Important Considerations for Residence Planning
Important Points for Residence Planning
When planning where to live, the first step is to identify all the countries you are connected to. The main considerations for this process are the nature and location of your assets and your current place of residence.
Changing residence to a better-suited country is now a key consideration in international planning for private clients.
For some individuals and families, relocating makes a lot of sense. This is especially true if they live in countries with limited tax or inheritance planning options, want more lifestyle choices, or face political or economic instability. In such cases, changing residence can improve personal security, enhance quality of life, and even offer the chance to gain an additional citizenship.
Residence vs. Domicile
Residence is about living in a place, but domicile emphasises both living there and intending to stay permanently. Legal domicile is important as it determines the jurisdiction of various taxes, including inheritance tax. Even when a client has been a resident of another country for income tax, he can still be deemed domiciled in their former country for inheritance and gifts. The United Kingdom is a prime example of how countries rely on their distinct residence and domicile understanding to maintain inheritance tax liability against citizens who no longer reside within their country.
Income Tax Considerations for Residency
In most countries, residence is the most important factor in determining individual tax obligations. Various criteria, such as physical presence, available accommodation, or the centre of vital interests, are typically used to assess a person’s tax residency. When an individual leaves one country and establishes genuine residence in another, the former country generally loses the right to tax the individual’s global income.
However, one major exception to residency-based taxation is the United States. U.S. citizens are subject to federal taxes regardless of where they reside. Moving abroad does not eliminate a U.S. citizen’s tax obligations to the U.S. government. The only way for U.S. citizens to end their tax liability to the U.S. is by formally renouncing their citizenship.
Inheritance Rules and Estate Planning Across Borders
Relocating to a new country often significantly affects the inheritance laws and taxes that apply. Careful planning is essential, particularly concerning inheritance taxes, due to the complexities surrounding the concepts of residence and domicile. Some countries have extended inheritance tax legislation, which can lead to unexpected tax liabilities. For instance, a person may be tax-resident in a country with no inheritance tax, but another country may later claim that the individual was still domiciled there at the time of death, subjecting their worldwide estate to inheritance taxes.
Balancing Business Interests and Family Needs
International residence planning should align with a client’s personal and business circumstances. Relocation should never be driven solely by tax considerations, as this approach often leads to behaviours that may eventually undermine the original tax benefits of the move. In many cases, a change of residence can complement a client’s overall business and family situation, making it a valuable part of legitimate tax and estate planning strategies.
Emigration Planning and Exit Tax Implications
An increasing number of countries have implemented measures to deter emigration by imposing various taxes on individuals who relocate. These emigration or “exit” taxes can have significant financial consequences and should be carefully considered as part of any relocation plan.
Health Insurance Requirements for Residents Abroad
Health insurance is a crucial yet often overlooked aspect of residence planning. When individuals move to another country, their existing health insurance policies typically do not continue. They must either secure coverage from a local insurer in their new country or choose an international health insurance provider. It is highly recommended to obtain a suitable health plan at a younger age before any health issues arise. One of the first steps in planning an international relocation should be acquiring comprehensive worldwide health coverage to ensure the necessary flexibility. Emirates Advisory provides expert guidance and comprehensive support in this field.
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- Identify the best citizenship program for your needs
- Walk you through the investment process and required documents
- Highlight potential risks and challenges
- Conduct an initial assessment to ensure the success of your case