Today’s Moneywise explores a reader’s question about UK relocation concerns, and suggests possible actions. To protect the reader’s identity certain information has been revised or removed.

Question: My spouse and I are planning to retire to our property in the UK, which is currently rented. We will keep our family home in Bermuda so that we can return for annual “fun in the sun” four-month vacations. I’m Bermudian with no UK connections. My spouse was born in the UK, but came to Bermuda as a child and has Bermuda status.

We are not sure what will happen once we arrive for residence in the UK. We think we will have to pay some sort of tax, but will we have to include our Bermuda pensions, dividends, interest, etc?

We also have concerns about Bermuda inheritance for our beneficiaries. Our Bermuda home is registered as the Primary Family Homestead to exempt Bermuda stamp duty at our demise.

We are planning on getting some advice after we arrive in the UK. What do you think?

These questions appear to warrant just a yes or no answer, don’t they?

Well, readers, our focus for today can only be on these tax questions due to space constraints, although per fiduciary standards, this family’s other possible interrelated data such as insurance, investments, pensions and social security, currency cash management, businesses, trusts, incorporated (and non) entities, wills, gifts, beneficiaries and so on should be addressed as well.

Why? Factually, a comprehensive cross-border financial planning report is never simple, but becomes a journalised action plan. Individuals living in a sole jurisdiction tend to assume that their new home will have similar rules and regulations, not realising that the family’s entire financial picture needs to be reviewed within the context of two (or more) jurisdictions’ tax, immigration, legal, finance and related laws.

The three most important rules of pondstraddler financial planning are:

1. Tax and immigration laws change without notice. It is your responsibility to be aware and alert for change.

2. How you cross the border, be it physically or electronically, and are classified in one or more countries determines how and if you will be taxed, and on what, where and when.

3. Don’t go before you know all the facts. Planning is critical. Arrange your affairs accordingly.

Bermuda Personal and Estate Taxation Defined

Bermuda does not have a universally-recognised structured income tax regime, nor does the government assess taxes on residents’ worldwide income, capital gains, interest, dividends, royalties and the like.

There are no Bermuda personal taxes, but other taxes are indirectly assessed by withholding at source (payroll, consumption) or as conveyancing, registrations, transaction and legal documents, tariffs and fees, etc, resulting in an average estimated individual non-progressive 20 per cent tax.

Bermuda Government probate assesses only Bermuda property on the net Affidavit of Value of Deceased Estate while foreign currency, assets, and entities are exempted. Bermuda Stamp Duties Act 1976 Section 47. 3-4. Bermuda Primary Family Homestead registered property is also exempt.

UK Income Tax

In general, UK taxes its domiciled residents — alive and deceased estates — on domestic and worldwide income generated by including, but not limited, to foreign trusts, corporate entities, partnerships, investments, certain pensions, and wages, under three marginal income tax bands — the 20 per cent basic, the 40 per cent higher, and the 45 per cent additional rate tax bracket.

What is your UK status? Resident? Domiciliary? Non-domiciliary? This is critical. How a person is classified in these categories, and it can change, determines the level of taxable assets of both domestic and foreign income and estate planning.

These categories depend upon a convoluted criteria of timing, circumstances, and tests to determine the answer. Her Majesty’s Revenue and Customs assists with its detailed UK statutory residence test. It is also useful to look at a flowchart based on the criteria, produced by KPMG. Links to both can be found at the end of this article.

UK Inheritance Tax

Where you are considered domiciled plays a huge part in determining how and what constitutes a UK estate subject to tax. So a further consideration for the reader is whether they will eventually return to be domiciled in Bermuda, or will the UK become their permanent residence and domicile.

In summary, the family needs to determine, decide, and plan for the following based upon the questions above. Once again, this is not a comprehensive, inclusive list:

• Will they be resident and domiciled (or non-doms) in the UK?

• What will be their income tax rate in percentage and pounds based on income from both countries?

• Can they plan before they leave for tax minimisation of Bermuda income-producing assets, for example converting assets to cash, transferring assets to children, or other acceptable strategies based upon their financial profile?

• Will they be able to keep the PFHC if they are now UK-domiciled and their Bermuda property is no longer their primary residence?

• Will their UK estates include their foreign (Bermuda) assets?

Do not go before you know all the facts and arrange your affairs accordingly. I cannot emphasise this enough — planning before your move is absolutely critical. Take the time and cost to meet with qualified tax/financial planner practitioners who understand the laws of both Bermuda and the UK. You need assistance that will help minimise abrupt taxation surprises, and protect your hard-earned assets while providing for a meaningful retirement lifestyle.

And no, this is not a subtle ad for follow-up services as active planning is no longer in my purview.

Next month we will consider a question from a reader who wants to know what the tax implications are for United States investments owned by a foreigner (British and Bermudian) with no connection to the US, and held in Bermuda.

SOURCES:

• The PFHC — How Bermuda stamp duty can sometimes be avoided: https://goo.gl/Np4LqV

• Bermuda Stamp Duties Act 1976: https://goo.gl/b6qdTL

• KPMG flowchart on UK status residency test: https://goo.gl/KivTj1

• Her Majesty’s Revenue & Customs links at Gov.UK

• UK status residency test: https://goo.gl/kRwMjR

• UK income tax https://tinyurl.com/hlbkt3u

• UK inheritance tax: https://tinyurl.com/y967wuxf

• UK tax on foreign income guide: https://tinyurl.com/y9yfv4gn

• Gov.UK impact of residence and domicile: https://goo.gl/yZtReo

Disclosure: Answers to reader questions are general in nature and cannot be used by any individual or entity as detailed personal financial planning advice. References and resources are provided without conflict or interest. The author does not recommend or endorse any firm, individual, or product; the author does not accept or remit referral fees from/to internationally qualified legal, accounting, tax or related professionals.

• 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: martha.myron@gmail.com