Jurisdictions such as Bermuda, the BVI and Cayman are well-known for having no income tax. For professionals in the UK, moving offshore gives you a valuable opportunity to improve net take-home pay and accumulate capital savings for the long term. You can double your disposable income…
To make a meaningful comparison, the key consideration is to review how much you would need to earn gross working in the United Kingdom to match the same level of net disposal income earned in Bermuda, BVI or the Cayman Islands.
i) Bermuda vs United Kingdom
We’ll set £50,000 per annum net (i.e. after taxes and government payroll deductions) as our initial salary goal.
Bermuda has a 6% payroll deduction with zero income tax. Using a £/$ exchange rate of 1.30, here’s how much you’d need to earn on the Island to be taking home £50,000 p.a. ($65,000) after tax:
Gross pay: $69,148
Less: 6% $4,148
Net pay: $65,000
As you can see, a gross salary in Bermuda of $69,148 equates to £50,000 net.
But to net £50,000 in the UK, you’d need to be on £73,505 (at 2016/17 HMRC rates, there’s £18,703 of income tax and £4,803 of NI to deduct).
This means $69,148 earned in Bermuda is comparable to a headline salary of £73,505 earned back at home.
Qualified chartered accountants moving to Bermuda can expect to be earning way over this level (US$75,000) plus bonus and benefits. This represents a significant improvement in remuneration.
The advantage gets better the more you earn.
A 3+ years’ PQE associate with a law firm in Bermuda can expect to be earning in the region of $150,000. After taking out the 6% payroll deduction, this means taking home $141,000.
Using the same exchange rate of 1.30, to take home £108,000 ($141,000) working in the UK you’d need to be grossing around £184,000.
ii) British Virgin Islands vs United Kingdom
In the BVI at the time of writing, there is a payroll tax of 8% after the $10,000 personal allowance, as well as a 3.75% national health insurance deduction and a maximum $1,612 deduction for social security.
There is no income tax.
Therefore, for example, earning US$60,000 in the BVI will incur deductions of $4,800 payroll tax, $2,250 of NHI and $1,612 of social security, netting to $51,338 take home. You are keeping over 85% of your gross salary.
Expressed in sterling, this is equivalent to £39,491 net.
So what would you have to earn in the UK to be taking home £39,491 net. The answer is £55,215 (assuming £11,286 of income tax and £,4,438 of national insurance).
Therefore US$60,000 earned in the BVI is comparable to a UK headline salary of £55,215 per annum.
For most recently qualifieds, this will represent a significant pay rise with improved disposable income, particularly as the BVI is a lower-cost location to live than some other jurisdictions.
iii) Cayman Islands vs United Kingdom
There is no income tax or payroll tax in the Cayman Islands. The comparative remuneration figure will therefore be the same as in our Bermuda example, except that you don’t need to subtract any payroll tax.
This means $65,000 earned in the Cayman Islands is comparable to a headline salary of £73,505 in the UK.
Again, most qualified professionals will therefore clearly notice the significant financial advantage of earning their salary offshore.
iv) Other financial advantages
Unlike in the United Kingdom, you don’t have to worry about paying indirect taxes such as council tax, expensive commuting costs, the TV licence or VAT.
Even better, as a non-resident, you should be able to reclaim any such VAT or similar tax (GST, as it’s called in the US/Canada) incurred when visiting home or North America.
In moving offshore, qualified professionals make a substantial saving on tax and other social security deductions, meaning the amount retained and potentially saved is significantly improved, and explaining why so many choose to make the transition every year.
If you are a lawyer or accountant and interested in working in the Bermuda/Caribbean region, visit our jobs portal to see the latest vacancies. Our site also includes a downloadable All You Need to Know guide which will tell you all you need to know about living and working offshore.