Chancellor Rachel Reeves will present her budget speech on 26 November. Speculation has been building over what it will contain. Some UK budgets have little impact on British expatriates, but recent reforms have had a long reach.
Even if you live in France permanently, if you maintain assets in the UK – including pension funds – you will have been affected by recent budgets in some way. And it’s likely this month’s budget will concern you too.
Before we look ahead, let’s look back…
The 2022 UK autumn budget lowered the additional rate income tax threshold and extended the freeze on income and inheritance tax thresholds to 2028. The inheritance tax ones have since been extended to 2030.
The capital gains tax annual exempt amount dropped from £12,300 in 2022 to £3,000 in 2024. The dividend allowance fell from £2,000 to £500 over the same period. The main rates of CGT increased to 18% and 24% last October.
In rare good news, the pension Lifetime Allowance and 25% tax charge was abolished in 2023 – but replaced a year later by three new allowances. The end result is we still have tax charges and it’s even more complicated than it was. These UK allowances impact expatriates in France as your tax residence is not relevant.
From 31 October 2024, transfers from UK pensions to EU overseas pension schemes (QROPS) suddenly become subject to the 25% Overseas Transfer Charge. There are limited exceptions, but they don’t apply to French residents.
A positive reform from April 2025 was the abolishment of the domicile regime. The new long-term residence rules provide UK inheritance tax benefits for long-term expatriates in France.
As announced last October, business property relief and agricultural property relief for inheritance tax will be restricted from April 2026. And – having much wider impact – pensions funds will be subject to inheritance tax from 2027.
What next?
The Labour Government’s initial budget introduced an unprecedented £40 billion in tax increases. While that may seem enough for a few years, the Chancellor has to balance her books and fill an estimated black hole of up to £30 billion in public finances.
In her unprecedented pre-budget speech, Ms Reeves paved the way for tax rises. In her press conference on 4 November, she explained that she will “do what is necessary” to prevent a return to austerity and to protect families from high inflation and interest rates.
Below is a summary of potential tax reforms that have been circulating in the media. While some policy issues may be under discussion, no official announcements on specific tax policies have been made. At this stage, these remain speculative and any eventual changes to tax policy, including timing, thresholds and scope, could differ significantly.
Income tax
Ms Reeves 4 November warning that “each of us must do our bit” has escalated speculation that she will break a manifesto promise and raise income tax, at least for higher earners. The Times has reported that the Chancellor is considering a two-pence rise in income tax but alongside a two-pence cut to National Insurance. This would protect workers while targeting landlords and pension income.
The government could also increase income tax revenue by extending the freeze on income tax thresholds beyond 2028. This approach, started by the previous government, has proved very effective at drawing more earners into higher income tax bands.
Wealth tax or ‘mansion tax’
There has much speculation about the introduction of a wealth tax, either on total assets or property – both of which we are very familiar with here in France. Prominent figures within the Labour Party have expressed support for implementing a tax on wealth.
That said, Ms Reeves is more likely to target real estate than total wealth. Her options include:
- Replacing stamp duty with an annual tax on high-value property, potentially homes over £500,000.
- Updating council tax bands (unchanged since 1991) so high-value properties or regions pay more tax and lower value ones pay less.
- Changing the capital gains tax exemption for primary residences so homes over a certain amount are subject to tax.
Inheritance tax
There has been talk about further reforms to inheritance tax, particularly to gifts.
The Chancellor could opt to reduce or remove the gift reliefs. She could change the Potentially Exempt Transfer (PET) rules by revising the taper relief rate bands and extending the seven years to ten. Another option is a lifetime cap on the value of gifts you can make before you die.
British expatriates living permanently in France are subject to French succession tax on worldwide assets rather than UK inheritance tax – but assets in the UK are always subject to IHT.
There have also been rumours about capital gains tax being applied when assets transfer on death, in addition to inheritance tax.
Pensions
Significant media speculation has focussed on whether the Chancellor is considering targeting the 25% tax-free Pension Commencement Lump Sum. She could reduce the £268,275 limit, perhaps to £40,000, or lower the 25% tax free entitlement itself. There were similar rumours before last year’s budget, but the PCLS was untouched.
On 11 November, the Telegraph reported that Treasury officials had ruled out any cuts to the amount of lump sum that can be taken tax free. This follows reports of many retirees rushing to take early lump sums to avoid being hit by higher taxes.
Remember, if you do take the PCLS the decision is irreversible. Pension decisions should be aligned to your long-term retirement objectives, rather than on media speculation.
Investments
Capital gains – There is no indication the government is reviewing capital gains tax, but it is a safer target than income tax. CGT rates could increase again, or the allowance cut from its current £3,000.
Dividends – The dividend allowance could be abolished and/or the tax rates increased.
ISAs – The government is keen to encourage equity investment, and may therefore reduce the cash ISA limit while maintaining the equity contribution at £20,000.
Rental income
Landlords have been hit by many tax measures over recent years, but there may be more to come.
Many speculators suggest that the taxation of rental income may be brought in line with taxation on employment income. It could become subject to National Insurance Contributions, and/or tax on rental income aligned with income tax bands.
Tax planning for expatriates in France
Remember, none of these potential reforms are confirmed, much of it just potential scenarios discussed by the media. Looking back at previous budgets, some speculation turns out to be correct or close, but other rumours don’t come to pass. We only have a few weeks to go before all will be revealed.
UK nationals in France also need to watch the French 2026 budget, as that could also introduce local tax reforms.
Budgets are a good reminder of the importance of regularly reviewing your tax planning. Ensure your wealth management is up to date and designed to protect you from high taxes where possible and to make the most of tax mitigation opportunities. British expatriates who retain UK assets may wish to review whether moving them out of Britain would prove more beneficial.
Contact Blevins Franks today for personalised advice.
