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The arrival of the Labour Party to UK government on 5 Jul 2024 marks an important moment for the economy – and, by extension, British households (both at home and abroad).
A new legislative agenda could bring new rules and policies about taxation, spending and borrowing. Below, we discuss how the Labour government could affect British expats.
We hope these insights are useful. If you want to discuss your financial plan with a member of our team, please get in touch to arrange a no-obligation financial consultation at our expense:
+34 966 460 407
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Initial thoughts
In some respects, the arrival of the Labour government may not be too significant for many expats. For instance, Labour promised not to raise taxes for “working people” in its general election campaign, specifically mentioning income tax, VAT and National Insurance (NI). Naturally, if you do not pay these taxes in the UK, then this does not matter too much for you!
However, what if you are living abroad but are still regarded as resident in the UK for tax purposes? Here, the above tax pledges are more pertinent. Many will welcome the promise to not have taxes raised on their spending (VAT) and earnings (income tax and NI). However, remember that the government has also promised to maintain the “tax freeze” of the previous Conservative government until April 2028.
This amounts to a “stealth tax” for many people with UK tax residency status. As their earnings increase each year (e.g. due to public sector pay rises), more of their income will be caught in the tax “net” – possibly even pushing some into a higher income tax bracket.
What if you earn a UK income (e.g. you are employed by a UK-based company) but live overseas? Here, remember that the key issue is your tax residency status. For instance, if you are tax resident in an EU country but earn a UK income, your UK employment income would be taxed in the local country – not the UK.
What about “non-doms”?
Certain expats may have been rattled by the Labour government’s decision to abolish “non-dom” status by April 2025. This strengthened and brought forward a process that had started under the previous administration in March 2024, when then-Chancellor Jeremy Hunt announced that non-dom status would be phased out.
However, remember that non-dom laws largely concern UK residents with a “permanent home” outside the UK, who earn income and capital gains overseas. This change may affect certain people currently living abroad who were considering a move to the UK, whilst retaining assets overseas. It could also affect specific people living in the UK right now. Seek financial advice if you think you may be affected.
The Chancellor’s speech
On 8 August 2024, Rachel Reeves delivered her first speech to parliament as the new Chancellor. It has widely been regarded as setting the tone for the new government, involving “painful” decisions to rectify a £22bn black hole in the public finances. Reeves went on to announce an abolition of the universal Winter Fuel Payment, which is estimated to affect 10m pensioners who are not on benefits or receiving pension credit.
Until now, many expats over their State Pension age have still been able to receive the Winter Fuel Payment whilst living abroad (e.g. those living in the European Economic Area – EEA – with a “genuine link” to the UK). However, the decision to move the Winter Fuel Payment to a “means-tested” system means that, in effect, those living permanently outside the UK will be unable to access it (e.g. due to the inability to claim pension credit).
No tax changes were announced in the 8 August speech. However, in subsequent interviews, the Chancellor has confirmed that tax rises are on their way in the Autumn Statement (traditionally delivered in October or November). Given Labour’s promises to not raise income tax, VAT or NI, this leaves a handful of other key areas as potential targets. These include:
- Council tax
- Capital gains tax (CGT)
- Dividend tax
- Inheritance tax (IHT)
- Pensions
Right now, we can only speculate about how taxes might change in the coming months. One possibility is that the system for pension tax relief is altered. For instance, the Chancellor could equalise all tax relief at a flat rate (e.g. 20%) rather than equating it to the taxpayer’s highest marginal rate (e.g. 40% for Higher Rate taxpayers, but 20% for Basic Rate taxpayers). Another option could be to limit IHT protection within pensions or to alter the “tax-free cash” available for pensions (currently limited to £268,275) once an individual reaches Normal Minimum Pension Age (NMPA).
However, tax relief and these other key areas were not explicitly mentioned in the Labour manifesto during the general election campaign. Changing the system could, therefore, require a lot of political capital. Seek financial advice if you have any questions about how your wealth and finances may be affected.
Invitation
If you are interested in discussing your own financial plan or inheritance tax strategy with us, please get in touch to arrange a no-commitment financial consultation at our expense:
+34 966 460 407
info@scottsdale.eu