I lived for four years in the IoM, had an amazing time (until Bushy's closed anyway). But in the process, I opened an IoM bank account to pay my salary into. I carried on using this account for years afterwards (it was with the IoM branch of a UK bank).
I benefited from not paying any tax on the interest on my savings account, because tax haven. Not a huge perk, but a nice one anyway.
And then, in the wake of the tax haven scandals around 2005/6, the HMRC wrote me a nice letter explaining that, while I had obeyed all the rules at the time, they were retroactively changing the rules and I needed to declare all the interest I had earned on my offshore account over the last 8 years. The final bill came to about fifty quid, so no major damage done. But the lesson has stuck with me.
HMRC can and will change the rules at any time, and apply them retroactively. Getting super smart about taxes, especially by using loopholes and tax havens, can be counter-productive. Unexpected tax demands are not fun.
while I had obeyed all the rules at the time, they were retroactively changing the rules and I needed to declare all the interest I had earned on my offshore account over the last 8 years.
Are you sure they changed the rules? It sounds like they might have realised they hadn't been implementing/enforcing the European Union Savings Directive (EUSD) [1] correctly, and therefore retroactively enforced the rules. Or perhaps they found that the EU rules overrode the UK/IM rules, which were retroactively found to be null and void.
does it matter? there were some rules, that I was obeying, then there were some other rules, that were retroactively enforced. From my point of view, same same ;)
Yes, I think it does matter. It's arbitrary and capricious if HMRC can change the rules and retroactively apply them.
It's totally reasonable (absent a statute of limitations lapse) IMO for them to go back and retroactively enforce rules that you weren't following once they detect that. (I would even entertain that it would be unreasonable for them to not do so.)
not from my point of view. I don't know all the tax rules (no-one does, not even a specialist tax consultant or a HMRC employee). The different between a rule that isn't enforced and not-a-rule is meaningless. The difference between a rule that isn't enforced and a rule that no-one is aware of is meaningless.
Like I said, I obeyed all the rules, and then one was retroactively applied. It really doesn't matter whether the rule existed before or not.
And yes, all tax authorities are capricious. The stories I heard about the ATO in Australia make the HMRC look like a model of predictable reliability.
> Getting super smart about taxes, especially by using loopholes and tax havens, can be counter-productive. Unexpected tax demands are not fun.
Sure. However, getting slightly smart about it, and not -- for example -- paying tax in a country you are demonstrably not living in, is probably a good idea.
FEIE phases out at just over $100k for singles, $200k for marrieds, and then you are taxed at the typical bracket for earnings in excess of.
Keeping things in USD for simplicity then converting at the end.
So say you live in the UK, and you + spouse earn $350k USD, UK will tax just under 40%, but lets go ahead and round it to 40%, then the US will tax the $150k at 24% to $315k and 32% to $350k.
So back of napkin calculations, your take home in the UK will be $210k and then you owe the US another $40k, making your total take home in GBP as of today, 140k.
It depends on how you are taxed, and in which country you were taxed.
The FTC only applies to taxes that are applied to YOU. So if you are set up through some Limited Company that pays out dividends or other non-PAYE scheme, YMMV.
I tried to keep it simple (overly simplistic, obviously) and specifically to the FEIE that GGP mentioned.
I'm not an international tax law expert, and I'm sure for less than the $40k in my example above you can have someone set up the proper shelters you need to limit your taxation, but the FTC
Sometimes it feels like the taxman is very keen on targeting Joe Ordinary who saved fifty quid, and completely ignoring the billionaires who evaded tens of millions in taxes.
It might feel like that but fortunately it isn’t true. People and companies who earn above a certain amount get a ‘relationship manager’ at HMRC and also get classified as low/medium/high compliance risk by them.
I think there are rules they consider ‘intended loopholes’ (like the fact that you can designate a different house your main residence every 9 months and effectively benefit from two primary residence allowances for CGT, or the ability to transfer assets between spouses tax free), many of which benefit richer people/larger companies more than poorer/smaller ones, and others they consider ‘unintended consequences’ which they do go after in a number of ways - all the way through to effectively retrospective changes to the law (like the Loan Charge).
At a guess this might not be far from the truth. For sub a few hundred pound almost no one would bother fighting it. Above a few hundred thousand almost everyone will. At best they'd have to expend a lot of time and money to get a fraction of the original amount back.
My wealthy great aunt paid an accountant to minimise her tax bill. She said it worked out around even, the costs of the accountant were about what she saved on the taxes, but she preferred paying the accountant than the government.
At the extreme, would she have preferred to pay 100% to accountants rather than the government?
If everyone took that view, who would pay for the schools and roads etc? I suppose that wouldn't happen, the tax rate would be increased, so everyone's paying tax and a massive accountants bill, so really the rational move is to pay the tax.
There are a lot of things that government spends taxes on that many of us don't agree with. Better to spend that money employing someone providing a useful service than contributing to fund things that you find immoral, such as fighting unjust wars.
Of course, 20% of what she paid the accountant goes straight to the government in the form of VAT.
Then, 20% of what's left goes again when the accountant spends any of it (ok, some thing are zero-rated [books] but on the other hand others have extra duties on top [fuel])...
And then, in the wake of the tax haven scandals around 2005/6, the HMRC wrote me a nice letter explaining that, while I had obeyed all the rules at the time, they were retroactively changing the rules and I needed to declare all the interest I had earned on my offshore account over the last 8 years. The final bill came to about fifty quid, so no major damage done. But the lesson has stuck with me.
HMRC can and will change the rules at any time, and apply them retroactively. Getting super smart about taxes, especially by using loopholes and tax havens, can be counter-productive. Unexpected tax demands are not fun.