Emigration Considerations

It’s been said that divorce, death and moving are the three most stressful events that anyone can experience. Today we talk about the tax lurgies that can make moving to another country even more stressful.

Oh, the dreaded exit tax – the unexpected party crasher of emigrating. As nobody likes being caught off guard, it is vital to check whether the country that you are emigrating from will levy an exit tax. In a nutshell, exit tax is a last-minute tax levied on assets, as if you had sold all your assets before starting your new life in a new country.

Of course, different countries have different rules, deadlines and penalties in relation to exit tax. For instance, the payment deadline for exit tax in South Africa differs for provisional and non-provisional taxpayers, whilst the United Kingdom does not levy exit tax.

Let’s talk money, honey! Assume nothing when it comes to funds and policies. You may think endowment policies (and funds in general) are taxed the same everywhere. But surprise surprise, different countries can have very different rules. For instance, in South Africa, an endowment policy is taxed within the policy (i.e. it is not the policy holder who pays the tax). On the other hand, in certain countries such as the United Kingdom and Ireland, the proceeds from the endowment policy are taxed as income and not as a capital gain in the hands of the beneficiary.

So what happens if an individual (with an endowment policy) emigrates from South Africa? Well, the policy will pay tax in South Africa but the individual may be regarded as the responsible taxpayer of that policy, in that other country which they have emigrated to.

Essentially this means you’ve got two different taxpayers: being the policy in South Africa, and the individual in the post-emigration country. In the case of “double taxation”, no relief will be granted as the two taxpayers in questions will be regarded as different “people”. So the lesson to learn for any South African who may wish to emigrate is, where possible, letting the endowment policy mature before emigrating.

Without getting too caught up in a legal jargon, it is important to remember that legal contracts for instance, pre- and post-nuptial agreements entered into when getting married in a specific jurisdiction, may not be legally binding in the country you are moving to (which could lead to some serious issues!) This is usually the case when moving from a civil law country to a common law country or vice versa.

It is also important to consider the probate procedure after death in different countries and whether the country’s law covers assets situated abroad. It is therefore highly recommended that individuals who emigrate specially ensure that their will/s cover their worldwide assets. For those with a larger asset base it is often advisable to have a will in place in more than one jurisdiction.

Structures need to be revisited to check whether they are still fit for purpose (and hopefully they are flexible enough to change!) Individuals who emigrate often forget that triggering tax residency in another country (as a result of emigrating) may have unforeseen tax consequences on their personal wealth structures.

Some countries such as Canada and the USA have detrimental tax rules for beneficiaries receiving distributions, and if careful and meticulous planning is not done upfront, the entire trust structure may become tax resident in a different jurisdiction (due to a change in the beneficiaries’ tax residency status). You can imagine that this could have a major ripple effect on future distributions.

Emigrating is not all doom and gloom. Of course, for most, it is a very exciting new chapter of their lives but “failing to plan is planning to fail”. In our minds emigrating is a journey and we would imagine that any person would wish for it to be a successful journey.

At Regan van Rooy, we’re here to hold your hand while emigrating from a tax, commercial and structuring perspective. Reach out today for any questions or concerns you might have in relation to emigrating, your tax residency status or a general health check on your current structure.