of your benefits is calculated by the scheme actuary. It represents what the actuary and the trustees consider a fair value of the benefits you have given up in the scheme.
  • The calculation will take into account many factors, including how long you might be expected to live and future inflation and investment returns. The trustees will review the assumptions underlying these calculations on a regular basis.
  • It is important to note, that the cash equivalent transfer value you receive may not allow you to purchase from an insurance company, the same level of benefits you have given up. This is because insurers and other providers of retirement products will take a more cautious view of the future, so the cost of buying an income with these companies will tend to be higher.
  • You should also be aware that if the scheme is currently underfunded, the trustees may decide to pay transfer values at a reduced level until full funding is restored. The trustees need to tell you if they are applying any reduction to your transfer value because of underfunding.

What is the role of the trustees of a defined benefit pension schemes?

DB pension schemes are looked after by a board of trustees.

These trustees have a duty in law to act in the interests of all members.

  • When approaching requests out of the scheme, they must balance the interests of both the members wishing to exercise their right to transfer with those that wish to remain in the scheme. This is why they may, from time to time, reduce the amounts paid out if there are insufficient funds in the scheme at a particular point in time.
  • Most importantly, there is a legal requirement on the trustees, set by the Pensions Regulator, to check that a member has obtained appropriate independent financial advice before a transfer is allowed to proceed. This is because, for many people, transferring out of a DB scheme will not be in their best financial interests.
  • You will need to provide the trustees with confirmation that you have obtained such advice, which sets out the relevant details of your adviser, who needs to be authorised by the Financial Conduct Authority (FCA).
  • The trustees do not need to review this advice, but they do need to be satisfied that you have been properly advised. If you have a small amount of benefits in a DB pension scheme (valued by the trustees as £30,000 or less) then the trustees do not need to check whether you have received this advice. However, you still need to be sure that giving up this guaranteed level of income is in your best interests.

What will an independent financial adviser do?

The adviser will consider all your personal and financial circumstances when considering whether a transfer out of a DB scheme is in your best interests. For some individuals there may be advantages of moving out of a DB scheme into one in which you can access the new pension flexibilities. A regulated financial adviser will provide more information on the pros and cons of such a transfer.

Can the trustees stop me transferring out?

Apart from ensuring that you have received proper advice, the trustees are expected to conduct proper due diligence on the scheme which you intend to transfer your benefits to. In some cases the trustees may have reason to believe that the receiving scheme is not a legitimate one and in these cases they will need to carefully consider whether to allow the transfer to proceed. This may happen if the proposed new scheme presents the warning signs of a pension scam.

If they do this, they may be stopping you transferring to a plan where you might lose a significant proportion, or in some cases, all of your pension savings and be faced with a large tax bill. If the trustees are conducting further investigations they should contact you to explain why there is a delay and why, in some cases, they are not permitting the transfer to proceed. Where a request is made to transfer benefits overseas, the trustees will also need to check whether the receiving scheme is one qualified to receive UK pension benefits.

What if am offered an “enhanced” transfer value?

In some cases, companies running DB pension schemes may wish to reduce their exposure to DB pensions, by offering members beneficial terms to transfer out from the scheme. They will calculate the transfer value on the usual basis but will then apply an enhancement to this. Typically, they will write to members explaining their options and advising them how long this offer lasts for. You will still need to take independent financial advice if you wish to take advantage of this offer and transfer out, but in most cases the employer will offer to pay for this financial advice.

Additional Voluntary Contributions (AVCs)

A member of a DB scheme may have decided to make contributions in excess to those required by the scheme in order to enhance your pension income. These are known as Additional Voluntary Contributions (AVCs) and are often defined contribution in nature. If you have made defined contribution AVCs to a DB scheme in the past, then you may be able to take advantage of the new flexibilities. You should check if your scheme allows you to take advantage of these flexibilities. If not, they may allow you to transfer some or all of your AVCs out to another arrangement which does allow the flexibilities.

Useful articles;

  1. The current pension valuations are high, simply because annuity rates are very low. https://www.theguardian.com/money/2016/sep/14/annuity-rates-plummet-2016-worst-year-income-retiring-pensioners this site shows what has happened since Brexit and we expect rates to get better in the short term and I believe that any valuations now, will be significantly lower in 12 months’ time – The UK has already announced that interest rates will be rising to 0.5% next year, this will lower transfer values significantly.
  2. Going into the future, final salary schemes have cut income for members and many schemes have simply cut payments by 30% (via legal actuarial reductions). To back this up, please see this worrying article https://www.theguardian.com/money/2017/jan/04/final-salary-pension-deficit-biggest-listed-firms-uk with the total combined deficit in the UK for final salary pensions growing from £39 billion (2015) to £182 billion (to date).
  3. http://www.pionline.com/article/20170502/ONLINE/170509973/uk-corporate-pension-deficit-rises-nearly-6-in-april
  4. http://www.thisismoney.co.uk/money/pensions/article-3686601/Total-deficit-final-salary-schemes-soars-90bn-384bn-Brexit-hits-funds.html

If you would like a valuation on your pension please contact us directly or email to stuart@farringdongroup.com and we will uncomplicated this information and inform you of the options.

Thanks and have a great day

If you feel that this is of interest to colleagues, friends or family, please feel free to forward this information on.

I hope you enjoyed reading this post.

Stuart Yeomans 

CEO

Farringdon Group

Kuala Lumpur : Malaysia

Changes to UK Inheritance Tax rules for foreign nationals

After two very successful educational seminars held in the last two weeks with 3 specialist speakers and over 100 attendees I wanted to share some of the topics of discussion as this may very well affect you or someone you know.

stuart-yeomans-london-property

Firstly, property in the UK;

On the 5th of December 2016 the British Government announced changes to Inheritance Tax rules for foreign nationals (including UK Citizens living overseas) that own UK property and assets within the UK.

The new rules will come into effect from the 6th of April 2017 and historically many foreigners used trusts or companies to avoid UK Inheritance tax. The new rules mean that such set ups will no longer avoid Inheritance Tax. This means that anyone who holds UK based property will be liable to pay inheritance tax no matter how they hold the property.

UK Inheritance Tax is one of the highest estate duties anywhere in the world. The government charges a 40% tax on the value of any assets held in the country in excess of £ 325,000 for a single person and £ 650,000 for a couple. However, with proper planning there are a number of ways to reduce or even completely remove an Inheritance Tax liability on UK property.

Secondly, moving Property in to a larger group of assets;

Previously it has been very difficult to place a property in to a portfolio, primarily because of leveraging against the property, the non-liquid nature of property, valuation fluctuations etc, BUT now we have a vehicle for both expatriates and locals who own property in the UK that can potentially negate and offset your IHT liability.

The new rules on non-domicile ownership also means that holding property within a company will NOT be IHT efficient anymore, so if you are holding a UK property and wish to know more, either let me know and I will be happy to arrange a 20-30 minute introduction which can potentially save you 40% of your asset.

Also, If you feel that this information would be of benefit to your friends or colleagues please feel free to forward this and I will be happy to meet for an introduction in the next few weeks too.

I hope you enjoyed reading this post.

Stuart Yeomans 

CEO

Farringdon Group

Kuala Lumpur : Malaysia