How might the new UK tax year affect British expatriates regarding personal tax, savings, pensions, inheritance tax and UK property?
The 2019/20 UK tax year ticked over on 6 April 2019, resetting thresholds and allowances for the next 12 months. We explore changes that may affect expatriates and what you can do to make the most of existing rules.
The amount of UK income you can earn tax-free increases by £650 to £12,500. The threshold for the higher income tax rate of 40% rises from £46,350 to £50,000 (different rates and bands apply in Scotland). This represents an annual saving of £130 for basic rate taxpayers and £830 for those with income up to £125,000.
Although previous governments have suggested removing personal allowance benefits for non-resident British nationals, expatriates still qualify today. However, this could potentially change with a new UK government.
Remember: UK source income may need to be declared in your country of residence, even if it is not liable to taxation in either country.
More about effective tax planning for expatriates
Savings and investments
With no relevant changes here, the band of UK savings income that can be earned tax-free remains at £5,000 and the annual ISA subscription limit stays at £20,000. The dividend allowance stays at the reduced level of £2,000.
Note that investments like ISAs lose their tax-efficient benefits once you are no longer UK resident. Not only are non-residents ineligible to open and save into ISAs, any interest earned may become liable to taxation in your country of residence.
Take time to explore alternative tax-efficient arrangements that may better suit your particular set of circumstances, goals and risk appetite.
See more about your investment options
The pensions annual allowance remains at £40,000. Meanwhile, the State Pension increases 2.6% in line with inflation (as defined by the Consumer Price Index), representing an extra £169 a year for those who started drawing benefits before 6 April 2015; £221 for others. Despite ongoing Brexit uncertainty, expatriates who are already settled in the EU should continue receiving these cost-of-living increases in future.
The lifetime allowance (LTA) also increases with inflation from £1.03 million to £1.055 million. This allows you to accrue an extra £25,000 in combined pension benefits before the 25% or 55% LTA tax penalties apply.
Even with this extra allowance, beware that today’s high transfer values for ‘final salary’ pensions make it easier to trigger lifetime allowance penalties.
Transfers to EU/EEA-based Qualifying Recognised Overseas Pension Schemes (QROPS) remain tax-free for EU residents. However, following Brexit, it is possible the UK may widen its 25% overseas transfer charge to include the EU/EEA.
See more about the pros and cons of QROPS transfers
In any case, take regulated advice to establish the best pension solution for your individual circumstances and goals – before the rules potentially change.
An inheritance tax review is underway, but for now the threshold remains frozen at £325,000 per person (as it has been since 2009). With the lifetime gift allowance also unchanged, you can still pass on up to £3,000 tax-free (without the requirement to live for another seven years).
The residential nil rate band increases as planned from £125,000 to £150,000 per person. This provides extra tax relief when passing on a main UK home to direct descendants, but starts to taper once joint assets exceed £2 million.
The good news for expatriates is that overseas property can qualify, provided it is your main home (although local inheritance taxes may still apply).
See five things you may not realise about UK inheritance tax
Capital gains tax
The capital gains tax exemption continues tracking inflation, increasing from £11,700 to £12,000 (£6,000 for most trusts).
From 6 April, the sale of commercial UK property owned by non-UK residents becomes subject to non-resident capital gains tax (NRCGT), whether it is owned by individuals or through a trust or company structure. This comes four years after UK residential property became liable, now bringing most UK property and land owned by non-residents into firing range for capital gains tax.
Buy-to-let tax relief continues to taper. Now landlords can only deduct 25% of their mortgage interest repayments against rental income (compared to 75% in 2017/18 and 50% last year). Next year this relief is set to be replaced by a 20% mortgage interest tax credit.
See more about taxes on buy-to-let UK property
In May, the government is due to finish a consultation on an additional 1% stamp duty for non-residents buying residential property in England and Northern Ireland, so there is a chance this will come into force in the near future.
This joins a range of measures targeting UK investment property that potentially make it a less tax- and cost-efficient option for capital. If this affects you, consider restructuring your wealth to reduce your tax liabilities.
Read ‘Is your UK property worth its weight in tax?‘
While this new tax year brings relatively few changes, it is sensible to review whether you are making the most of all the available tax-efficient opportunities, in the UK and your country of residence. Take personalised advice from a cross-border specialist with understanding of both the UK and your local tax regimes for the best results.
Contact us for a tax and financial planning review
Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; individuals should seek personalised advice.