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On the 30th of October 2024, Chancellor Reeves stood before parliament and delivered her first budget. It includes a range of tax rises, borrowing and spending commitments.
Most of the media coverage has focused on how this Autumn Statement will affect household finances in the UK. Less has been said about its potential impact on expats.
As financial advisers serving British nationals abroad, we wanted to compile this short guide on how Chancellor Reeves’ policy changes could affect expat financial planning.
We hope this information is helpful, and please get in touch if you want to discuss your expat financial plan with us here at Scottsdale.
Key Changes to Note
Two announcements took up a lot of media attention in the immediate aftermath of the Autumn Statement:
- The Employer National Insurance (NI) rate would rise by 1.2% to 15%, to try and plug the £22bn “black hole” in the public finances.
- Capital gains tax (CGT) would rise on the disposal of assets such as company shares. For basic rate taxpayers, the rate would go up from 10% to 18%. It would rise to 24% for those on the higher rate. CGT rates on property would stay the same.
Other Key Reforms
The Autumn Statement contained some other important announcements that were not clear to pundits until a few days later.
In particular, pensions would lose their exemption from inheritance tax (IHT) in 2027. Previously, individuals could pass down their leftover pension “pots” to beneficiaries without the funds being counted as part of the estate. This benefit is set to be removed.
For expats, another key change is the new rule about overseas pension transfers. Before the budget, QROPS in the European Economic Area (EEA), Malta and Gibraltar could claim relief on the standard 25% charge for moving pension savings overseas.
This exclusion has also been removed.
The move appears to be designed to discourage British nationals from moving their savings and investments out of the country, where these are less within the scope of UK taxation.
Frustratingly for expats, this will make things more difficult for British expats seeking to mitigate double taxation issues, improve pension portability and improve local currency access.
Please speak with an expat financial adviser if you have any questions or concerns.
Thoughts on Taxes
One notable highlight from the Autumn Statement was Rachel Reeves’ announcement that the freeze on UK income tax bands would be lifted in 2028-29.
More importantly for expats, the planned abolition of the “non-domicile” regime was confirmed for 6 April 2025. At this point, the UK will move from a remittance-based tax system to a residential regime.
We will share more thoughts on this as information becomes available. So far, we know that the UK is set to follow a new “4-year foreign income and gains (FIG) regime”.
This will apply to individuals who qualify and opt to use this regime within their first four years of becoming a UK tax resident. After that, they must pay UK taxes on foreign income and gains (FIG) arising from non-resident trust structures.
Whilst Labour’s aims may be noble, it seems likely that abolishing the non-domicile regime will deter investment and high-net-worth (HNW) migration to the UK over the coming years. With the top 1% of earners paying 30% of the UK’s income tax revenues, this could have negative knock-on effects for the rest of the country.
For those considering private education in the UK, the Autumn Statement confirmed that 20% VAT will be charged on private school fees (including boarding services) from the 1st of January 2025. From April 2025, business rates relief will also be removed for private schools.
What about business owners?
If you own a UK business (or plan to move home and open one), please note the key changes from the Autumn Statement that may affect you:
- From April 2025, the National Living Wage for employees aged 21+ will rise by 6.7% to £12.21 per hour.
- At this time, the employer NIC rate will also increase from 13.8% to 15%.
- The Employment Allowance will increase from £5,000 to £10,500. Moreover, it will be more widely available once the £100,000 eligibility threshold is removed.
In more positive news for business owners, the UK’s corporation tax rate was left unchanged at 25% (although the “small profits rate” is 19%). Whilst this is the lowest rate in the G7, it places the UK at 30th out of 38 OECD countries, down three places from 2022.
What this all means for expats
The implications of the Autumn Statement for you naturally depend on your unique financial goals and situation.
If you were planning to retire to Spain, the abolition of the tax exemption for EEA QROPS transfers will likely complicate things. This is not insurmountable, but it does raise the need to seek financial advice to ensure you retire abroad in a prudent, tax-efficient manner.
If you hold UK-based investments in an ISA, then take comfort that the ISA rules were not changed by the Autumn Statement. Interest, capital gains and dividends earned within an ISA structure are still exempt from their respective UK taxes.
However, if you spend significant time overseas (or plan to do so), consider how your residency status could affect your tax position.
For instance, if you move to Spain and sell your UK ISA shares – generating capital gains in the process – then Spanish tax may be due if you spend more than 183 days in the country.
However, depending on your tax position, it may be more tax-efficient to dispose of your shares as a resident of Spain. The higher rate of CGT now stands at 24% in the UK; this may be considerably higher than the Spanish rate, which ranges from 19-26%.
Speak with a financial adviser for more information and discuss your goals and plan.
Sources
https://www.pwc.co.uk/budget.html#key-announcements