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The new UK tax year ticks over on 6th April 2018. What changes may affect expatriates? Is there anything you can do to make the most of existing rules and prepare for future changes? 

Allowances and exemptions

Time is running out to use up tax-free entitlements. The new tax year resets the thresholds for the next 12 months and, in some cases, changes the value of the allowance available – not always upwards. 

  • Personal allowance: The amount of UK income you can earn tax-free increases slightly from £11,500 to £11,850. Although previous governments have suggested removing this benefit for non-resident British nationals, most expatriates are still eligible for the full personal allowance on UK-source income. However, some expect this could change with Brexit.
     
  • Dividend allowance: The annual tax-free allowance falls from £5,000 to £2,000. While this may adversely affect those with large portfolios of shares, non-UK residents could still receive dividends tax-free in the UK through the ‘disregarded income’ regime. However, expatriates can access more suitable options for tax-efficient investments, so take time to explore other opportunities. More on investment management

  • Gift exemption: UK inheritance liability can be mitigated by gifting money or assets within your lifetime to reduce the value of your estate. The value you can gift tax-free each year remains frozen at £3,000, but you can carry forward any unused allowance from the previous year. So if you have not already gifted anything in 2016/17 and 2017/18, you could pass on £6,000 free of UK tax before 6th April, and another £3,000 afterwards. With good estate planning, expatriates can potentially establish more effective ways to ensure their legacy passes to chosen heirs tax efficiently.

  • Family home allowance: Increasing from £100,000 to £125,000 per person, this provides extra relief when passing on a main UK home to direct descendants. The good news for expatriates is that an overseas property can qualify, provided it is your main home (although local inheritance taxes may still apply). 

  • Capital gains tax exemption: This tracks inflation – as defined by the Consumer Price Index (CPI) – by increasing to £11,700 (£5,850 for most trusts). While you could sell assets to take advantage of the allowance, anti-avoidance rules apply if shares are sold and repurchased within 30 days.

    Non-UK residents have only recently been subject to capital gains taxes on the sale of UK residential property, facing 18% or 28% charges on growth accrued since April 2015. From next April, commercial UK property is expected to become liable, regardless of how it is owned. If this affects you, consider reviewing your options now to reduce future tax liabilities.

  • The lifetime allowance: This is the combined value of pension benefits you can hold before attracting higher taxation. The £1 million allowance for 2017/18 rises with inflation, allowing you to accrue an extra £30,000 in pension benefits without incurring 25% or 55% tax penalties.

    Even with this extra allowance, today’s high transfer values for ‘final salary’ pensions make it easier to trigger lifetime allowance penalties. In any case, take regulated advice to establish the best pension solution for your individual circumstances and goals. More on pension planning

 

Other changes taking affect 

  • Tax thresholds: Higher rate taxpayers will be £340 better off a year, as the upper threshold for 40% income tax rates increases from £45,000 to £46,350. Meanwhile, Scotland introduces a five-band structure, increasing the previous top rate and threshold to 41% and £43,430, and adding a 46% tax band over £150,000. 

  • The State Pension: Increasing 3% in line with inflation, this represents an extra £191 a year for those who started drawing benefits before 6 April 2015; £250 for others. British expatriates settled in the EU before April 2019 will continue to receive cost-of-living increases post-Brexit.

  • Council tax: If you retain unoccupied UK property, your rates could double, as local authorities gain the power to increase council tax premiums by 100% on properties vacant for two years or more. 

  • Buy-to-let tax relief: From 6th April, landlords can only deduct 50% of their mortgage interest repayments against rental income (compared to 75% in 2017/18). This relief is on course to gradually whittle down to zero by 2020/21.

With these latest changes joining a range of measures penalising owners of investment properties, it is worth reassessing whether holding UK property is the most tax and cost-efficient option for capital. Read 'Is your UK property worth its weight in tax?'

Overall, this new tax year brings relatively few changes, but it is a good idea to ensure you are making the most of all the available opportunities to minimise your tax liabilities, in the UK and your country of residence. Seek personalised advice from a professional who can guide you on taxes in both the UK and your country of residence and the interaction between the two regimes.

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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; an individual is advised to seek personalised advice.