Property Tax Relief to All

A lot of homeowners have problems with property taxes. If you are one of these homeowners, you may find some assistance through property tax relief. There are several categories of property tax relief, such as property tax relief for senior citizens, for first time home-buyers, for low-income taxpayers, for individual taxpayers, and property tax relief for long-term homeowners.

Such relief for senior citizens is practical because these people have retired to a lower income and can’t afford to pay property taxes that keep increasing over time. The government is at least responding in some degree to the needs of this group of taxpayers who are, obviously, experiencing higher costs on lower incomes.

Relief for first time home-buyers comes in the form of refunds and rebates that can be applied against income taxes. This is another part of the government’s incentive to help shore up the real estate market after its historic decline. Many home-buyers have come on the market as of late because of this property tax relief coupled with the first time home-buyers tax deduction implemented for the 2009 tax season.

Property tax relief for low-income taxpayers makes sense for the same reasons as property tax relief for seniors makes sense. The working poor in this country are facing lower wages than in a long time. Many employers have outsourced jobs and people who were once unemployed are forced back to work for much lower wages than they earned before their layoffs. They call this trend under-employment. Due to under-employment, many families are having trouble hanging on to their homes. Certainly, they are deserving of a break on their property taxes.

The Individual Earned Income Tax Credit gives low income tax payers a refund that includes property taxes. This credit is an example of one of the best poverty reduction tools in existence. It is used in other countries as well, because of its success with helping the working poor. Even so, there are many eligible people who do not take advantage of the Individual Earned Income Tax Credit. All that is involved is the filing of a few forms. There are many non-profit organizations and neighborhood groups willing to help qualified candidates apply for this relief.

Often, long-term homeowners can receive property tax relief through state programs originated to help them out. Many states offer special breaks or rebates to senior citizens. Other type of relief can come in the form of a Homestead Act, which is legislation that many states have adopted in order to provide such relief to long-term homeowners.

Free Guide to Pension Tax Relief

The Free Guide to Pension Tax Relief: QROPS, QNUPS & SIPPs

Pension tax relief in the UK has become a major issue for Brits wishing to move or retire abroad. Almost 1 in every 10 people from the UK now lives abroad permanently. In this ever changing landscape, how can British expats and people who have worked in the UK take advantage of their new status and avoid paying UK taxes?

Fortunately, changes in pension regulations means that you can now avoid most UK taxes on your existing UK pension schemes by transferring them abroad. As you are not using any of the services in the UK anymore and you have paid your dues whilst you worked there, why should you continue to pay UK taxes?

Here is the breakdown of the top destinations for Brits living abroad from the BBC’s Brits Abroad project:
An estimated 5.5m British people live permanently abroad. The emigration of British people has happened in cycles over 200 years. The trend is now rising again: some 2,000 British citizens moved permanently away from the UK every week in 2005.

When are you non-resident for UK Income Tax?

You’ll be treated as non-resident from the day after you leave the UK if you can show:

• you left the UK to go abroad permanently or your absence and full-time work abroad lasts at least the whole tax year
• your visits to the UK are less than 183 days in a tax year and average less than 91 days a tax year over a maximum of four consecutive years

What do I need to do when I leave the UK?

Your Tax Office will give you form P85 ‘Leaving the United Kingdom’ to get any tax refund you’re owed and work out if you’ll become non-resident. If you still need to complete a tax return after you leave they’ll let you know.

BRITS ABROAD: THE TOP COUNTRIES

Country name Resident Britons

Australia 1,300,000
Spain 761,000
United States 678,000
Canada 603,000
Ireland 291,000
New Zealand 215,000
South Africa 212,000
France 200,000

What are the choices for Brits moving abroad?

(1) Leave it where it is and continue to pay UK taxes for services you don’t use.
(2) Transfer it to a SIPP, QROPS or QNUPS and avoid most UK taxes.

What taxes do I pay at the moment on my UK pension?

Income Tax on UK Pension Schemes

£0 – £7,475* 0% (this will be 20% for higher rate tax payers in the near future*)
£7,275 – £35,000 20%
£35,000 – £150,000 40%
£150,000+ 50%

*From the 2010-11 tax year the Personal Allowance reduces where the income is above £100, 000 – by £1 for every £2 of income above the £100,000 limit. This reduction applies irrespective of age. Furthermore, the personal allowance will be reduced to zero in the near future for higher rate income tax payers. The allowance is higher for ages 65-74: £9,940 and 75+: £10,090. But, remember you will be drawing your state pension then.

Dividends Tax on UK Pensions

What is dividends tax?

This is tax on the income from UK company shares, unit trusts and open ended investment companies (OEIC’s).
£0 – £35,000 10%
£35,000 – £150,000 32.5%
£150,000+ 42.5%

Capital Gains Tax (CGT) on UK Pensions
Normally you wouldn’t pay GCT on your UK pension unless the plan owns property.

What is Capital Gains Tax (CGT)?

Capital Gains Tax is a tax on the gain or profit you make when you sell, give away or otherwise dispose of something that you own, such as shares or property.
You do not pay CGT on your main residence, car, UK gilts (bonds), lottery winnings or personal belongings less than £6,000.
If you have multiple properties, you will pay capital gains tax when you sell them. You can avoid this through a transfer to a QNUPS. You can set up a QNUPS even if you never retire abroad… more on this later. Most who have multiple properties will be taxed at 28%.
You don’t get taxed on the first £10,600.

CGT Tax rates:

• 18 per cent and 28 per cent tax rates for individuals (the tax rate you use depends on the total amount of your taxable income, so you need to work this out first)
• 28 per cent for trustees or for personal representatives of someone who has died
• 10 per cent for gains qualifying for Entrepreneurs’ Relief (if you are a sole trader or partner in a company).

Inheritance Tax

Not everyone pays Inheritance Tax. It’s only due if your estate – including any assets held in trust and gifts made within seven years of death – is valued over the current Inheritance Tax threshold (£325,000 in 2011-12). IHT is 40% on the amount over this threshold.

If you are an expat living abroad with UK wife: Threshold is £650,000
If you are an expat living abroad with wife who is not from the UK: Threshold is £380,000
If you are single or divorced and living in Spain: Threshold is £325,000
Above this threshold, you pay 40% tax on your estate and assets.

What return would I get on a UK Pension?

State pensions and most final salary schemes are linked to the rate of inflation. New regulations now mean that your pension will increase by the CPI (Cost Price Index) rather than RPI (Retail Price Index). This is lower as it excludes housing costs such as mortgages and council tax.
The affect on your pension means that it will likely increase by about 2.5% rather than 3.5% per year. The target rate is 2%
The Telegraph stated that10m older people get £207m less next year than they would under the current system.
CPI Table (1996-2010)
This is the table for annual rate of CPI since 1996 when they first officially started measuring it. The average over the 13 year period puts it at just below 2%.

Full statistics for CPI for this period: http://www.statistics.gov.uk/statbase/tsdataset.asp?vlnk=7174&More=Y

Summary of Taxes on UK Pension Schemes

Income Tax 0%, 20%, 40% and 50% rates
Dividends Tax 10% – 42.5% (on income paid from shares)
Capital Gains Tax 10%, 18% or 28% (on multiple properties and shares)
Inheritance Tax 40% above the threshold (on your estate)

Qualifying Recognized Overseas Pension Scheme

Pension regulations changed on ‘A’ Day, 2006 allowing anyone who is considering retiring abroad, British expats and people who have worked in the UK to transfer their pensions offshore.

Where is a QROPS held?

A QROPS can be held in any jurisdiction that is HMRC approved and follows the QROPS rules. Typically, the safest jurisdictions which have been running the longest and have the greatest number of members lie in Guernsey & the Isle of Man, although there are many other schemes in other jurisdictions. Each jurisdiction has its own unique tax benefits and rules.

Do I have to be an expat to move into a QROPS?

No. Anyone who has worked in the UK can transfer their pension into a QROPS. If you still live in the UK, you can transfer your pension into a QROPS if you are going to retire abroad. The advantage of moving would be to avoid any future UK tax regulation changes which may not allow such a transfer or increase taxes or place limits on the transfer amount.

When should I move my UK pension into a QROPS?

If you are moving abroad or considering moving or retiring abroad, you should consider moving into a QROPS. However, if you are still paying into a UK pension plan and receiving UK tax relief, you should wait until you are no longer contributing or have reached the lifetime allowance (LTA) of £1.85million in 2011/12, reducing to £1.5million in 2012/13. Any amount over this will be taxed at 55%.

Contributions paid by you to a personal pension plan or a stakeholder pension scheme are made net of basic rate tax (i.e. 20%). This means that for every £100 you want to save, you only pay £80. Tax relief of £20, topping your contribution up to £100, is then added by HM Revenue & Customs (HMRC).

If you are a higher-rate tax payer (i.e.40%), you may able to claim additional tax relief. Depending on how much you earn over the higher rate tax band, any additional tax relief would range between a further 1% up to a maximum of 20%.
From 6 April 2011, if you are an additional-rate tax payer (i.e. 50%), you may be able to claim additional tax relief at your highest rate. Depending on how much you earn over the higher rate tax band, and your level of contribution, any additional rate tax relief would range between a further 1% up to a maximum of 30%.

Do I have to move my pension to the country I live in abroad?

No. This is the biggest misconception. You can live in Canada, Spain, Bermuda or Thailand whilst holding your QROPS in Guernsey. Then, when you wish to draw your pension it can be paid directly into your bank account of the country you are living in or to an offshore bank where you can withdraw the money on an ATM card.

Is my pension kept in Pounds Sterling?

This is the beauty of a QROPS transfer. You can keep your pension in Pounds Sterling or you can change it into the currency of the country you are moving to. So, if you move to Spain for example, you can change your entire pension pot into EURO, so you don’t have to worry about the currency exchange or if you think the Pound will remain stronger, you can keep your pension in GBP and then take advantage of the exchange rates at a later date.
In fact, you can hold your pension in multiple currencies if you wish, GBP, USD, CHF, EUR, Swedish Krona, for example.

I have many pensions in the UK. What do I do?

A QROPS allows you to transfer all your pensions into one place where it will be easily manageable.
Can I get a 100% lump sum or cash in my pension?
Typically the answer is no, unless there are extenuating circumstances like a terminal illness. Guernsey & Isle of Man allow access to a 30% lump sum once you have been offshore for 5 years.
When can I draw an income from my pension?
You need to be 55 years old and offshore for 5 tax years before drawing your pension. You can take a 30% lump sum upon transfer. If you need money before 55, you can also get a loan against the value of your QROPS. After 5 years there are no longer any reporting requirements to HMRC.

What taxes do I pay on my pension under QROPS?

• No More UK Income Tax
• No Capital Gains Tax
• No Dividends Tax on UK Shares or Funds
• No Inheritance Tax

What returns will I get on a QROPS?

The returns depend on your investments. They are no longer linked to inflation directly.
You can invest in bonds, shares, mutual funds, ETF’s, cash, fixed interest account. Your options are open. A sensible IFA will direct you to protect the majority of your pension with low risk investments and investments which have little or no correlation to the stock market. Younger clients and those who wish to take more risk can expose some of their pension to equities and commodities such as gold, silver and oil. A typical return after all charges have been taken into consideration could be 7.5% p.a.

QROPS Vs UK Pension Examples:

John is 45 and has a £70,000 pension pot. He moves to Spain.

UK Pension pot at 65 @2.5%* p.a. return: £114,703
He draws a pension at 6%. This gives him £6,882 pension income per year, so pays no income tax. If he dies after withdrawing his pension, his wife would most likely receive about half, a pension of £3,441.

QROPS Pension pot at 65 @6% p.a. return: £224,499
He draws a pension at 7% (as he can withdraw up to 120% of GAD rates**). This gives him a pension of £15,715 per year. He pays no UK taxes. If anything happens to him, the wife receives the entire lump sum tax-free. He pays Spanish income tax on the pension if he transfers this money to a bank in Spain and declares it to the Spanish tax authorities. He could also pay this pension into an offshore account and withdraw money using an ATM card.

* Assumes pension increases with inflation at 2.5% return. The ave. CPI 1996-2011 is just under 2% according to http://www.statistics.gov.uk/statbase/tsdataset.asp?vlnk=7174&More=Y

**The Government Actuary Department (GAD) drawdown tables are used to determine the basis amount which represents the value of comparative annuities on a standard single life, level with no guarantee basis.

QROPS article written by Richard Malpass at QROPS Specialists.

A Guide to UK Pension Tax Relief

There are different pension plans in action, and the plan that will be applicable to you would be dependent on a number of factors. At first, the choices and options may appear mind-boggling and overwhelming to you, but once you make up your mind to give some time to these tax relief schemes, you will be amazed to look at the sheer number of choices you have. For instance;

There are two types of pension plans; company pension plans and personal pension plans (PPP).

In company pension plans, you don’t have to worry about anything; your contributions for the pension will be automatically deducted, and tax deductions would be made in the similar manner. However, in personal pension plans, things are a little bit complicated. Let ‘s try to understand personal pension plans (PPP) in somewhat more detail.

How personal pension plans work?

If you are using a personal pension plan, then the relief that you will get would be depend on a number of factors. One of the most important factors is your tax payer status. That simply means, the PPP will give you tax relief depending on whether you are a high rate tax payer or a basic rate tax payer.

If you are one of the basic rate tax payers at 20% and make contributions to the personal plan, then most of the tax relief that you will get will be dependent on your pension provider. They will help you to claim the tax back from the relevant office. For instance, if you are paying the basic tax rate of 20%, you will get 20% tax back on your contributions. That simply means for every £100 you will get £120 in your pension fund. Similarly, if you are a higher rate tax payer at 40%, you will get a tax relief of 40%. However, the tax relief is available for only that amount of income that is taxed at 40%.

It’s also worth mentioning here that the tax relief you will get is claimed differently. While the initial 20% would be claimed from HMRC (Her Majesties Revenue and Customs), but the other 20% you have to claim from your tax office by showing them all the evidences of the payments that you have made in the pension relief scheme.

If you are a non tax payer, you can still get the tax relief by making these pension contributions. However, there is a limit of £2,880 a year, but you will still get the basic tax relief of 20% on your contributions. It simply means that if you invest £2880, your invested money will automatically be increased to £3,600.

Pension tax relief limits

One of the most important things that you should always remember to save yourself from tax penalties is that you should always be aware of the limitations while making your contributions. If you make contributions under the annual allowance, then you can get as much as 100 % tax relief on your contributions. You are eligible for 100% tax relief if you have paid the contributions before the age of 75 and all contributions are under annual allowance.

It’s important to note here that for the year of 2010-2011, the tax allowance is £255,000, as well as for the year of 2009-2010, it was £245,000. Also, if you have made contributions above the annual allowance and a separate life-time allowance; you may have to face tax penalties. There are some changes in the 2009 Budget. As from April 2011 the amount of tax relief will taper if your income is £150,000 or more. These changes are introduced on 22 April 2009, because it came to the notice of the tax department that some people were making extra pension contributions, and they wanted to prevent them from receiving full tax relief before April 2011.

No matter which pension investment scheme you choose, but you cannot take away the fact that this is one of the most important things you do for your retirement planning and also for getting a substantial amount of tax relief.

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