This is the second part of a look at relocating away from Bermuda to the US, UK or Canada.

Before beginning, a word of caution: this article is general financial information only and cannot, and should not, be considered current authoritative financial-planning guidance for an individual or family’s specific emigration plans. Seek qualified international professional financial advice for your personal financial position.

I thank readers and appreciate those individuals for taking the time to comment on last week’s article “Complications of relocation”. The comments provided some very thoughtful, detailed additions to the overall emigration discussions.

Relocating to another jurisdiction is not necessarily the panacea for all ills.

Every single country on the planet has different government regulations, customs, legal hurdles, residency/citizenship obligations, cost-of-living, insurance, immigration constraints, inheritance. Almost all (or 244 countries and territories) have income tax regimes. https://en.wikipedia.org/wiki/International_taxation

Another primary concern, “free” health costs elsewhere while often cited as a reason to leave, is a misperception.

Health costs in Canada and the United Kingdom are paid for by everyone through their tax liability deductions and income tax return assessments.

Employers in the US are not legally obligated to provide health insurance at all, leaving it up to the individual to fund their own healthcare. Government subsidies exist, but US Medicare for retirees is paid — long in advance — through one’s entire working career, in addition to income taxes

The overwhelming planning for the family here is how to manage the assets they currently own when transitioning from Bermuda’s income tax-free environment to a fully integrated tax regime system country.

Also, keep in mind that all financial institutions as well as other bureaucratic offices in these three jurisdictions have just as many tedious bureaucratic compliance forms for opening bank, investment and other accounts.

Each family’s case will be as unique, depending upon the family circumstances, nationality, citizenship ties, financial holdings, relatives, careers, businesses, retirement logistics and so on.

Here is an illustrative example. A long-term Bermuda resident family is considering emigration, but with no connections, to one of the three primary pondstraddler countries: US, UK and Canada.

The hypothetical family’s financial holdings:

• A couple, both fully employed at mid-tier positions.

• British Overseas Territories Citizen Bermuda passport holders.

• Savings accounts and term deposits.

• Small investment accounts, locally provided mutual funds.

• One spouse is a large minority shareholder in a small Bermuda company; the other owns another 10 per cent.

• Home owned for 20 years; little equity, large mortgage due to renovations to rent to supplement their retirement abroad.

• Two mid-size, whole life policies.

• Basic health insurance provided by local employers; couple pays additional benefits.

• Decent pensions, accrued from more than 30 years of employment.

• Old age contributory pensions eligible — unknown how much.

• Family trust for two children, both minors.

• Possible, but you never know, small future inheritance.

• Bermuda wills.

• No affiliation with foreign investments, etc, at least they don’t think so.

Emigration. Space does not permit addressing how this family will legally migrate abroad or their choice of country. Egress may be obtainable through various sponsorship programmes to either Canada or the US, or perhaps ties to the UK through Bermuda. Timing date of residency is absolutely critical to their pre-immigration cross-border financial planning.

Income and other taxation. Residents of Canada, the US and the UK are subject to tax on their worldwide income. Each country’s tax laws are complex, involving federal government, provinces, states and/or municipalities, relative to types of income, dividends, capital gains, wages, active or passive income and so on.

All three countries employ somewhat similar progressive tax systems with each new income block threshold, the tax rate increases.

We take a look at the 2019 income tax regimes for Canada Federal and Province of Alberta combined (see Fig 1).

An individual with up to $47,630 will be taxed at two rate thresholds, rates increasing again over two more thresholds.

Simple (not-all inclusive) observations. The income generated from family assets may all be taxable in the new country, once they are resident:

• Interest earned on savings and term deposits.

• Dividends paid by the local Bermuda company, investments and mutual funds.

• Rental income on home.

• National Pension distributions, either drawdowns or an annuity choice.

• Government pension distributions.

Additional taxation and regulatory questions arise:

• Are Bermuda life insurance premiums, cash value, or settlements taxable?

• Are the policies transportable, or need to be reissued as new policies?

• Can they operate the Bermuda company from abroad? If so, will it be categorised as controlled foreign corporation (or other) with taxability of undistributed income?

• Are Bermuda mutual funds, National Pension Scheme portfolios transportable in entirety?

• Can a Bermuda trust granter/beneficiary structure, such as attribution of income to granter trigger tax events, or a non-recognition of trust?

• Possible family inheritance taxable?

• Eligible for social insurance in new jurisdiction?

• Are Bermuda wills and trust document not recognised elsewhere?

Investment property low-cost basis tax traps. Relocation families may keep long-term owned real property, and foreign investments, intact. If these entities have low original costs and are sold after relocation transition is complete, the family may be subject to large capital gains on sale profits, payable to their new country’s treasury.

Relocators have touted cashing out as the easiest way to move:

• Liquidate all assets;

• wind up life insurance policies, but not before qualifying for new jurisdiction-approved policies;

• convert Bermuda dollar cash to currency of choice, say positively capturing the low current Loonie rate, but taking a penalty for pound purchases.

But even the cash-out method may not cover future Bermuda pensions, trust, or other distributions where the family may be forced to pay income tax on assets earned tax-free far, far before relocation.

Currently, it appears that Bermuda pension law (for both) does not allow for premature or at retirement lump-sum distributions, even though that would be the ideal situation for those leaving permanently. This is a battle that the family will have to fight.

One rule — get qualified professional planning before you go.

The third and final part of this series will appear in the August 3 edition and will feature a transition checklist and references sources.

• Martha Harris Myron CPA CFP JSM: Masters of Law — international tax and financial services. Dual citizen: Bermudian/US. Pondstraddler Life, financial perspectives for Bermuda islanders and their globally mobile connections on the Great Atlantic Pond. Finance columnist to The Royal Gazette, Bermuda. All proceeds earned from this column go to The Reading Clinic. Contact: martha.myron@gmail.com