Relocation: Important factors to consider before moving

More high-net-worth individuals (HNWIs) are moving internationally than ever before. But what tax traps and practical considerations should be on their radar?

Wealthy families are on the move. Catalysed by political upheaval, economic uncertainty, tax incentives and lifestyle benefits, an estimated 128,000 millionaires are likely to have relocated globally in 2024, according to the Henley Private Wealth Migration Report 2024^[1].

While the UAE, U.S. and Singapore top the table for inflows of wealthy individuals, European destinations such as Italy and Switzerland remain popular, and the UK continues to attract some interest, for example from U.S. citizens.

With relocation, comes the need to protect assets – during and post move. The process is often complex and requires a deep understanding of how local laws can impact assets, as well as guidance on issues related to taxation, real estate, succession law, family law, and immigration law, to name a few.

Navigating the latest tax laws

Singapore has always been an attractive destination for wealthy individuals, with many high-profile relocations to the island city-state since the early 2000s. It is one of the few jurisdictions in the world with a “territorial” system of taxation – where only income earned within its borders is subject to tax generally – and does not levy taxes on capital gains and transfers. In recent years, it has also enhanced its tax incentives for the onshoring of trusts and family fund management activities, and promotion of philanthropic activities. Its proximity to other Asian markets and sophisticated economic ecosystem also attracts wealthy individuals considering relocation.

Switzerland is one of Europe’s top destinations for expatriates thanks to a well-developed banking industry, top-rated health and education system, and its reputation for stability. Expatriates account for approximately a quarter of the local HNW population.

Its tax regime has been shaped by its federal, cantonal and municipal authorities. Lump-sum taxation or the ‘forfait fiscal’ taxes individuals on their annual living expenses rather than income. Most cantons allow non-Swiss nationals who relocate to Switzerland for the first time or after a break of ten years who are not gainfully active in Switzerland to pay taxes under the lump-sum regime^[2].

In Italy, lump sum taxation is also available to new residents. The regime is based on an annual fixed amount income tax (200k euro for main applicant and 25k euro for any family members wishing to join the regime) on foreign-source income and gains and on an exemption from wealth tax and inheritance and gift tax on foreign-situs assets^[3].

US citizens exploring relocation to the UK are drawn by historically low exchange rates, the financial, educational and business ecosystem, and convenient geography and time-zone^[4].

However, Piers Master, Partner Private Client at Charles Russell Speechlys warns of “many double-tax and mismatch traps” at the interface of the US’s citizen-based, and the UK’s residence-based, tax systems.

“In advance of a move, US citizens need expert advice from both sides of the pond to negotiate UK tax complexity and US-UK cross border issues,” he stresses.

Radical changes to the tax rules regarding “non-doms” have occurred in the UK, including sweeping changes to the inheritance tax (IHT) legislation. Instead of a domicile-based test for IHT exposure, the new rules apply a test which looks at how many years of UK residence there have been in a reference period. Individuals who qualify as “long-term residents” (LTRs) under these rules are exposed to IHT on all assets, whereas non-LTRs are only exposed to IHT on UK assets, and non-UK assets connected with UK residential property.

The changes referred to above have included the abolition of the remittance basis, the longstanding beneficial tax regime for UK resident “non-doms”. On the flip side, the UK has introduced a very generous short-term tax regime for individuals becoming resident in the UK after a non-resident period of at least ten consecutive tax years (or where the individual has never been UK resident before). This regime lasts for four years, only, but provides a complete exemption from tax on foreign income and gains.

Purchasing property

Buying a UK home is one area, in particular, that can leave expats open to unexpected tax liabilities. Stamp Duty Land Tax (SDLT) is charged on purchasers of homes in England and Wales, according to the purchase price. But rates are hiked by five per cent for buyers who already own a residential property, and two per cent for non-resident buyers, a figure likely to increase.

In Switzerland, meanwhile, non-Swiss nationals may purchase real estate under certain restrictions provided that authorisation is granted. Those with authority to reside there can purchase real estate subject to certain restrictions.

Wealth and estate planning for expats

Careful consideration also must be given to succession law in relation to an individual’s estate following their relocation.

In contrast to English law, whereby individuals can leave their assets as they wish, many EU countries, including Italy, have forced heirship rules which entitle certain next of kin to claim specific portions of the deceased’s estate. The application of Italian succession law, however, can be avoided with the appropriate planning.

Swiss inheritance law also includes statutory entitlement provisions, meaning that a person cannot freely dispose of their entire estate due. They may freely dispose of the portion of their property that exceeds the statutory entitlement of the heirs through wills or inheritance contracts.

Often therefore an individual’s testamentary arrangements will need to be reviewed to ensure that, where possible, their estate passes in line with their wishes, and tax-efficiently.

Matrimonial regimes

The rules governing matrimonial property regimes are extremely important in the event of divorce or death. It is therefore vital to understand the subtleties and issues involved.

For example there are three matrimonial regimes in Switzerland. The most common matrimonial regime in Switzerland is the one known as participation in acquired property. It applies to married couples who have not expressly arranged another type of regime. Spouses may opt for the community of property or the separation of property by marital agreement concluded before a public notary.

Settling in a new country

Expats must get to grips with myriad immigration laws as part of the relocation process, too. Take Italy’s residency requirements, as an example: to legally reside in Italy, non-EEA and non-Swiss citizens may need to apply for a long stay visa (to be converted into a residence permit). If they are not moving to Italy for the purpose of working or studying in Italy, they would typically use either the investor visa or the elective residence visa.

In Switzerland, several permits are available for people wishing to settle. While EU and European Free Trade Association citizens can enter the country without a visa and apply for their permits from Switzerland, third-country nationals must apply for authorisation to enter at the Swiss representation in their place of residence. Once the process is successful, a visa is granted to enter Switzerland to finalise the permit application procedure.

As Piers Master points out: “It is crucial for any individual planning a move to obtain specialist advice on a range of issues as part of their relocation planning. In some cases this can mean seeking advice in the tax year prior to making their move to avoid unwelcome surprises.”