Expat Dividends tax is on the way, what can you do?

Expat investors with more than £5,000 in company dividends that are invested outside of tax-protected plans such as ISAs will pay substantially more tax from next year. There are, however, steps you can take to protect your investments and your expat dividends tax liability.

Changes in the law mean that investors that fell into non-taxpayer and basic taxpayer brackets before in terms of their investments will have to pay more tax as of April next year. For some, the new system will actually represent a saving, but the vast majority of expats will end up paying more.

Expats cannot follow the vast numbers of UK residents who are now moving their share portfolios into ISAs, but there are still steps they can take to mitigate the damage and a good financial adviser will be a big help.

Married couples and registered civil partners

Married couples and registered civil partners can split up their portfolios to make use of each partner’s £5,000 allowance before the tax kicks in. Transfers between partners don’t incur capital gains tax either. So, if one partner has a much higher income, this is one way to reduce a higher tax bill.

Go Offshore

Offshore accounts in Belize, the BVI, Singapore and other low-tax jurisdictions can hold your shares and there will be no UK tax liability. Of course this comes with risks, but many offshore jurisdictions are financially stable and offer much greater opportunities to streamline your tax affairs once you have gone to the trouble of setting up a company and a bank account.

Offshore Tax Wrappers

If UK dividends are held within an offshore bond, the investors only have to pay tax when actual profits are withdrawn. In fact there is no immediate tax charge unless you withdraw 100% of the capital in one hit. This will give you the chance to organise your tax affairs and choose when you have to pay tax. Of course it does not head the problem off completely and if you return to the UK you can then face a bill for ‘deemed gains’.

There are several methods to head off the increased tax charges and for serious investors it would make sense to set up a company in a low tax jurisdiction to skirt the charges altogether. Whatever you do, make sure you take proper expat financial advice and ensure that your money is protected.

The information contained herein is for informational purposes only which is subject to change and should not be relied upon. You should seek advice from a professional adviser before embarking on any financial planning activity.