How I can reduce my personal taxes by moving to

Domicile & Residence in more Detail

□ BRITISH & IRISH DOMICILED & RESIDENT INDIVIDUALS: A person both domiciled and resident in either Britain or Ireland is liable to pay tax on their world-wide income and generally will be in a similar situation to those resident in other western European countries. It should, however, be noted that it is possible for a British person to move to Ireland or visa versa and enjoy very similar benefits to those outlined. Nevertheless, the British/Irish Double Taxation Treaty should be considered carefully, as it has many unique terms and conditions. In particular, a British or Irish person resident in Ireland or Britain* will generally only derive financial benefits from those assets/investments located outside of the British Isles.
* I.E. NOT IN THEIR COUNTRY OF DOMICILE.

□ BRITISH & IRISH RESIDENT BUT NON-DOMICILED INDIVIDUALS: In Britain and Ireland there are basically three types of domicile: a domicile of origin, a domicile of choice and a domicile of dependency.  In synopsis, the first would normally relate to the country in which one's father was born, though it can exist where one considers oneself ethically British, the second is when one takes permanent steps to acquire a new and permanent nationality severing all ties with the old (see Sir Charles Clore (No.2), 1984, STC 609), and the third relates to foreign women who married British domiciled men before 1974, in which case domicile would be automatically ascribed (see S.1 (2) of the Domestic & Matrimonial Proceedings Act, 1973). After 1974, women became subject to the normal rules appertaining to domicile. From the point of view of the foreign resident of Britain, the most important fact to remember is that British domicile is very difficult to obtain. In fact, it is quite possible to spend the majority of one's life in the United Kingdom and never become domiciled, provided even the most tenuous of links are maintained with another jurisdiction (see IRC v. Bullock 1976 STC 409). In Ireland the position is very similar to the UK save that domicile can more easily be lost. In fact, it is possible to have been born in Ireland, hold an Irish passport, and yet still be deemed non-domiciled provided the return to Ireland is not permanent and there is a clear intention to return to the country of long-term residence (see IDA 'Guide to Taxes and Tax Relief’s in Ireland1 P.8). The exact position in respect of individual taxes is as follows.

INCOME TAX: A non-domiciled resident will normally only be subject to income tax on those returns generated through activities and investments in the UK or in respect to certain remittances from abroad (see S. 65(5)(a) Taxes Act, 1988). Obviously, to ensure that offshore assets and investments do not become liable to UK taxes, it is important that the non-domiciled resident does not play an active part in the generation of new wealth. The reason for this is that if he is actively 'managing and controlling' his assets as a resident of Britain, there is in effect a British business in operation, subject to normal British taxes. Notwithstanding the above, with the correct advice, a non-domiciled resident can prevent all non-remitted income from becoming subject to British income tax. In fact, if proof can be adduced that those sums remitted to Britain derive from capital that existed before taking up residence, there will be no British tax consequences (see Kneen v. Martin 1935 1 KB 499).  The logic behind this somewhat semantic view is that any capital that existed before coming to Britain could not have been subject to British tax. However, any interest earned on such capital after the decision to reside should be taxed on the same basis as anyone else provided of course, the capital is actually remitted. Therefore, it is very important to be able to distinguish between capital and interest. Normally, tax consultants will suggest that different bank accounts are set-up outside of the United Kingdom for capital and interest possibly with an audit to confirm the original amount of capital before the move to Britain. It should also be noted that issuing loans from abroad, as a method of circumventing the capital and interest in question, would generally not be accepted by the British Inland Revenue (see Harmel v. Wright 1974 1WLR325).

CAPITAL GAINS TAX (CGT): Any capital gain realised by a non-domiciled resident of Britain and remitted to Britain from abroad, will be subject to indigenous capital taxes (see S.I2 Taxation of Chargeable Gains Act, 1992). Note, by definition, a capital gain will occur on disposition of any assets, which were held by the non-domiciled individual after 'ordinary residence' was established in the United Kingdom. In other words, any change to the pre-residence capital will immediately convert it into a capital gain or loss. Of course, if there is a loss no capital gains taxes can apply. However, if there has been a gain this will be fully subject to UK taxes on a remittance basis. To avoid such problems, it is highly advisable that a non-domiciled person's pre-residence capital is in exactly the same format, as it existed before British residence. The most common error made in these circumstances is to not ensure that the amount of capital needed to meet future living expenses is not maintained in Sterling. If this is not the case, then any changes from the applicable foreign currency to sterling will immediately convert the original pre-UK capital, into new capital with either a gain or loss.

INHERITANCE TAX (IHT): The principles outlined above also apply to inherited wealth, in that UK tax consequences will only occur on the remittance of such amounts back to the UK. However, it should be noted that unlike either income tax or capital gains tax, UK domicile could be inferred, for tax reasons only, if the otherwise foreign resident has been resident in Britain for 17 out of the previous 20 years.
♦ Note, in respect to the CGT and IHT tax consequences, the position is basically similar in Ireland.

□ INVESTMENTS IN BRITAIN OR IRELAND: At first glance, it would seem that a non-domiciled resident of either country could not expect to achieve any tax benefits from investments made directly in the country in question. However, again with the correct advice it may be possible to legally circumvent capital gains tax on local 'real1 or 'personal' property investments. For example, under S.I3 of the Taxation of Chargeable Gains Act, 1992, it is stated that non-resident companies are not subject to British capital gains tax, unless such gains have resulted in Britain through a branch or agency (in Ireland see the Capital Gains Act, 1975). Therefore, accepting that a non-domiciled resident is only taxed on a remittance basis and that a non-resident company can make investments in Britain, it is possible, remembering that shares in a foreign company are deemed 'movable' property, to purchase a building in Britain and avoid all capital tax consequences by selling the shares in the investment non-resident company and not the building directly. Further, such an investment structure will also legally circumvent, for property investments, the need to pay the British or Irish stamp duties of 1% and 9% (the 9% Irish stamp duty applying to most middle class homes) respectively. It is generally recommended, because of the 'boomerang’ effect, that respectable non-stigmatised non-resident company jurisdictions be employed.

Fiscal Migration

In many instances, the subtle and somewhat semantic differences between being merely resident or domiciled and resident can have serious tax planning consequences.  In certain cases it may be necessary for an individual to change his or her place of residence to achieve a particular fiscal end. Some of our most popular residency/immigration jurisdictions include:

Switzerland, although not tax free, is one of the most popular fiscal migration jurisdictions in Europe mainly because of its strategic location, negotiable tax rates, stability and banking facilities. To successfully apply for permanent residence it is necessary to show significant assets, actual residence in Switzerland for 6 or more months per annum and a commitment to make Switzerland the centre of one's family and/or business life. Furthermore, it is also necessary to provide a wealth attestation, police certificate confirming that the applicant has no criminal record and a medical certificate. Exact tax responsibilities vary tremendously depending on which Canton one wished to reside in and whether one is retired or not.

Principality of Monaco is one of the most favoured residency locations for the wealthy primarily because of the lack of income taxes, ideal geographic position and absolute safety. To become an official resident it is necessary to obtain carte de sejour (residency permit) which can normally be obtained within 3 months of the original application date. Required documents include:

- a police certificate from the appropriate country confirming that the applicant(s) have no known criminal record(s),

- a valid French Visa issued by the French Embassy in the jurisdiction of current residence,

- a medical certificate provided by an approved physician in the jurisdiction of current residence,

- proof of property acquisition or rental providing either the requisite property deeds or lease (bail a loyer) corresponding to the size of the applying (where applicable) family unit,

- the completion of multiple application forms outlining the full personal details and circumstances of all applicants,

- a referee from Monaco, normally the local Monegasque advocate or immigration consultant and an attestation from a Monegasque bank that, at least, €800,000.00 (approximately FRF 5,000,000) or its equivalent has been lodged. Please note that the attestation must be given on each renewal date for the residency permit. While considering relocation to Monaco, one should borne in mind that it is expensive and time consuming to establish a local company. In addition when more than 25% of a business' revenue is derived from external trade a 33.3% tax will be levied on all profits. There may also be constraints on what activities an applicant can conduct from the Principality. Also the 1963 tax treaty between Monaco and France prevents French nationals from enjoying any of the indigenous fiscal benefits. Nevertheless, Monaco is often an ideal personal location, especially if employed in conjunction with an external tax planning structure. 

Cyprus is one of the most favoured jurisdictions for those seeking a residency permit at competitive rates. In effect, Cypriot legislation allows an investor establishing either a genuine offshore branch or an indigenous Cypriot company the ability to be granted an authentic Cypriot residency permit. In order to qualify, it is necessary to prove management and control will physically take place in Cyprus and to facilitate this SCF has its own office in Cyprus.