November 25, 2017

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Escaping tax on gains

Escaping tax on income, wealth, capital gains

Income Tax

Income Tax

Although governments have become increasingly aggressive in attacking the use of international structures to reduce, avoid or evade tax, there are still ways of using global planning to this end.

If you are not tied to a particular country by personal or business commitments, you may consider becoming a tax exile.

Many countries only tax you on income you earn in it or bring in from abroad, so you can escape tax on income earned elsewhere that you don’t need, as well as capital gains, wealth and inheritance taxes on assets held outside.

You don’t necessarily have to go live in some Third World backwater to take advantage of such opportunities. Britain, for example, offers such privileges to foreigners living in the country but not domiciled in it.

Another possibility is to become a “perpetual traveller.” If you have access to accommodation in several countries, you may plan to spend only a few months of the year in each, thus avoiding being classed as being subject to taxes, except on income or gains arising within the country.

However, some governments such as the US seek to tax their citizens on their worldwide income – wherever it arises, irrespective of where they live. And every country has its own rules on tax status, according to residency, physical presence, domicile, citizenship, income source and marital status.

So you need expert advice on your particular circumstances before becoming a tax exile, to make sure that your planning is effective.

South African writer Jackie Cameron warns that you should include your spouse in all your planning as “your partner’s residency, physical presence and domicile can play a role in your affairs. If you don’t take your partner’s situation into account, you could find that your tax planning has been in vain.”

Putting space between yourself and your wealth

If your assets are sufficiently large, another route to tax efficiency is to set up a structure distancing you from ownership, for example by holding your assets in a trust, company or a nominee (or a combination of these) registered or based in a tax haven.

This is no longer a simple way of hiding income, gains and accumulated wealth from tax authorities than it used to be, because of registration and international reporting procedures forced on tax havens by the European Union and the US.

But there are still structures that remain effective using tax havens that have resisted forced co-operation with major-nation tax authorities, such as Singapore, Dubai and Hong Kong, and vehicles such as bearer-stock companies (no public record of who owns them), unregistered trusts and professional nominees.

Estate planning. Remember that when you pass on, any assets you own will be subject to the inheritance laws of the jurisdictions in which they are registered.

There are simple ways of dealing with potential problems such as joint accounts, local wills and testamentary trusts. It is best to get professional advice, which is often available cost-free from investment companies and intermediaries.

You should always have a will in a country where you have assets registered in your own name, such as a property.

Security. There are lots of crooks out there trying to steal your money, and lots of others trying to enrich themselves at your expense without doing anything criminal. So it’s important to be careful about whom you deal with.

Never buy an investment that someone tries to sell you over the telephone.

Always deal either with a large and reputable financial institution, with a person or business that you are comfortable with from personal experience over a reasonable period, or with one that comes highly recommended by someone whose judgement you trust.

Remember that integrity, a clear concern for your interests, regular detailed reporting, honest disclosure of mistakes and a good personal relationship are more important than the prospect of wonderful returns. In fact, if the latter is what you’re promised, that’s a danger signal.

CopyRight – OnTarget 2012 by Martin Spring

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