How does the UK Spring budget affect expats?
The UK Chancellor last week made several interesting anoucements, two of which are particularly relevant to those of us Brits who live overseas. In this article I will cover the areas of the UK budget that are likely to impact expats the most..
1. Non-dom remittance basis replaced
The spouse of our current prime minister, claiming non-dom tax treatment as she has been, has brought this area of the law into the conciousness of a larger proportion of the country.
For most people who are tax-resident in the UK, UK Income Tax has always been payable on their worldwide income. Those who are not UK domiciled (see our website article on Domicile for a definition) have been able, by virtue of the soon to be revoked ‘Remittance Basis’ of taxation, to live in the UK whilst paying UK tax only on any part of their overseas-sourced income which is remitted into the UK.
This Remittance Basis would not have ever been available to the majority of British expats, as on their return to the UK (the UK having been their domicile of origin) they would immediately be UK domiciled again even if returning from a significant period overseas.
The new system is doing away with the relevance of domicile, instead simply requiring you to be non-UK resident for 10 years to enable you to pay tax only on UK sourced income on your first 4 years as a returning UK tax resident. This could be fantastic news for anyone who has been out of the UK for 10 years or more (or will have been by the time they move to the UK).
One particular area of interest in this regard is pensions. Those with QROPS pensions (or indeed any other non-UK pension) could, assuming that are age 55 or over on their move to the UK, receive 4 years of pension income as UK tax resident without it being liable to UK tax. This is a massive advantage to have over those with, for example, UK SIPPs of other UK pensions. We will keep our eyes on further announcements, as it would not amaze us to see HMRC ‘clarify’ that QROPS income will be classed as UK sourced for these purposes, as they may think that the QROPS advantage for those returning to the UK, in comparison to how a UK SIPP would be taxed, is just too great.
Another benefit of this change could relate to those of you who are Singapore PR. As detiled in our article on CPF and UK Tax (see our website), the payout of CPF to those who have already moved to the UK is likely to result in significant UK tax liability. This new rule could prevent long-term expats being liable to tax in this way on their CPF payout.
Similarly, income generating investments overseas could provide you with completely tax-free income for 4 years, as could any residual overseas employment or business income.
For long-term British expats, this change appears tailored to provide you with an array of new tax-saving opportunities. Please contact us to discuss how to most effectively make use of this.
2. IHT and domicile vs residence
Inheritance tax (IHT) is currently a domicile-based system. On death, those who are UK domiciled are liable to UK Inheritance Tax on their worldwide assets whereas those who are not UK domiciled are liable to UK Inheritance Tax on their UK-situated assets (generally this means properties, bank accounts and shares).
The government intends to move Inheritance Tax to a residence-based system. Though the detail is yet to be provided, it is envisaged that IHT will be charged on worldwide assets for those who have been UK resident for the 10 years running up to time of death, but only on UK situated assets for everyone else.
To prevent this law having the strange effect of making living out your last years outside of the UK a sensible move as regards efficient estate planning, they intend to include a provision to keep those who leave the UK within 10 years of death within the scope of worldwide asset-based taxaton.
This change is thus good news for those who may retire outside of the UK, as it provides far more clarity than currently exists when seeking to avoid Inheritance Tax on their non-UK assets. No longer does the long-term British expat moving from Australia to Thailand (for example) need to worry that on their departure from Australia they will once again be considered UK domiciled. This is also great news for Brits who are somewhat nomadic in nature, as there will no longer be any need for your Executors to show that you had many any single country your new permanent home or domicile.
The change is clearly bad news for UK residents who consider themselves non-domiciled therein, as they are suddenly staring at their family losing 40% of their worldwide assets on death. That said, the increased clarity will also enable them to plan with more certainty.
It should be highlighted that numbers 1 and 2 above are scheduled to be brought into effect in 2025. Keen observers of the UK political landscape will no doubt realise that the Conservatives currently making these proposals are unlikely to be in power at that time, but I would be suprised if the removal of the imprecisely defined ‘Domicile’ did not meet with cross-party support. Additionally, this will prevent ‘non-doms’ who have lived in the UK for a significant period from escaping tax on their UK income, which has traditionally been more contentious amongst Labour voters.
The domicile-based taxation systems make who your father was (and whether your parents were married at the time of your birth) oddly relevant to how you are taxed, and in our view a move to base tax liability on where you live, and for how long, is far more logical.
3. Higher rate of CGT on properties cut from 28% to 24%
A couple of changes to Capital Gains tax could also be meaningful for expats:
a) From 6 April 2024, the higher rate of CGT for residential property disposals will be cut from 28% to 24% while the lower rate (for any gains that fall within an individual’s basic rate band) will remain at 18%
b) The CGT annual exempt amount for individuals and personal representatives will be cut to £3,000 for 2024/25
The net effect of those two should undoubtedly be net-beneficial for most expats selling UK property. If the gain on your property plus any UK-sourced income in the year of sale comes to meaningfully more than £50k then the change will benefit you, otherwise it will not.
Other aspects of the budget, covering things such as changes to the National Insurance system are covered here – https://www.bbc.co.uk/news/business-6848010
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