Moving to London, Idan Ofer May Be in for a Heir-cut

Britain is tax-friendly to wealthy foreigners, like the controlling shareholder of The Israel Corp., but his descendants may get hit with the bill.

Idan Ofer isn’t the first Israeli with money to move his main residence to chilly London. Businessman Lev Leviev did it, as did no small number of other Jewish Israelis. There they enjoy good television, quality soccer and low tax rates.

Ofer might have said he’s considering the move due to family reasons, but it’s hard to ignore the fact that Britain is considered a tax haven for foreigners with money. The move could save him as much as $300 million.

But the change of location could turn out to be a honey trap. The British are well aware of their well-heeled foreign residents, and have been known to wage legal battles to force them to pay fat tax bills.

The key is where these people make their domicile, in legal terms. Ideally for these foreigners, they’ll be defined as people who reside in Britain but are not permanent residents − meaning their domicile is not in Britain − and thus do not have to pay British taxes. If they are considered permanent residents, then they do have to pay.

A problematic middle stage is a resident who is considered to have a domicile in Britain. British tax law defines this category precisely, and the rich foreigners try not to meet the definition − but they don’t always succeed.

Over the last several years, British tax authorities audited the estate of a Jewish businessman who split his time between London and Israel, a multimillionaire known for his philanthropy. He passed away in 2009, leaving behind an estate valued at more than NIS 1 billion. While on the face of it, he had not been obliged to pay taxes in Britain, the inheritance battle that arose over his estate sparked the interest of the British authorities, who decided to take another look at the case.

That’s not good news for his heirs. While the United Kingdom is generous when it comes to wealthy residents so long as they’re alive, once they die their heirs are likely to pay heavily. Taxes on estates can come out to as much as 40% of the assets’ value.

Furthermore, gifts are also taxed, so that the wealthy can’t pass on their assets while alive and thus save their heirs from the inheritance tax. The gift tax applies to any gifts given by a person within seven years of his death.

Death of a businessman

If you’re thinking of moving to London to avoid taxes, you might want to hear a bit more about that deceased Jewish businessman. The Tel Aviv family court has held numerous hearings over his estate, and many lawyers have been kept busy working on it. The discussions are behind closed doors, so the precise details cannot be recounted here, but we can say that his widow − a British woman who converted to Judaism and now lives in Israel − sued for and won half of his estate.

Her case had been complicated by the fact that a significant portion of his money had been made in Iran before the rise of the Ayatollah Khomenei, and before she met him. The businessman was born in an Arab country and immigrated to Israel as a child, serving in the Israel Defense Forces. He made a significant portion of his money in Iran, but also had business dealings around the world, particularly in real estate. He also moved in and out of Israel several times − generally due to business or tax considerations.

In Israel he was known as a big shareholder in Teva Pharmaceuticals, before selling out at a significant profit. When he sold, he was living in London, but he apparently considered that city only as a tax haven, and ran most of his business affairs through other tax havens including Greenland and Switzerland.

As far as is known, British tax authorities have not been able to find significant assets registered directly in his name. But that doesn’t mean they’re not trying.

If they succeed in pinning something on the businessman or his heirs, the tax bill could total hundreds of millions of shekels. The British tax code has both benefits and pitfalls for the widow and other heirs. For instance, by law the widow should be exempt from paying inheritance tax − meaning that no inheritance tax would be charged on the half of the estate granted her by the Israeli court.

Stay lonely

But the British are trying to get at the money from another angle. The authorities are trying to prove that in practice the businessman was a resident − that middle ground of people considered to have a domicile in Britain. This applies to anyone who spends at least 183 days a year in the United Kingdom, and to people who had significant assets in the country. In such a case, he should have been subject to British taxes while alive − and the authorities will hand the bill to his estate. The investigation is thought to be just beginning.

In order not to be defined as a British resident, the man would have needed to have little connection to the country.

For instance, buying a house − or worse, buying a house and renovating it − could be used to prove you’re a resident. You’d be better off living in a hotel or in temporary rentals, if you don’t want to wind up paying British taxes. Don’t send your children to a British school, and don’t have close friends who are British − and of course, your assets and businesses need to be outside Britain.

The deceased businessman’s case is just one example showing that an Israeli − or anyone else − who moves to London for tax purposes needs to plan it well. Former British residents are exempt from British taxes only if they can prove that they’ve severed all connections with the country, including connections to family and friends.

But they can’t wait too long; once you’ve lived in Britain for at least 17 years, that exemption no longer applies.  

Aviv Hofi