The UK autumn budget, the Chancellor’s second budget of the year, was notably lacking any significant changes to Qualifying Recognised Overseas Pension Scheme (QROPS), pension tax relief, capital gains tax and inheritance tax. Instead, the plans focus heavily on post-Covid economic recovery for the UK.
This comes as little surprise after the UK government had already announced a freeze on the pensions ‘triple lock’ and a rise in National Insurance contributions (NIC) only a month before the October budget was released.
In this article, we look at the UK tax rates for income, capital gains, pensions and inheritance. This is a good prompt for you to consider if your money is structured tax efficiently.
Income tax and National Insurance contributions
Chancellor Rishi Sunak did not announce any changes to the personal allowances or applicable tax rates, which will remain frozen up to, and including, the 2025/26 tax year.
This means that the personal allowance will stay at £12,570, and the higher rate threshold will remain at £50,270.
As highlighted in our previous article, The cost of Covid – Careful tax planning has never been more important, in September 2021 the UK government announced a rise in NIC and dividend tax by 1.25% to be introduced from 6th April 2022. This is to help tackle the record-high NHS waiting lists and the increased expense of social care due to the pandemic.
Once these increases take place, basic rate taxpayers will pay 8.75% on dividend income above the £2,000 allowance, with individuals who fall into the higher and additional tax rates paying 33.75% and 39.35% respectively.
The 1.25% rise in National Insurance contributions, which applies to both employees and employers, means that an individual on a £30k annual salary will pay an extra £255 per year, while someone earning £100k per year would pay £1,130 more.
As of the 2023/24 tax year, the additional NIC will stand apart on wage slips to become a ‘Health and Social Care Levy’ and will be payable by anybody still in work – even those over the UK state pension age.
Savings and investments
The Autumn Budget did not include any changes to taxation of savings and investments. The tax-free allowance for income earned on UK savings remains at £5,000, with the annual ISA subscription limit still at £20,000 (£9,000 per child for Junior ISAs).
Note that UK tax-free investments, such as ISAs, generally become taxable when you become resident in another country. It is advisable to take cross-border advice before your tax residency changes to ensure you are aware of all options available and can structure your assets and investments in the most tax-efficient ways possible.
If you are already living abroad, a locally based financial adviser can still help you take advantage of compliant opportunities to improve the tax efficiency of your assets.
Capital gains tax (CGT)
The anticipated alignment of capital gains tax rates with income tax rates did not materialise and changes to CGT allowances were not included in the budget.
Capital gains from the sale of non-real estate assets will remain set at 10% for basic rate taxpayers, and 20% for higher and additional rate taxpayers.
The basic rate for earnings from the sale of property is still 18%, while the higher and additional rate is set at 28%.
A positive change to come from the October 2021 budget is an immediate extension to the 30-day allotted period in which individuals must calculate, report, and pay capital gains tax derived from residential property transactions.
This window has now doubled to 60 days to help prevent unsuspecting homebuyers being fined. The previous 30-day deadline was responsible for earning the government £935 million for the 2020/21 tax year.
The Office of Tax Simplification (OTS) had warned back in May 2021 that many taxpayers learn of their tax obligations too late to avoid a fine.
Due to the complexities of these types of transactions, the new 60-day period is sure to be welcomed – anyone buying and selling property now has a little extra breathing room.
Annual allowance: The annual allowance for pensions remains set at £40,000, as it has been since the 2016/17 tax year. Similarly, ‘threshold income’ remains at £200,000 and ‘adjusted income’ at £240,000 for 2022/23.
Lifetime allowance (LTA): The LTA for pensions remains at £1,073,100 for the 2022/23 tax year. As originally announced in the Spring Budget, this allowance no longer tracks inflation and is frozen until 2025/26.
QROPS/Overseas transfer charges: The budget did not include any changes to Qualifying Recognised Overseas Pension Schemes (QROPS). Since then the government has focused on preventing pension scams, and this approach may affect transfers to QROPS from December onwards.
Inheritance tax (IHT)Aside from the residential nil-rate band (RNRB) introduced in 2017 to provide extra tax relief against the value of the family home, the tax-free allowance ‘nil-rate band’ of £325,000 has remained unchanged since 2009. As announced in the Spring Budget, this freeze will continue for five more years, until 2025/26.
Will the autumn 2021 budget impact you?
While there was some concern that the Chancellor could announce more tax rises, the UK October budget focussed on economic recovery after the strain caused by the Covid pandemic. Hopefully 2022 will not introduce more UK tax rises, after those announced in September, but the lack of tax reforms in this budget could be seen as a window of opportunity for you to structure your assets and wealth in the most tax-efficient way possible.
If you are already living abroad, most of your income is subject to local taxation in your country of residence, rather than UK tax. However, if you still have assets and receive income in the UK, including your pensions, you do need to pay attention to any UK tax reforms and understand how they affect you.
Contact Blevins Franks for personalised, integrated tax planning advice. Our cross-border specialists have an expert level understanding of the tax regimes in UK, Spain, France, Portugal, Cyprus, Malta and Monaco, and can recommend tax-efficient solution to help you to mitigate any negative impact from unexpected changes that may arise.