Business: UK pension reforms could push some residents over the border
Are they heading for an expat exodus?
In his budget, Osborne announced that the age-related allowance for people turning 65 is to be scrapped from April 2013, meaning that there are now even fewer incentives to hold pensions in the UK.
With this benefit being removed, and as people seek to protect their retirement funds from the government's ongoing raids, more Britons than ever will be looking to retire to countries in which they'll be taxed less.
Whilst France and Spain have their own well documented financial problems, financial legislation in Malta has made it increasingly attractive for high earners and retirees to look to them as a safe haven. "The introduction of the Highly Qualified Individual Rules last year is one such measure and meant that a number of individuals went to live in Malta and paid a flat rate of 15 per cent tax on their income for a five year period," said John A. Huber, a tax specialist based on the island. "Later in the year, Malta introduced another set of rules attracting High Net Worth Individuals who also pay a flat rate of 15 per cent tax with a minimum liability of 20,000 euros per annum."
Tax can be a determining factor when re-locating. Malta has a very favourable tax regime and also offers a great environment to live in.
So does Cyprus, as expats who are tax residents on the island have an allowance of 19,500 euros (around £16,312) before the state will tax an income, and that includes pension income from abroad.
France and Spain though are still firm favourites with UK expats and although their current tax positions are less friendly than Malta and Cyprus, they still attract foreigners in the ten's of thousand's each year. This could create further demand on property supplies in this fabulous region of ours, as more and more people search for that idyllic life.
Campaigners are fighting back though and warn that there will be a growing backlash over the budget in Britain as the new tax allowances are introduced. "The decision to freeze the age related personal tax allowances effectively means around five million pensioner tax payers will no longer get additional reductions in their tax over the coming years - while those on the top rate of tax will see their bills reduced," said Dot Gibson, General Secretary of the National Pensioners Convention. "Many older people will feel they are being asked to forego their reduction in tax to help out the super rich.
There's no fairness in that."But the government has dismissed such claims, insisting the tax reforms are "fair". In a Lords debate on Chancellor George Osborne's measures to scrap age-related allowances introduced by Winston Churchill in 1925, Treasury Minister Lord Sassoon acknowledged "tough choices" had been made but said reform was essential to restore economic stability. "This Government will not shirk its responsibility to restore fiscal sustainability and economic stability," he said. "We have learnt the consequences of unsustainable spending and an ever increasing debt."
According to recently published figures from the Office for National Statistics, pension liabilities in the UK exceeded a staggering £7 trillion at the end of 2010.
The Financial Times reported that these (not-yet-official ONS figures) show that the amount of future payouts that the UK government pension system was obligated to make at the end of 2010 were £5 trillion, while the private pension system owed £2.1 trillion to its future pensioners. Embedded in the Government figures, £3.8 trillion were allocated to state pensions. This means that the UK government owed a staggering 263 per cent of its annual gross domestic product to pensioners in 2010.