Liability to the Wealth Tax?

A report in the carries a very concerning report which strongly implies that the Wealth Tax will be extended to British and Dutch people working in Norway.  The full story can be found here, and it starts as below.

Starting this year, some foreigners who live in their home country but work in Norway will have to pay Norwegian taxes on their wealth at home. The changes come despite Finance Minister Siv Jensen’s plans to cut taxes on Norwegians’ own net worth, or eliminate them altogether.

New tax agreements made with the UK and the Netherlands mean workers who commute to Norway are now liable to pay wealth tax under Norwegian tax laws on their assets at home. Neither the UK nor the Netherlands taxes its citizens based on net wealth. Tax is administered by regional authorities throughout Norway, including Oslo-based Skatt Øst.

British and Dutch workers who remain based in their homelands must from this year pay Norway’s controversial fortune tax (called formueskatt) on their net assets, reports newspaper Aftenposten. The home countries’ rules applied in practice under the previous tax agreements, but neither Britain nor the Netherlands enforced a  tax on net worth.

“A Brit or Dutch person who commutes here weekly can now be charged Norwegian wealth tax on foreign homes, holiday homes, cars, shareholdings and bank deposits,” said Martin Wikborg at law firm Visma. The Finance Ministry confirmed this to newspaper Aftenposten.

The new UK-Norway Double Tax Convention came into force on 17 December 2013, but if you look at the HMRC website you will find that the references (at 26 March 2014) are to the 2000 Treaty, which is far from helpful.

Tax weighs you downWe are reading through the new Convention to establish the situation for calendar 2014 onwards, but this would seem to explain the demand that non-residents prove their identity, as there is a clear plan to target British contractors.

Our initial thoughts are as follows:

  • It is not going to be possible to avoid the Wealth Tax if you spend more than 183 days in Norway in any tax year
  • It will apply to your net assets i.e. all assets less loans
  • You will have to provide details of all your bank accounts and a current value for your home and your mortgage
  • And your car; and your timeshare in Tenerife; and your caravan in Skegness
  • ISAs, for example, will also be taxable in Norway
  • We are not sure how they will check the accuracy of what is disclosed, or audit the returns
  • The tax will be 1% on the value of your assets in excess of 1,000,000 kr (c.£100,000)
  • If you claim Class 2 (married couples allowance) then your spouse’s assets will be assessable
  • If your spouse owns everything, then you are off the hook
  • This is going to be a nightmare to comply with

It is unclear how this will impact on your liability for Norwegian Capital Gains Tax, which is a serious concern.  If you are treated as tax resident in Norway then potentially you have a liability to report all your asset disposals for up to seven years after you leave Norway.  This could mean that if you sold your home five years after you finish in Norway, you could potentially be liable for Capital Gains Tax in Norway on that sale – and there is no Principal Private Residence tax relief in Norway.

We are checking the new Treaty and will update clients as soon as we can, and we expect to have some clear plans for clients on the other side of the Norwegian Tax returns – at the end of May.