Getting to grips with Pondstraddler status
This is the first in the series of monthly Pondstraddler Life™ Financial Perspectives Reader FAQ.
Last week’s article, entitled “Are you a Pondstraddler”, invited interested readers with international connection concerns to take the Pondstraddler Quiz; and if the “shoe fits” to send me your questions for anonymous review and future public discussion in Moneywise.
The response was excellent, but not surprising to me as I’ve always perceived that most Bermudian islanders are Pondstraddlers.
Some individuals knew of their complex connection circumstances already; others had no idea. One reader’s anecdotal commentary this week reported being completely dumbfounded to be apprised to one of Bermuda’s connected countries’ tax revenue agency where it appeared they had incurred significant tax liabilities, a situation that they were completely unaware.
Other readers are frustrated in realising that they will need to step up their planning now to avoid being tripped up in the future.
The prevailing lament over all of the years that I’ve practised in Bermuda has been that “it never used to be like this! Why am I now having tax, immigration, or finance problems in some other country? Why didn’t my local adviser, lawyer, trustee, etc, keep me informed about these changes?”
Actually, it did used to be like this, but cross-border tracking of international conventions was spotty before the internet age. Local professionals could not assume the responsibility for enforcing other countries’ regulations, particularly if they had no expertise or qualifications in those areas.
Welcome to reality of the world of reporting transparency and collaboration between countries’ revenue agencies. Bermuda is no longer an isolated island; it has signed more than 90 bilateral tax information exchange agreements quantified under the The Common Reporting Standard for Automatic Exchange of Financial Account Information in Tax Matters.
Ignorance of the law is no excuse. It was then, and still is now your primary responsibility to regularly monitor changes in tax, immigration, finance, investing, residency requirements, and the like in any countries where you have business, relatives, plans to relocate, property, investments, pensions, wills, domicile, and possible estate matters.
• Be alert, be aware, never complacent to the world around you.
• Monitor your connections. Keep in touch with friends, relatives, and business professionals.
• Stay tuned to other countries’ revenue agency announcements and politicians’ press releases relative to annual budgets, changes in ruling parties’ regulatory proposals and related items.
• Subscribe to leading serious journalist media, ie, Wall Street Journal, The Guardian, The Globe and Mail. Tax law changes are constant fodder for news publications.
• Link to the various revenue agency websites where you and your family have international exposure: US Internal Revenue Service, Canada Revenue Agency, UK HMRC — Her Majesty’s Revenue and Customs.
• Review legal, accounting, finance, immigration professional websites, and their newsletters.
• Utilise free annual guidelines provided by global accounting/auditing/tax practitioner firms, law firms for most world countries.
• Subscribe to cross-border financial planning and related blogs.
• Ask you local advisers to connect you to firms they work with in your connected country(s).
• Google search is invaluable. A simple query regarding changes in holding a UK property in a foreign company (envelope) turns up a plethora of factual, current information regarding UK tax law changes affecting the non-dom owners of such property.
A reader commented that Bermuda residents, such as UK non-domiciliaries who purchased real estate in the United Kingdom over the years, on then current advice, would structure an offshore entity to hold the real property. Generally, there were certain benefits: avoidance of UK death duties, privacy for beneficial owners, some protection from personal liability and so on.
Tax laws change frequently, very often when a new annual budget is announced. In 2013, 2014, 2015, 2016 and onwards, the British Government in sequence introduced stamp duty land tax, Annual Tax on Enveloped Dwellings, capital gains tax on disposals under ATED, decreased the minimum threshold property value, and increased the tax rates. Additionally, in the 2015 budget, from April 6, 2017, all UK residential property, however owned, is now subject to UK inheritance tax; certain exceptions might apply, determined by individual (family) specific facts.
Unfortunately, our reader and family stated that they were caught out unawares and were subject to significant financial, legal, and tax expenses over this situation. Yet, they certainly were vigilant, maintaining connections with the UK news and media, but still did not learn of the above changes. Nor were they ever notified by taxing authorities of this increasing tax problem relative to the enveloped ownership of UK real property.
Be aware, Bermuda residents, whether or not you are UK non-domiciliaries, you should carefully review your holdings for the impact of these tax law changes brought on by the British Government.
For more informations see UK: Tax Implications Of De-enveloping, a July 2016 article by Terence Pay, Verfides. The link is https://goo.gl/diWvhH
Also, UK law changes. Are you a UK non-domiciliary, a returning domiciliary to the UK or not? In 2017, the UK Government introduced further legislation regarding domiciliary and non-domiciliary categories.
• BDO: Confirmed Tax Changes for Non-UK Domiciliaries 23 January 2018. Link at https://goo.gl/N7PNu9
• UK: Non-Dom Changes — Formerly Domiciled Residents 27 February 2018 Terence Pay Verefides. Link at https://goo.gl/2zvVVm
US citizens and US green card holders living in Bermuda with shareholder interests in certain foreign corporations referred to as “deferred foreign income corporations” must pay a one-time “deemed repatriation tax” on the past earnings that have been accumulating over the years in the foreign corporation. Controlled Foreign Corporations may be in the mix — bringing real tax challenges for US citizens living abroad and their 2017 US tax returns.
Please take note now as there is, as always with taxation, a short deadline. Contact your US international tax practitioner.
See my friend Virginia LaTorre Jeker JD’s articles on this complex new taxation requirement. US IRC Section 965 “Transition Tax”: It’s Time to Pay the Piper. The link is https://goo.gl/LGKBYj
A final caveat, and I here refer to a commentator who posted opinions to last week’s article, never take unqualified, unsolicited financial or tax advice. Never.
Martha Harris Myron CPA CFP JSM: Masters of Law — international tax and financial services. Pondstraddler Life, financial perspectives for Bermuda islanders and their globally mobile connections on the Great Atlantic Pond. Finance columnist to The Royal Gazette, Bermuda. Contact: email@example.com