This is the latest in the “Pondstraddler” series of articles. Disclosure: this is a composite illustrative situation intended for general information purposes only. It does not reference any specific person, living or deceased, nor is it intended to be individualised personal financial planning advice.
Bermuda Reader FAQ: “I’m retiring in about six months, and am planning to move to the United Kingdom where some of my family have already relocated for university, career, etc. While I do have a UK citizenship, I wasn’t born, nor ever lived there.
“Because Bermuda is a non-income tax regime jurisdiction, I’m already having anxiety attacks about the UK tax system, thinking about the family property still here in Bermuda, my Bermuda pension, savings, my elderly relative’s care, and so on. Am I going to be taxed on all my Bermuda assets that I’m leaving for my children?
“I’ve tried navigating the UK Government tax website, found it incredibly confusing with its references to domicile, taxes, day-counting, the Statutory Resident Test. I need to have clarity about my finances before I go. Any suggestions?”
This seems like a fairly simple problem, doesn’t it? Open a UK bank account, move your investments, pensions, possibly some household memorabilia, rent your Bermuda property, hop on a plane, redo your will when you get there.
It is not simple. Anything but.
We focus on the background first of the concept of international (pondstraddler) financial planning where we utilise an overview of my cross border financial planning checklist — space simply does not permit the fine-line detail encompassing several pages.
Pondstraddler (cross-border) pre and post-financial planning (after emigration) involves most, if not all depending upon the individual, of the following precepts:
1, Residency: where you are resident is where you will probably be subject to taxation.
2, Domicile: country connections and familial relationships. Social, emotional, cultural and physical ties to two or more countries. Can domicile rights override residency requirements?
3, Citizenship(s): how did you (can you) obtain citizenship? What does each country require from you? Have you renounced or expatriated a citizenship?
4, Immigration and customs: how did you enter the country? What are your rights and obligations? How long can you stay?
5, International and domestic tax compliance: balancing the tax compliance between more than one country while managing assets for tax efficiency.
6, Duelling economies, trade and business.
7, Cash management and personal net worth.
8, Investments: foreign and domestic, tax efficient and tax compliant.
9, Insurance and risk management.
10, Retirement and pensions. Complexity and constraints.
11, Estate planning for multinational families in more than one jurisdiction.
12, Regulatory quagmires, conflicts of laws, and inadvertent planning traps.
The five top classifications, residence, domicile, citizenship, taxation, and immigration status are used by varying degrees of a country regulations to define an individual’s relationship to a country’s legal, tax, property, immigration, divorce, marriage, commerce, trust, succession and other related statutes.
These regulations assist countries in the control of their borders, the taxation of their citizens and residents, the administration of government businesses and social services, the ceding of property conveyances, the establishment of financial transfer structures, marriage, legacy policies and related.
Every globally mobile individual needs to fully understand his/her country of origin and new or guest country tax, regulatory, legal, and immigration structures. Why — because for most of the civilised world, where you individually (or business entity) are considered resident is where you are subject to taxation.
The residency definition is open to interpretation and ambiguity, but generally, in international taxation, the substantial physical presence test rule is used to determine tax residence of a natural or legal person, eg the 183 days.
Residency tests vary considerably from jurisdiction to jurisdiction, such as provenance of the individual or family, statutory presence tests, circumstantial evidence, closer connections, and various other criteria. Residency tests are so much the major criteria for taxation that country government revenue authorities may consider citizenship irrelevant.
Domicile, the status of being a lawful permanent resident, is another major determinative factor in competing jurisdictions, where for instance, legal authorities will recognise a divorce conducted in another jurisdiction if one of the parties was domiciled there. Domiciliary estate planning is critical given that the law of one’s domicile determines will interpretation for testate (or intestate) succession. An individual can be domiciled, but not resident and vice versa, both adding to the confusion and complexity of international tax planning.
An individual with citizenship has the legal right to live, work, vote and be subject to taxation. Citizenship is acquired through various legal methods:
a) By birth to one or more citizen parents.
b) By birth within a country (jus soli — birthright).
c) By marriage.
d) By naturalisation.
e) By investment (citizenship for sale).
Immigration and customs
Where residency, domicile, citizenship ascertains an individual’s status, immigration/emigration is the physical act of crossing borders to re-establish one’s home in a different jurisdiction.
Immigration may be temporary or permanent, but always confirmed by legal permission of customs and immigration authorities through the venue of visas, work permits, asylum, refugee, citizenship/residency rights, conditional resident, temporary protected status, and others. Immigration and customs is controlled by entrance portals at country borders.
International and domestic taxation
International citizens and their multinational families often feel that they are serving many tax masters, with an equaliser of tax liabilities from none. The quagmire of double taxation is ever present for them due to their significant tax compliance burdens relative to a single domestically based family (in Bermuda, for example).
The complexity of multiple countries’ tax laws along with focused harmonisation across borders and increased pressure from the OECD and jurisdictional governmental revenue agencies makes planning cumbersome and time consuming.
When contemplating any cross-border travel, relocation under emigration, or immigration, it is always a good idea to obtain financial planning advice from credible credentialled professionals in your new (and old) home jurisdictions — before you execute your plan. Yes, it costs, but consider the consequences of lengthy, sometimes irrevocable, costly financial/tax planning mistakes down the road.
Next in the Pondstraddler series, coming in late December: our reader receives answers to his questions for emigrating to the UK for retirement.
• Martha Harris Myron CPA CFP JSM: Masters of Law — international tax and financial services. Dual citizen: Bermudian/US. Pondstraddler Life, financial perspectives for Bermuda islanders and their globally mobile connections on the Great Atlantic Pond. Finance columnist to The Royal Gazette, Bermuda. All proceeds earned from this column go to The Reading Clinic. Contact: firstname.lastname@example.org