Diversify your nationality – get a second passport

The rush for passports after the Brexit vote may have been hasty – but “political diversification” makes sense, and not just for tax purposes. Merryn Somerset Webb explains.

On Friday 24 June last year, online searches for “how to get an Irish passport” spiked. On the following Monday, the Irish embassy in London and post offices in Northern Ireland received 4,000 related queries – up from the normal figure of 200 a day. By Wednesday, demand was such that the Irish foreign affairs minister had to ask that the British hold off applying for a passport unless immediately necessary: the system just couldn’t cope. By the end of the year, Ireland had issued 10% more passports than in 2015, with the extras mostly issued after the UK’s vote on European Union membership.

This rush to apply for a second passport doesn’t make much sense. It is likely to be two years before Britain “Brexits”. That said, getting a second passport for an EU country before late 2019 could make sense. It is a great insurance policy. I don’t expect our EU exit to change our freedom of movement as holidaymakers or retirees. But I could be wrong (it will be a long two years). Given that we intend to change how EU citizens can work and claim welfare here, it is reasonable to assume there will be changes to our corresponding rights. So if you can get an Irish passport easily, why not do it?

And a second passport doesn’t have to be about ensuring you will always be able to work in the likes of Spain. It could also be about claiming visa-free travel to as many countries as possible: the UK has one of the best passports in the world (visa-free travel to 173 countries, according to the Henley & Partners Global Visa Restriction Index 2017). But it might be nice to top it up with one that offered visa-free travel around much of Latin America, say (a Paraguayan passport).

It could also be about the wider impact of your nation’s foreign policies: for example, it might be nice to be Irish rather than American when you visit the Middle East. A second passport may also be handy if your government gets too controlling of capital flows (strategist Russell Napier predicts capital controls in the West before the debt crisis is done, and we wouldn’t bet against him) – or perhaps of people.

The latter seems very unlikely in the UK, but in Russia, for example, it is increasingly hard to travel abroad. After the collapse of the Soviet Union, the new constitution gave Russians the right to leave and return freely. They left in droves (not all returned), filling holiday resorts and estate-agent offices across the world. By the early 2000s it seemed impossible that travel restrictions would ever return. They did. In 2010, Federal Security Services staff were banned from travelling. Then so were debtors (including anyone who owed taxes); then various other civil servants, down to firemen and police officers. Some 5% of Russia’s population is now thought to be unable to travel abroad. I imagine many of them reckon dual nationality would be nice.

Should you think the West is immune to this, note that the US government can withdraw the passport of anyone accused of a felony (Edward Snowden’s was cancelled before he could leave Russia), and that committing a felony in the US is pretty easy. In his book Three Felonies A Day: How The Feds Target The Innocent, Harvey Silverglate notes that US laws are so vague and so complex that it is all but impossible to get through a day without doing something illegal. Add it all up and having a second passport is a perfectly reasonable “political diversification” strategy – and one that could come with tax benefits and nice weather chucked in.

Passports for full EU freedom of movement

So how do you get a new passport, and which are best for which purposes? The easiest place to start, if you want to maintain full freedom of movement in the EU (ie, not just to lounge around in villas, but to work and enjoy the same welfare rights as a national) is Ireland. You are entitled to an Irish passport if you were born in Ireland or if one of your parents was an Irish citizen at the time of your birth. If that parent wasn’t born in Ireland, you will usually make your application via a grandparent (one in four British people has Irish ancestry).

If you qualify it is straightforward and inexpensive: download the form, get the photos done, dig out your birth certificate and the like, sign all the right boxes, send it off, wait up to three months (though it is often only a couple of weeks), and that’s that. I’ve picked out Ireland as it’s the most common option for British people looking for EU passports based on ancestry, but if you have a parent who was born in an EU country other than the UK, it should generally be possible to get a passport through them.

Otherwise, getting a non-UK EU passport in such short order is trickier – and more expensive. You will need to look at citizen-by-investment schemes. These allow pretty much anyone to gain citizenship of a range of countries by making an “exceptional economic contribution” – ie, paying for it. The place to start in the EU is Cyprus.

When Cyprus launched its “buy a passport” programme, it cost 28m. There weren’t many takers (the odd Russian oligarch aside). So the price has fallen: from 10m to 5m to 2m to the current 500,000. Buy a property, prove you have no criminal record and are in good financial standing, and it’s job done. Visa-free travel to 159 countries (including Canada, Hong Kong and Singapore); residency in the safest country in the world with a population under five million (according to Arton Capital); and the right to live, work, travel and study anywhere in the EU, regardless of what happens in the UK, for you and your children – all for under half a million quid. Simple, fairly fast, and cheap (relatively speaking).

Next in the EU, consider Malta. This will cost about 1m. To get your passport you need to make a 650,000 “donation” to the development of Malta, and buy 150,000 of government-approved stocks and bonds. You must also rent or buy a property (at a cost of 16,000 a year for five years or 350,000 up front). You might think that’s a bit steep. Others don’t. Malta has raised 1bn from the scheme since 2014.

It isn’t the cheapest or quickest passport to get: it takes a year, during which you need to be resident, and you’ll need to budget for 60,000-odd in legal fees, to say nothing of the charitable contributions to prove a “genuine link” to the island. But, according to Henley & Partners – who manage the Malta Individual Investor Programme – Malta is easy to integrate into (English is the first language for most people and the sun rarely stops shining); and the scheme has the “world’s strictest due diligence standards and vetting”.

So if you make it through (as surely all MoneyWeek readers would) you’ll be in a “highly respectable” group of passport holders. You’ll also be in a healthy group of passport holders: you must show you do not suffer from any health conditions that would make you a burden on the state.

The Maltese and Cypriot passport schemes don’t oblige you to have been resident in the run-up to application, just during its processing. But if you have more time (and less money), or you have lived in any EU country for five years, you can take the residency route. If you are an EU citizen (as we all still are) and have lived in any other EU country for five years, you can apply for permanent residency. This confirms you can live there indefinitely “with no conditions”. In some countries you can then apply for a passport (this is true of Ireland, and of France if you can speak French and have integrated into the community).

Passports for those who want to pay less tax

Cyprus and Malta are also good for tax residency. In Malta, the top rate of income tax is 35%, and there is no inheritance tax, gift tax or wealth tax. In Cyprus, income tax also tops at 35%, and again there is no estate tax. There is also the possibility of paying a special rate of 5% on pension income (including public-sector pension income). However, if it is paying as little tax as possible on your pension that matters, look at Portugal. Getting a passport there takes time. But you might enjoy the wait. Register with the government as a non-habitual tax resident and all income from foreign pensions is tax-free for ten years. Worth considering, now that the pensions freedom rules allow us to draw down our whole pension in a lump sum should we feel like it.

Finally, if you are very well off (and it’s all about tax for you) you might look at Monaco, which has no income tax. You don’t have to “invest” or donate anything to get residency, but you do have to prove you have enough money to support yourself, and to rent an apartment there (big enough for your family). That’s pricey: a three-bedroom flat in a fairly nasty-looking high rise can easily cost 20,000 a month. Turning residency into citizenship then takes ten years. It’s not on my list.

Political diversification

If it is just another passport you want – ie, you like the idea of political diversification and nice holidays, but aren’t bothered about Schengen or moving any time soon, look at the Caribbean. Grenada gives you visa-free access to the usuals (Schengen, UK, Singapore, Hong Kong), but also visa-free access to China and eligibility to apply for a non-immigrant visa to the US (there is an E-2 investor treaty with the US).

It is also cheap and fast – about three months – and you don’t even have to visit to pick up a passport. You must pay a $200,000 non-refundable contribution to Grenada’s National Transformation Fund, or spend $350,000 on property from a government real-estate project, which you then have to own for at least three years (everyone seems to advise going for the donation). There’s also a $50,000 fee for the main applicant and three dependants, plus $25,000 for any more dependants, plus due diligence fees ($5,000 for an adult, $2,000 for a child) and a few processing fees.

Otherwise look to Antigua and Barbuda. You have to show up for five days to get the passport, but it is slightly cheaper than Grenada: a contribution of up to $250,000 to the National Development Fund plus fees. Similar deals are available for St Kitts and Nevis ($250,000 to the Sugar Industry Diversification Foundation), Dominica ($100,000 all in) and St Lucia ($400,000). These are also low-tax environments – no income, capital gains, inheritance or gift taxes in St Kitts and Nevis – an advantage should you choose to live in your new country.

The healthiest climes for your retirement

If it isn’t a passport, but a warm, affordable retirement you want, where should you go? One of the top places, says International Living, is Panama. It has among “the best package of retirement benefits in the world”, with “discounts on everything from energy bills to entertainment”.

It has excellent health care, very low living costs, good accessibility (it’s a two-and-a-half-hour flight from Miami) and visas are easy to get as long as you can show you have a monthly pension income of $1,000 or more. Ecuador is high on its list too. It has a great climate (12 hours-plus of daylight all year round), good retirement benefits and cheap housing.

Closer to home, the BBC tips Spain. This is clearly preaching to the converted when it comes to the British, but it is worth remembering it is still affordable. Portugal and Malta I have mentioned above (Lisbon has to be one of the world’s most liveable cities), but it is worth adding that Malta’s health care system is excellent and that EU retirees can pay income tax at only 15%.

The adventurous might head east. Thailand offers a retirement visa to anyone with a monthly pension income of about $1,800, has lovely weather and a low cost of living. Malaysia is interesting too. English is widely spoken, health care is good (medical tourism is thriving there), retiree visas are easy to get and the cost of living is low. Finally, how about Barbados? The main language is English; the cost of living is low; there is a large expatriate community and, says The Daily Telegraph, its health care is among the best in the Caribbean.

The most powerful passports in the world

Every year, citizenship planning firm Henley & Partners compiles a list of the best passports in the world, based on how many countries holders can visit visa-free. Top of the list comes Germany. Anyone holding a German passport can visit 176 of the 208 countries in the world without doing any admin at all. The UK looks pretty good on 173, but our passports aren’t as powerful as they once were: in 2015, we topped the list alongside Germany. Now we have been leapfrogged by the Scandinavians and the US. Fingers crossed for a good deal on freedom of movement with the EU.

Rank Passport Countries to visit visa-free
1 Germany 176
2 Sweden 175
=3 Denmark, Finland, Italy, Spain, US 174
=8 Austria, Belgium, France, Luxembourg, Netherlands, Norway, Singapore, UK 173
=16 Ireland, Japan, New Zealand 172
=19 Canada, Greece, Portugal, Switzerland 171
=23 Australia, South Korea 170
25 Iceland 169

• Tax, residency and citizenship are complicated. I’ve outlined how various schemes work, but things change constantly and individual circumstances make huge differences. If you think you want a second passport talk, to an independent financial adviser, an accountant and a lawyer!

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