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Is It Time For Europeans To “Pay The Piper?”


WHATEVER CORNER of this world we European expats decide to call home, we cannot hide from the fact that financially most of our homelands are in chaos.  The questions are, apart from cancelling our newspapers and refusing to watch television which dedicates a large percentage of their coverage to scaring the life out of us, how can we ignore it and what, if anything, can we do to insulate ourselves from the inevitable “fallout” from austerity measures and cash strapped governments scrambling to raise bailout funds any way they can?


Unfortunately Europeans may find change is inevitable, as unlike our American counterparts who have been burdened for years with worldwide taxation on all income wherever they reside, most of us Europeans have enjoyed huge tax benefits by leaving our home shores behind.  However, the estimated 30 million of us expats are in fact soft targets to raise billions of extra revenue with one swipe of a Brussels pen.


Take a British system for example:  not only do British expats enjoy zero UK tax rate when living abroad on any tax free overseas income and capital gains, they also have the facility to transfer their UK paid pensions, which the government subsidizes during payments with tax relief, to an offshore QROPS and receive all income on retirement tax free along with other benefits.  This alone would raise billions in revenue if proposed legislation goes through.


As from 6 April 2012, HMRC is proposing that anyone with a QROPS should not benefit from tax relief that is not available to residents.  “It puts the onus on the finance centres’ own legislature to change their tax regulations to encompass QROPS.  This means that well run jurisdictions such as Guernsey will have to decide between a 0 to 20% tax rate for everyone,” explains Gavin Pluck, European Director at Guardian Wealth Management.


There has long been murmuring about bringing tax systems into line with our American counterparts and making it law to file annual returns back home, and interestingly enough if passed it would make a massive dent in the monies needed to stabilize Europe.  The EU directive brought in a few years ago means that the banking systems know where we are, and how much we have got, so it wouldn’t be difficult to implement and even more worrying they could justify it.  So the question is:  Can we do anything at all to protect ourselves outside of undergoing plastic surgery, giving up our passports and becoming citizens of Belize?


There is no easy answer for Europeans but if anything can be done the answers will come from the UK offshore islands of Guernsey, Jersey and the Isle of Man who have always tried to protect expat assets from taxation by using their jurisdictions.  Although now they have to report by law all assets held to our tax resident countries, they will fiercely resist retrospective legislation as they could become obsolete if there are no benefits to investing in offshore centers.  This means that if you believe the worse is coming, looking at structuring yourself offshore before legislation kicks in should be investigated.  The one thing that is for sure, and that all economists agree on, is that these times we are in are not just a blip on the chart.  This is with us for years to come and will affect us all financially in one way or another.


Written by John Marks, The Expat Investment Club.